What Is Government Service Tax in Malaysia?

An Overview of Service Tax under the SST Framework in Malaysia

In Malaysia, the Service Tax is an element of the Sales and Service Tax (SST) regime. The SST consists of two different taxes: the Sales Tax, which is levied on manufactured goods, and the Service Tax on certain prescribed services. This is collected by the Royal Malaysian Customs Department (RMCD) and is a significant source of government revenue.

Scope of Taxable Services

It is important to understand that the Service Tax applies to some services in Malaysia that are offered by different enterprises. This was to become effective March 1, 2024, and new services listed to be subject to this service tax included the following;

• Accommodation Services: Hotels, inns, and similar establishments.
• Food and Beverage Services: Restaurants, cafes, and catering services.
• Professional Services: Lawyers, accountants, engineers, architects, and consultancy companies.
• Insurance Services: Excluding life and medical insurance provided to individuals earmarked for personal use, it can be said that insurance, in its variety, is indispensable to today's society.
• Telecommunication Services: Internet and phone services.
• Parking Services: Provision of parking spaces.
• Logistics Services: Rail services and narrow gauge, including freight forwarding and courier services.
• Entertainment Services: Clubs, karaoke, and similar establishments.

However, it is important to note that despite the broadening calls for the standard rate, items such as food and beverages, telecommunication services, car parking, and logistics services that relate to exportation, importation, and transit are either zero-rated or attract a much reduced rate.
 

Example Tax Implications of Maintenance & Cleaning Services:

Service Tax Rates

In the service tax regime, the standard rate of Service Tax was raised from 6% to 8% with effect from 1st March, 2024, for most of the services. However, to cut down on the repercussions that we have on the consumers, some essential services are chargeable under the previous threshold of 6%.

• Food and Beverage Services: Excluding alcoholic beverages.
• Telecommunication Services: Including internet and phone services.
• Parking Services: Provision of parking spaces.
• Logistics Services: There are, however, certain circumstances under which they are allowed, depending on the activity, including exportation, importation, and transit.

For credit and charge cards, proposed flat rates of RM25 for every service per annum are still in force.

Registration Thresholds for Service Tax

All companies offering services and goods have to register for the Service Tax if the Turnover exceeds certain limits, which are as follows:

• RM500,000: For most of the service companies, restaurants, hotels, consultancies, clubs, bars, and other forms of entertainment establishments.
• RM1,500,000: For food and beverage franchises, bars, restaurants, and café owners.

Foreign digital service suppliers are also required to register if they generate an annual turnover of more than RM500,000 from consumers in Malaysia.

Exemptions and Special Considerations

In a bid to avert such chain effects and the consequent burden on its consumers, the government has instituted the following exemptions:

• Logistics Services: Exemption from Service Tax shall apply on services related to exports, imports, transshipment, or transit of goods.
• Electricity Services: Service Tax is only charged on electricity consumption more than 600 kilowatt hours, leaving 85% of domestic users out of it.
• Free Trade Zones: Accommodation, cleaning, and catering services which are offered within FTZs are exempt to ensure the zone is competitive enough.

Impact on Government Revenue

The expansion of the scope of the Service Tax and the rise of the tax amount are the outcomes of the governmental efforts to enhance fiscal measures. These efforts are expected to increase the implementation of taxation to generate another RM5 billion annually, bringing the SST total of RM51.7 billion in 2025.

Compliance and Enforcement

Any business in Holding providing taxable services for consideration shall be subject to the payment of Service Tax. This involves proper registration, correct assessment of taxes, and frequent filing of tax returns. Failure to maintain the policies draws a lot of penalties and can lead to legal issues being taken against the students. As an accounting firm, we at HL Khoo Group help businesses stay compliant by managing SST registration, accurate records, and offering expert tax guidance.

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