Service Tax Exemption on Digital Services related to Banking/Financial Services
Updated: Jul 15
Updated on 15 July 2023- Dialogue between MOF，LHDNM， and CTIM[21/6/2023]Update: The Ismail Sabri Government Budget is no longer applicable.
Malaysia's national budget for 2023 was re-tabled again in February 2023; for more info, please visit - https://www.ccs-co.com/post/budget-2023-malaysia-madani
This tax incentive included in Budget 2023, tabled in Parliament on 7 October 2022, was not included in Budget 2023 (Re-tabled) on 24 February 2023.
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:
recipients of digital payment services; and
local non-bank digital payment service providers are as below:
payment instrument issuers
merchant acquirers
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.
Updated on 15 July 2023- Dialogue between MOF， LHDNM， and CTIM[21/6/2023]
Feedback from MOF: Tax exemption on digital services related to banking/financial services has been expanded to include non-bank local service providers that offer digital payment services between 1 August 2022 and 31 July 2025 only.
Non-bank local digital service providers include the following:
Local non-bank payment instrument issuers;
Local non-bank merchant acquirers; and
Local non-bank payment system operators.
This approval has been issued on the Royal Malaysian Customs Department (JKDM) website on 1 August 2022.
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