Proposed Increase in Service Tax Rate and Expansion of Taxable Services

The Royal Malaysian Customs Department (“RMCD”), in a recently held Sales Tax and Service Tax (SST) Webinar on latest update on Malaysia Budget 2024, shared the following in relation to Service Tax:

• Proposed increase in Service Tax rate from 6% to 8%
• Proposed expansion of the scope of Service Tax

Set out below are some of the salient points which we would like to share. Please note that these remains to be drafts/ proposals which may be subject to changes. 

Proposed increase in Service Tax rate 

1. Effective date for the new tax rate (8%) is 1 March 2024

2. The following taxable services remain at 6%:

- Group B: Food and beverages

- Group I: Telecommunication services

- Group I: Parking

- Group J: Logistics (new taxable services)

3. Group H: Credit card and charge card remains at RM25 per card per year

4. All the other prescribed taxable services not mentioned above will be subject to 8% (e.g. accommodation, clubs, professionals – legal, accounting, engineering, IT, digital services, etc.)

Transitional rules for the proposed increase in Service Tax rate

1. Service Tax at 6% is applicable on taxable services provided before 1 March 2024; Service Tax at 8% is applicable on taxable services provided post 1 March 2024

2. Taxable services spanning 1 March 2024:

- Service Tax at 6% for the portion of taxable services provided before 1 March 2024

- Service Tax at 8% for the portion of taxable services provided post 1 March 2024 

3. Payment received/ invoice issued before 1 March 2024 for taxable services to be provided post 1 March 2024: 

- Service Tax remains at 6% for the taxable services provided within 6 months from 1 March 2024 i.e. taxable services provided up to 31 August 2024 will be at 6% 

- Service Tax at 8% for the taxable services provided after 6 months from 1 March 2024 i.e. taxable services provided on or after 1 September 2024 will be at 8%

4. Special rules (to be updated) will apply to taxable persons providing taxable services at different Service Tax rates.  For example, a taxable person under Group A: Accommodation who provides food and beverages, parking at 6% as well as rooms, spa at 8%

Proposed expansion of the scope of Service Tax

The new taxable services are as follows:

1. Group C: “Karaoke centre” 

2. Group I: Brokerage and underwriting services in relation to:-

- ships or airplanes 

- commodities 

- real estates 

- any other brokerage or underwriting services

3. Group J: Logistics

Registration threshold: RM500,000 

“Logistics services involve a supply chain management process by planning, implementing and controlling the movement and storage of goods, services and related information efficiently and effectively from the original location to other location to meet the customer needs”

Services include logistics management, warehousing or warehousing management, freight forwarding, customs agent, courier, transportation, delivery, shipping, cold chain services, delivery by E-platform provider.  It excludes:

- delivery of food and beverages

- transshipment services

- delivery of goods outside Malaysia

Business-to-business (B2B) exemption will be given to logistics service providers. Examples were shared by RMCD on Service Tax imposed on imported goods, manufactured goods and delivery services provided by e-platforms. 

As the presentation shared by RMCD is still a proposal, there are still quite a number of areas that need to be clarified. We would advise affected businesses to continuously monitor the developments and assess the impact to their business operations, particularly when the proposed effective date is fast approaching. Where required, consultation should be undertaken with RMCD to ensure a seamless transition.

Evelyn Lee
Partner - Penang Tax
evewflee@kpmg.com.my
+603 7721 2399

Crystal Chuah Yoke Chin
Associate Director - Ipoh Tax
ycchuah@kpmg.com.my
+603 7721 2714

Regina Lau
Partner - Kuching & Miri Tax
reglau@kpmg.com.my
+603 7721 2188

Titus Tseu
Executive Director - Kota Kinabalu Tax
titustseu@kpmg.com.my
+603 7721 2822

Ng Fie Lih
Partner - Johor Tax
flng@kpmg.com.my
+603 7721 2514