Effective 1 March 2024, Malaysia’s service tax rate increased on most taxable services and the scope of the tax was expanded (for prior coverage, see the article in the October 2023 issue of Indirect Tax News).
Service tax rate
The service tax rate increased by 2% to 8% on most taxable services, including imported taxable services and digital services provided by foreign registered persons. The rate on credit cards and charge cards, however, remains MYR 25 a year for each card issued and the rate hike will not apply to the following services:
- Food and beverages;
- Telecommunications services;
- Parking services; and
- Logistic services.
To facilitate the transition to the new tax rate, the following rules apply:
* The time service tax is due and payable in respect of betting and gaming is prescribed in Regulation 6 of the Service Tax Regulations 2018 (e.g., in respect of a lottery, the time the numbers are drawn).
For a taxable period that involves both tax rates (i.e., 6% and 8%) due to the transition, the Customs Department has confirmed that the service tax return will be updated to allow both rates to be declared.
For taxable services spanning 1 March 2024 where part of the payment was received before 1 March 2024, there will be an additional 2% service tax on payments received on or after 1 March 2024. The service tax registrant is required to issue a debit note to the customer for this additional service tax and account for it in the service tax return for the taxable period in which the debit note is issued.
Expanded scope of the service tax
As announced by the Prime Minister in the 2024 Budget speech and set out in the amendments to the Service Tax Regulations 2018, the scope of taxable persons and taxable services is expanded to include karaoke, maintenance and repair services, and brokerage and underwriting services and logistics services subject to some certain exceptions.
J: Logistics Services: Please refer to the table below
Logistics services exemption
The service tax business-to-business (B2B) exemption has been updated to exempt persons providing taxable services in Group J if the following conditions are fulfilled:
- The taxable person is a registered person;
- The taxable service is provided by a registered person who is a taxable person in group J;
- The taxable service is the same taxable service provided by the taxable person; and
- The taxable service is not for personal consumption by the taxable person.
On 11 March 2024, the Ministry of Finance announced the expansion of the scope of service tax exemption for the logistics service sector to reduce the impact of a cascading tax effect. The following logistics services are now exempt:
- Logistics services for directly exported goods;
- Transhipment activity logistics services;
- Transit activity logistics services;
- Door-to-door logistics services; and
- Food and beverage delivery services through e-commerce.
In addition, the scope of the B2B exemption is expanded whereby logistics service providers are not required to pay service tax on the acquisition of the same logistic services components in Group J. Finally, newly registered logistics service providers are given an additional month to update their computing systems so that the 6% service tax will be imposed as from 1 April 2024.
David Lai
BDO in Malaysia