The Royal Malaysian Customs Department (RMCD) issued some minimal directions for traditional services on the compliant issue of the 2% increase of Service Tax starting from 1 March 2024. On the 14th of February, it issued two separate regulatory directions, one for non-residents providing digital services and the other for the non-residents providing digital services.
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It envisions three possible tax scenarios and how to handle the increase.
- In the case of services where all the accompanying facilities of the services are provided before 1 March, the 6% rate is applicable.
- If the services started to deliver their supplies before 1 March and is completed by 31 August, they may still be charged the 6% rate in particular circumstances. The period of the tax credit is from 1 March if the invoice is already issued and paid before 1 March. Yet, if the invoice remains unsettled before the 1st of March, then a new invoice should be provided to cover the increase of 2%. Digital services typically come under subscription and therefore should be considered within the tax increase period but no specific mechanism is mentioned on how providers can record and monitor the same.
- If the services are supplied after 1st of March and they don’t qualify for Scenario 2, then the new 8% rate will apply.
The RMCD will release guidance for non-resident businesses offering digital services to Malaysian consumers towards the end of the year.
Furthermore, in addition to the increase, two new services are now included under the Services Tax:
- Financial brokerage and underwriting; and
- Karaoke services.
Key services to stay at 6% following the increase
The 6% rate will continue to apply to the following services:
- Logistics, warehousing, courier, transport, and supply chain services (replacing courier and warehousing services);
- Food and beverages;
- Telecom services; and
- Parking.
Malaysia’s 2024 Budget, Oct 2023
The 13th of October 2023 is the day that Parliament presents the budget that includes the proposed rise in the Service Tax, from 6% to 8%. While this will not include all the necessary items, which will remain at a 6% rate of tax. Moreover, a new Luxury Tax will be imposed. Another suggested change is that logistics services will now become part of the Service Tax regime. They are supposed to be in force on March 1st, 2024.
Service Tax is an impost applied to the turnover (revenue) of services, including digital services. Together with the Sales Tax of 5% or 10% on the turnover for goods.
Sales and Service Taxes (SST) were reintroduced again after the Goods and Services Tax (GST) took place in Malaysia from April 2015 to July 2018. The government of Malaysia is said to be considering the re-implementation of GST.
The food, beverages, telecommunications and parking will continue to be charged 6% Service Tax.
The net of Service Tax will be extended to cover logistics services (6%), brokerage and underwriting services, and karaoke services.
A new Luxury Tax will be imposed on the sale of jewelry and watches.
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