Malaysia's service tax reform: service tax increased to 8%

Malaysia is currently undergoing a substantial transformation in its service tax regime. Effective 1 March 2024, the Royal Malaysian Customs Department (RMCD) has implemented significant changes to its service tax regulations, including a 2% increase in the service tax rate and an expansion of the scope of taxable services. This reform has raised concerns among consumers and businesses, and it is expected to have a direct impact on the economic condition, as greater taxes would probably lead to higher costs for the majority of products and services. In this article, we will outline the key changes brought about by the recent service tax amendments.

The recent service tax changes in Malaysia involve two primary aspects: expanding the scope of service tax to cover a broader range of taxable services and increasing the tax rate from the previous 6% to a new rate of 8%.

According to the latest guidelines, the scope of services subject to service tax has been expanded to include karaoke centre services (Group C), maintenance or repair services (Group G), brokerage and underwriting services (Group I), and logistics services (Group J), with effect from 26 February 2024. Especially for companies in the logistics industry, it is crucial to possess a comprehensive understanding of the recently introduced service tax category (Group J) to ensure adherence to the regulations. This newly introduced service tax category (Group J) will cover a new range of taxable services, which include logistics management, port and airport management, warehousing or warehouse management, freight forwarding, shipping, aviation and cold chain facility services, etc.

Another significant change that takes effect on 1 March 2024, is the increase in the service tax rate. In accordance with the recent service tax policy, the rate has been raised from 6% to 8% for all taxable services, with the exception of the following services:

  1. Food and beverage services;
  2. Telecommunications services;
  3. Parking space services; and
  4. Logistics services.

To summarize, the tax rate for the above-mentioned services will remain at 6%, whereas other services will be increased to 8%. Furthermore, the service tax rate for credit and charge cards will remain at RM25/year. 

According to the service tax regulations, a person who provides taxable services exceeding a specified threshold is required to be registered as a taxable person and charge service tax on the applicable services. With the introduction of new taxable services, the RMCD has issued a guide for the determination of the effective date for imposing service tax on new taxable. 

The guideline indicates that, for service providers who are a registered person, the effective date of imposing service tax on the new taxable service is from 1 March 2024. Conversely, for service providers who are presently not a registered person, the imposition of service tax on the new taxable service will take effect from 1 April 2024.

More importantly, the RMCD has issued a series of guides on the changes to the service tax law, including specific guidelines on the transition period as well as detailed descriptions of each service tax category. As such, it is crucial for you to stay informed about all applicable service tax rules and regulations. Subscribe to TaxPOD now to access decades of tax-saving knowledge at your convenience, anytime and anywhere. Visit now!      

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