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Service Tax Exemption on Digital Services related to Banking/Financial Services

Updated: Oct 17, 2022

To Download Budget 2023 Speech and some other related publications - https://t.me/YourAuditor/3276


Current Position

Digital Service” means:


any service that is delivered or subscribed to over the internet or other electronic network and which cannot be obtained without the use of information technology and where the service delivery is essentially automated.



Any provision of services that satisfies the definition of digital service is a provision of digital service.


These services include the provision of the following (the list is not exhaustive):

  • Software, applications & video games

  • e.g. downloading of online software, updates and add-on website filters, firewalls, provision of mobile applications, online gaming;

  • Music, e-books and film

  • e.g. provision of music, and streaming services, including subscription-based media/membership

  • Advertisement and online platform

  • e.g. offering online advertising space on intangible media platforms, offering a platform to trade products or services

  • Search engines and social networks

  • e.g. customised search-engine services

  • Database and hosting

  • e.g. website hosting, online data warehousing, file-sharing and cloud storage services

  • Internet Based Telecommunication

  • e.g. Cloud-PABX, VOIP Phone

  • Online training

  • e.g. Provision of distance learning, e-learning, online courses, and pre-recorded webinar

  • Others

  • e.g. Subscription to online newspapers and journals, provision of other digital content like images, text, information and payment processing services

Digital services related to banking/financial services provided by local financial institutions/banks licensed under Financial Services Act 2013, Islamic Financial Services Act 2013, Labuan Financial Services and Securities Act 2010, Labuan Islamic Financial Services and Securities Act 2010, Development Financial Institutions Act 2002 or any qualified service provider is exempted from service tax starting from 1 January 2020.


Proposal

To streamline tax treatment on digital services related to banking/financial services by local non-bank digital payment service providers, it is proposed service tax exemption be given to:


  1. recipients of digital payment services; and

  2. local non-bank digital payment service providers are as below:

  3. payment instrument issuers

  4. merchant acquirers

  5. payment system operators


The expiry date for the existing service tax exemption to local financial institutions/banks be streamlined with the exemption period for local non-bank service providers.

Effective Date
  • From 1 August 2022 until 31 July 2025 for local non-bank digital payment service providers.

  • From 1 January 2020 until 31 July 2025 for local financial institutions/banks and qualified service providers.


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