The Royal Malaysian Customs Department (RMCD) has uploaded Draft Guide on Transitional Change of Service Tax Rate dated 7 February 2024.
This Draft Guide on Transitional Change of Service Tax Rate is available only in Bahasa Malaysia version.
For your convenience, CCS has translated the Malaysian version of the draft guidelines into English.
INTRODUCTION
Service Tax is a consumption tax administered under the Service Tax Act 2018 and its subsidiary legislation. The effective date of the Service Tax Act 2018 is 1 September 2018.
Service tax is levied on services designated as 'taxable services'.
A person providing taxable services exceeding the prescribed value (threshold value) shall register under the Service Tax Act 2018 (STA 2018) and be known as a 'registered person' who is required to levy service tax on taxable services provided to their customers.
Service tax shall be levied and collected at the rate determined by the Minister of Finance in accordance with section 10(2) of the STA 2018.
This guideline is provided to enhance understanding of service tax during the transitional period of service tax rate changes.
This guideline does not cover digital services provided by registered foreign service providers. For more information, please refer to the Guidelines Transitional Rules For The Change in Service Tax Rate to 8% on Digital Service Provided by Foreign Registered Person. TAX RATE CHANGES
In accordance with subsection 10(2) of the STA 2018, the Minister of Finance has increased the service tax rate from 6% to 8% starting from 1 March 2024 for all existing taxable services except: a) food and beverage services; b) telecommunication services; and c) parking space rental services.
8. The service tax rate for taxable services in paragraphs 7(a) to 7(c) remains at 6%. The service tax rate for credit and charge cards remains at RM25/year.
9. In accordance with section 8 of the STA 2018, the Minister of Finance has expanded the scope of new taxable services effective from 1 March 2024.
The new taxable services and tax rates are as follows:
karaoke center services under Group C at a rate of 8%;
maintenance and/or repair services under Group G (Detail 13) at a rate of 8%;
brokering and guaranteeing services for non-financial services under Group I (Detail 12) at a rate of 8%; and
logistics services under Group J (New Group) at a rate of 6%.
GENERAL CONCEPT OF TAX RATE CHANGES
Taxable Services Provided
10. The determination of the tax rate for taxable services provided shall be based on the date the service is provided.
11. In the event that taxable services are fully provided before the effective date of the tax rate change, the services shall be taxed at the old rate.
12. In the event that taxable services are fully provided on/after the effective date of the tax rate change, the services shall be taxed at the new rate.
13. In the event that taxable services are provided before the effective date of the tax rate change and extend beyond the effective date of the tax rate change, the service tax rate shall be apportioned as follows:
Taxable services provided before the effective date of the tax rate change shall be taxed at the old rate; and
Taxable services provided on/after the effective date of the tax rate change shall be taxed at the new rate.
14. However, regardless of the accounting basis for registered taxable service providers, whether on a payment or invoice basis, any payment received before the effective date of the tax rate change related to any services provided on/after the effective date of the tax rate change shall be subject to the old rate.
15. For betting and gambling services, any payment received by service providers in the form of cash, chips, vouchers, or other forms including free chips or vouchers for betting and gambling services provided on/after the effective date of the tax rate change, the services shall be taxed at the prevailing service tax rate at the time and shall be payable IMPORTED TAXABLE SERVICES ACQUIRED
16. The determination of the service tax rate for imported taxable services acquired shall be based on the date the taxable services are acquired.
17. In the event that imported taxable services are entirely acquired before the effective date of the tax rate change, the imported taxable services shall be taxed at the old rate.
18. In the event that imported taxable services are entirely acquired on/after the effective date of the tax rate change, the imported taxable services shall be taxed at the new rate.
19. In the event that imported taxable services acquired before the effective date of the tax rate change extend beyond the effective date of the tax rate change, the service tax rate shall be apportioned as follows:
a) Imported taxable services acquired before the effective date of the tax rate change shall be taxed at the old rate; and
b) Imported taxable services acquired on/after the effective date of the tax rate change shall be taxed at the new rate.
20. However, in the event that any imported taxable services become due (payment made or invoice received, whichever is earlier) before the effective date of the tax rate change related to imported taxable services acquired on/after the effective date of the tax rate change, the imported taxable services that have become due shall be taxed at the old rate.
DETERMINATION OF SERVICE TAX RATE DURING THE TRANSITIONAL PERIOD EFFECT OF TAX RATE CHANGE
21. The change in the service tax rate to 8% from 6% effective from 1.3.2024 has an impact on the determination of tax rates involving the transitional period.
22. The determination of the service tax rate for taxable services provided shall be based on the date the services are provided.
23. However, regardless of the accounting basis for registered taxable service providers, whether on a payment or invoice basis, any payment received before 1.3.2024 related to any services provided on/after 1.3.2024 shall be subject to the rate of 6%.
Taxable Services Fully Provided Before the Effective Date of Rate Change
24. In the event that the entire taxable services are provided before 1.3.2024 and the entire payment is received before 1.3.2024, the taxable services shall be taxed at 6% on the value of taxable services provided before 1.3.2024.
25. In the event that the entire taxable services are provided before 1.3.2024 and the entire payment is received on/after 1.3.2024, the taxable services shall be taxed at 6% on the value of taxable services provided before 1.3.2024.
26. In the event that the entire taxable services are provided before 1.3.2024:
Part of the payment is received before 1.3.2024
Part of the payment is received on/after 1.3.2024 the taxable services shall be taxed at 6% on the value of taxable services provided before 1.3.2024.
Taxable Services Provided Fully On/After the Effective Date of Rate Change
27. In the event that the entire taxable services are provided fully on/after 1.3.2024 and the entire payment is received before 1.3.2024, the taxable services shall be taxed at 6% on the value of payment received before 1.3.2024.
28. In the event that the entire taxable services are provided fully on/after 1.3.2024 and the entire payment is received on/after 1.3.2024, the taxable services shall be taxed at 8% on the value of payment received on/after 1.3.2024.
29, In the event that the entire taxable services are provided fully on/after 1.3.2024:
a) Part of the payment is received before 1.3.2024
b) Part of the payment is received on/after 1.3.2024
the taxable services shall be taxed at 6% on the value of payment received before 1.3.2024 and 8% on the value of payment received on/after 1.3.2024.
Taxable Services Provided Before the Effective Date of Rate Change and Extend Beyond That Date
30. In the event that taxable services are provided before 1.3.2024 and extend beyond 1.3.2024, service tax shall be apportioned as follows:
a) Taxable services provided before 1.3.2024 shall be taxed at 6%; and
b) Taxable services provided on/after 1.3.2024 shall be taxed at 8%.
31. However, any payment received before 1.3.2024 related to services provided on/after 1.3.2024, the taxable services shall be taxed at 6% on the value of payment received before 1.3.2024.
DETERMINATION OF SERVICE TAX RATE FOR GAMBLING AND BETTING TAXABLE SERVICES DURING THE TRANSITIONAL PERIOD EFFECT OF TAX RATE CHANGE
32. For gambling and betting services, any payment received by service providers in the form of cash, chips, vouchers, or any other form including free chips or vouchers for gambling and betting taxable services provided on/after 1.3.2024, the taxable services shall be subject to the prevailing service tax rate at the time the service tax becomes due and payable.
DETERMINATION OF SERVICE TAX RATE FOR IMPORTED TAXABLE SERVICES DURING THE TRANSITIONAL PERIOD EFFECT OF TAX RATE CHANGE
33. The change in tax rate to 8% from 6% effective from 1.3.2024 has an impact on the determination of tax rate involving the transitional period for imported taxable services.
34. The determination of service tax rate for imported taxable services obtained shall be based on the date the taxable services are obtained.
35. However, in the event that any imported taxable services become due and payable (payment made or invoice received, whichever is earlier) before 1.3.2024 related to imported taxable services obtained on/after 1.3.2024, the imported taxable services that have become due and payable shall be taxed at 6%.
36. Imported taxable services are considered due and payable on the date payment is made to the service provider or on the date the invoice is received for the respective services, whichever is earlier.
For the purpose of the date of invoice received, it refers to the date on which the invoice is recorded in the company's accounting records.
IMPORTED TAXABLE SERVICES OBTAINED FULLY BEFORE THE EFFECTIVE DATE OF RATE CHANGE
37. In the event that imported taxable services are obtained fully before 1.3.2024 and become due and payable before 1.3.2024, the imported taxable services shall be taxed at 6% on the value of imported taxable services obtained before 1.3.2024.
38. In the event that imported taxable services are obtained fully before 1.3.2024 and become due and payable on or after 1.3.2024, the imported taxable services shall be taxed at 6% on the value of imported taxable services obtained before 1.3.2024.
Imported Taxable Services Obtained Fully on/After the Effective Date of Rate Change
39. In the event that imported taxable services are obtained fully on/after 1.3.2024 and become fully due and payable before 1.3.2024, the imported taxable services shall be taxed at 6% on the value of imported taxable services obtained on/after 1.3.2024.
40. In the event that imported taxable services are obtained fully on/after 1.3.2024 and become fully due and payable on/after 1.3.2024, the imported taxable services shall be taxed at 8% on the value of imported taxable services obtained on/after 1.3.2024.
[In Jadual 11 provided in the draft Guide by Customs, the rate should be 8% instead of 6%]
41. In the event that imported taxable services are obtained fully on/after 1.3.2024:
a) some of the tax becomes due before 1.3.2024
b) some of the tax becomes due on/after 1.3.2024
the imported taxable services shall be taxed at 6% on the tax due before 1.3.2024 and 8% on the tax due on/after 1.3.2024 for imported taxable services obtained on/after 1.3.2024.
42. However, any tax due before 1.3.2024 related to imported taxable services obtained on/after 1.3.2024, the imported taxable services shall be taxed at 6% on that tax due before 1.3.2024.
43. In the case where imported taxable services are obtained before 1.3.2024 and extend beyond 1.3.2024, the imported taxable services shall be subject to service tax on a prorated basis as follows:
a) Imported taxable services obtained before 1.3.2024 shall be taxed at a rate of 6%; and b) Imported taxable services obtained on/after 1.3.2024 shall be taxed at a rate of 8%.
44. However, any tax due before 1.3.2024 related to imported taxable services obtained on/after 1.3.2024, the imported taxable services shall be taxed at 6% on that tax due before 1.3.2024.
