REINTRODUCTION OF SERVICE TAX The Sales Tax Act 2018 and Service Tax Act 2018 received Royal Assent on 24 August 2018 and were gazetted on 28 August 2018. The Sales Tax and Service Tax Acts provide for the implementation of a new tax system, namely, the sales and service tax (SST) that will replace the goods and services tax (GST) imposed under the Goods and Services Tax Act 2014. This publication seeks to provide some basic insights of the Service Tax Act 2018 (the Act). The objective is not to go into substantial details but to enumerate some of the pertinent points regarding the basic requirements of this Act. What is service tax? Service tax was introduced on 1 March 1975. In a nutshell, the service tax was a single-stage tax charged and levied on prescribed taxable services provided by prescribed taxable persons. The Second Schedule of the Service Tax Regulations 1975 set out the prescribed taxable services and taxable persons who were subject to the tax. The current service tax sets out the prescribed taxable services and taxable persons under the First Schedule to the Service Tax Regulations 2018. Section 7 of the Act provides that service tax shall be charged and levied on any taxable services provided in Malaysia by a registered person 1 in carrying on his business. Service tax is not imposed on imported and exported services. Rate of tax The service tax rate is fixed at 6%. A specific rate of RM25 2 is imposed on the issuance of principal or supplementary credit card and charge card, on annual basis. What are the key differences between the previous Service Tax Act and the current Act? There are numerous differences between the previous and current service tax. Some of the key differences are tabulated below: Area Previous Act Current Act Registration threshold The registration threshold varied A single registration according to the taxable person / threshold of RM0 taxable services. would apply (except for credit card / charge card providers, 1 A service provider who is liable to be registered or registered under the Service Tax Act 2018 and provides taxable services in carrying on business in Malaysia. 2 The RM25 service tax would only apply on the next annual renewal and not from 1 September 2018. Page 1 of 15 Dewan Akauntan, Unit 33-01, Level 33, Tower A, The Vertical, Avenue 3
Area Previous Act Current Act which would not be subject to a threshold). Issuance of invoices Invoice must be issued and show service tax payable separately from the charges for the taxable service provided. Invoice must be issued and show prescribed particulars. Late penalties payment A maximum of 50% of the tax due penalty will be imposed and the maximum penalty would be reached within 150 days. A maximum of 40% of the tax due will be imposed and the maximum penalty would be reached within 90 days. Scope of taxable services Based on the First Schedule to the Service Tax Regulations 2018 ( First Schedule ) and the earlier list as published by the Royal Malaysian Customs Department (RMCD), the list of taxable services and service providers (taxable persons), are as tabulated below (note that there are quite a number of differences between the First Schedule and the earlier list as published by RMCD whilst efforts were taken for the table below to be consistent with the First Schedule, it is advisable to refer to the First Schedule as the definitive list): Service provider Taxable services Threshold RM Any person operating Provision of accommodation premises, accommodation other taxable services in other premises: hotel, inn, categories ( Groups ) under the First lodging house, service Schedule, other services within the apartment, homestay accommodation premises, and the and any other similar provision or sale of food, drinks and establishment, tobacco products. excluding certain persons providing accommodation premises for educational, training, welfare or religious purposes or as facilities for employees. Note a. Operator of restaurant, bar, snack-bar, canteen, coffee house or any place which provides foods and drinks Provision of prepared or served food and drinks, other taxable services in other categories ( Groups ) under the First Schedule, other services within the establishment, and the provision or sale of tobacco products, alcoholic and non-alcoholic beverages. 1,000,000 Page 2 of 15 Dewan Akauntan, Unit 33-01, Level 33, Tower A, The Vertical, Avenue 3
Service provider Taxable services Threshold RM eat-in or takeaway excludes: canteen in an educational institution or operated by a religious institution or body b. Caterer c. Food court operator Note Any person operating: a. Night club, dance hall, cabaret b. First, second or third class public house or first or second class beer house c. Health or wellness centre, massage parlour or similar places approved by local authorities or lawfully registered, excluding private and Government healthcare facilities and other similar facilities for healthcare purposes operated by public universities for healthcare purposes. Operator of private club Provision of all services within the establishment, other taxable services in other categories ( Groups ) under the First Schedule, and the provision or sale of tobacco products, alcoholic and non-alcoholic beverages. Provision of all services within the private club, other taxable services in other categories ( Groups ) under the First Schedule, and the provision or sale of tobacco products, alcoholic and non-alcoholic beverages. Page 3 of 15 Dewan Akauntan, Unit 33-01, Level 33, Tower A, The Vertical, Avenue 3
Service provider Taxable services Threshold RM Operator of golf club Provision of golf club or golf driving and driving range range services, other taxable services in other categories ( Groups ) under the First Schedule, other services within the golf club or golf driving range, the provision or sale of tobacco products, alcoholic and non-alcoholic beverages. Note Insurer or takaful operator Any person providing telecommunication services and content applications service provider, registered or licensed under the relevant a. Provision of all types of insurance policy or takaful certificate to cover against any risks in Malaysia incurred to an individual, excluding medical insurance or medical takaful and life insurance policy or family takaful certificate b. Provision of all types of insurance policy or takaful certificate to business organisations, excluding: Insurance or takaful coverage of risks relating to the transport of passengers or goods outside Malaysia including domestic transport provided by the same provider as international transport Insurance or takaful coverage on educational institution or religious organisation registered under any written law Insurance or takaful coverage of risks incurred on granting credit relating to the export of goods, services or investments outside Malaysia Insurance contract or takaful certificate to cover risks outside Malaysia Reinsurance contract or retakaful contract a. Telecommunication services and other services in connection with telecommunication services, excluding provision of telecommunication services to another telecommunication Page 4 of 15 Dewan Akauntan, Unit 33-01, Level 33, Tower A, The Vertical, Avenue 3
Service provider Taxable services Threshold RM Communications and services provider, within or outside Multimedia law Malaysia. b. Provision of subscription broadcasting services. Note Customs agent Services of clearing goods from customs control Advocate & solicitor and syarie lawyer Public accountant Surveyor including registered valuer, appraiser or estate agent Legal services including incidental services to legal services, and consultancy services on legal matters. Accounting, auditing, book keeping, consultancy or other professional services. Surveying services including valuation, appraisal, estate agency or professional consultancy services. Note (a) Note (a) Note (a) Professional engineer Engineering consultancy or other professional services. Architect Architectural services including professional consultancy services. Note (a) Note (a) Any person providing management services excluding such services provided by: the developer, joint management body or management corporation to the owners of a building held under a strata title; or any person registered with the Securities Commission of Malaysia to carry out the regulated activity of fund management services under the Capital Market Services Act 2007. All types of management services including project management or project coordination. Note (a) Page 5 of 15 Dewan Akauntan, Unit 33-01, Level 33, Tower A, The Vertical, Avenue 3
Service provider Taxable services Threshold RM any person, Government agency, local authority or statutory body for the purposes of religious, welfare, bereavement health or public transport services. Note Any person providing consultancy services excluding approved companies with status or definitions as research and development companies and contract research and development companies under section 2 of the the Promotion of Investments Act 1986, and approved research institute under section 34B of the Income Tax Act 1967. Any person who provides employment services Private agency licensed under the Private Agencies Act 1971 Any person, Government agency, local authority or statutory body who All types of consultancy services including professional consultancy services other than specifically mentioned in the First Schedule, excluding: Consultancy services relating to healthcare services and veterinary services; or Consultancy services in connection with goods or land outside Malaysia or where the subject matter relates to outside Malaysia. Employment services excluding: Secondment of employees or supplying employees to work for another person for a period of time; or Employment services for employment outside Malaysia. Provision of guards or the protection or security of person, property or business excluding such services to guard or protect the above which is situated outside Malaysia Provision of parking spaces for motor vehicles where parking charges are imposed Page 6 of 15 Dewan Akauntan, Unit 33-01, Level 33, Tower A, The Vertical, Avenue 3
Service provider Taxable services Threshold RM operates or provides parking spaces Note Operator of motor vehicle service or repair centre or provider of motor vehicle service or repair Courier service operator licensed under section 10 of the Postal Services Act 2012 Any person granted an operator s licence under section 18 or 28 of the Land Public Transport Act 2010, or licensed under the Commercial Vehicles Licensing Board Act 1987 for Sabah and Sarawak. Any person, Government agency, local authority or statutory body providing advertising services Credit card or charge card services provider regulated by Bank Negara Malaysia Provision of general servicing, engine repairs and tuning, changing, adjusting and fixing of parts, wheel balancing, wheel alignment or body repairs including knocking, welding or repainting of motor vehicles. Courier delivery services for documents or parcels not exceeding 30 kilograms each excluding such services for documents or parcels: i. From a place outside Malaysia to a place outside Malaysia; ii. From a place within Malaysia to a place outside Malaysia; or iii. From a place outside Malaysia to a place within Malaysia and includes the provision of courier delivery services within Malaysia that forms parts of the service referred to subparagraphs (ii) and (iii) where the service is provided by the same person. Provision of hire-and-drive car, hirecar, chartered bus or excursion bus services. Provision of all advertising services excluding provision of such services for promotion outside Malaysia. Provision of credit card or charge card services through the issuance of a principal credit card, principal charge card, supplementary credit card or No threshold Page 7 of 15 Dewan Akauntan, Unit 33-01, Level 33, Tower A, The Vertical, Avenue 3
Service provider Taxable services Threshold RM supplementary charge card, whether or not annual subscription of fee is imposed excluding charge card issued by a petroleum company to the Government or any person for the procurement of products and services for use of or in connection with vehicles owned or used by the Government or such person, or, charge card used as payment instrument only within premises of a workplace, education institution or gold or sports club by its workforce, students or members, as the case may be. Note Any person licensed under written law relating to bettings, sweepstakes, lotteries, gaming machines or games of chance Any person providing transmission and distribution of electricity services Any person who is granted an air service licence under section 35 of Malaysian Aviation Commission Act 2015 [Act 771] or air service permit under section 36 of Malaysian Aviation Commission Act 2015 Any person who provides Information Technology (IT) services a. Betting and gaming services involving bettings, sweeptakes, lotteries, gaming machines or games of chance. b. Conducting tournaments involving bettings, sweeptakes, lotteries, gaming machines or games of chance. c. Conducting or allowing the conduct of a card game or any other game by the casino operator. Provision of electricity to any domestic consumer excluding the first 600 kwh for a minimum period of twenty-eight days per billing cycle consumed by that consumer. Domestic passenger air transport service and ancillary services in connection with such services, excluding the route as specified under the Rural Air Services Agreement or the route within Sabah or within Sarawak. All types of IT services excluding the provision or sale of goods in connection with the provision of IT services. Page 8 of 15 Dewan Akauntan, Unit 33-01, Level 33, Tower A, The Vertical, Avenue 3
According to the General Guide of Service Tax issued by the RMCD, service tax will not be levied on any services that are not in the list of taxable services above. Note (a): The taxable services mentioned exclude the said services if they are provided in connection with: a. Goods or land outside Malaysia or where the subject matter relates to outside Malaysia; or b. Any statutory fees paid to the government or statutory body. Registration Any person will be required to register for the service tax if the value of taxable services exceeds the threshold of RM (except for credit card / charge card providers, where there is no threshold) within a 12-month period. Registration will be processed online on the RMCD s Malaysia Sales and Service Tax (MySST) 3 system at: https://mysst.customs.gov.my/. Existing GST registrants that are liable to be registered for service tax will be automatically registered under the MySST system. The table below summarises the salient points of the registration: Mandatory Any person providing taxable services is liable to register if a. In the case the total amount of taxable services is prescribed, the total amount of taxable services provided by him in 12 months exceed RM and the liability to be registered is at the following time, whichever is earlier: i. Historical method The total value of taxable supplies in that month and the 11 months immediately preceding the month. This is illustrated in Diagram 1. 3 MySST system is to facilitate online SST registration and compliance. Page 9 of 15 Dewan Akauntan, Unit 33-01, Level 33, Tower A, The Vertical, Avenue 3
Or ii. Future method The total value of taxable supplies in that month and the 11 months immediately succeeding the month. This is illustrated in Diagram 2. b. In the case where no amount of taxable services is prescribed, the liability to be registered is on the date of commencement of the business. Voluntary Any person who is not liable to be registered may apply to the Director General (DG) for registration. The approval may be subject to conditions determined by the DG. Branches or divisions Any business of a registered person is carried on by one or more branches or divisions, the registered person may apply to the DG for Page 10 of 15 Dewan Akauntan, Unit 33-01, Level 33, Tower A, The Vertical, Avenue 3
Notification of cessation of liability any of the branches or divisions to be registered in the name of the branch or division. A registered person who ceases to carry on business of providing taxable services or who ceases to be liable to be registered shall notify the DG in writing within 30 days from the date of cessation. Group registration No group registration is allowed. Accounting for service tax Issuance invoices of A registered person is required to issue invoices in Bahasa Melayu or English containing prescribed particulars either in hard copy or electronically. The invoice would provide the following prescribed particulars: a. Service provider s name, address and service tax identification number; b. Customer s name and address; c. The word Invoice clearly indicated. Drop the word Tax ; d. Invoice serial number; e. Invoice date; f. Total amount payable excluding service tax; g. Service tax rate; h. Total service tax; and i. Total amount payable including service tax. Credit notes/ debit notes The issuance of credit or debit notes is allowed and the adjustments are to be made in the service tax return which containing prescribed particulars. Taxable period The taxable period is on bi-monthly basis i.e. every 2 months which is as follows: Filing frequency Taxable periods First taxable period Sept Oct 2018 Subsequent taxable Nov Dec 2018, Jan Feb 2019, Mar period Apr 2019 May Jun 2019,. However, the registered person may apply to the DG for a specific taxable period, for example, to be in line with his financial year end. Treatment of bad debts Bad debts claim A registered person (including persons who have ceased to be registered) may claim bad debts subject to the following conditions: a. within 6 years from the date the taxable services are provided; b. subject to conditions determined by the DG; and c. according to a prescribed formula as below: Page 11 of 15 Dewan Akauntan, Unit 33-01, Level 33, Tower A, The Vertical, Avenue 3
A/B x C Bad debts recovery A registered person (including persons who have ceased to be registered) who has claimed and received the refund shall repay to the DG when the payment is received from the debtor after the bad debts have been recovered. The repayment will be based on a prescribed formula as below: A/B x C Service tax returns Service tax payment The filing of service tax returns can be made either manually or online via MySST system at https://mysst.customs.gov.my/. The manual return has to be submitted by post to SST Processing Centre. The return is required to be submitted not later than the last day of the following month after the end of the taxable period. For instance, for the taxable period of September to October 2018, the first return is due on 30 November 2018. The return has to be submitted regardless of whether there is any tax to be paid or not. Service tax is generally required to be accounted for: a. At the time payment is received (payment basis); or b. On the day following the period of twelve months when any whole or part of the payment is not received from the date of the invoice for the taxable service provided. Service tax collected shall be paid not later than the last day of the following month after the end of the taxable period. Payment is to be made: a. Electronically; or b. By cheque or bank draft and to be posted to the SST Processing Centre. Contra System A registered person is allowed to deduct service tax in his return for any cancellation and/or termination of services or any other reason such as reducing premiums or discounts. Page 12 of 15 Dewan Akauntan, Unit 33-01, Level 33, Tower A, The Vertical, Avenue 3
The deduction has to be made within one year after the payment was made, or such extended period as may be approved by the DG. Special provisions for specific areas Designated areas and special areas are not deemed as places outside Malaysia for service tax purposes. Notwithstanding that, the RMCD has indicated that services provided within or between designated areas and special areas will not be subject to this new regime of service tax, unless specifically prescribed to be taxable. The following summarises the service tax treatment for the specific areas i.e. Designated Area/ Special Area and the principal customs area: A. Designated Area (DA) DA (not deemed outside Malaysia) Services provided between and within DA Labuan, Langkawi and Tioman Not subject to service tax except as prescribed by Minister Provisions of services From PCA to DA subject to service tax except prescribed by Minister From DA to PCA subject to service tax To/ from DA to SA not subject to service tax PCA: Principal Customs Area B. Special Area (SA) SA (not deemed outside Malaysia) Services provided between and within SA Free Zone (FZ), Licensed Warehouse, Licensed Manufacturing Warehouse (LMW) and Joint Development Area (JDA) Not subject to service tax except as prescribed by Minister Page 13 of 15 Dewan Akauntan, Unit 33-01, Level 33, Tower A, The Vertical, Avenue 3
Provisions of services From PCA to SA From SA to PCA subject to service tax except prescribed by Minister subject to service tax To/ from SA to DA From PCA (other than SA) to FZ or LMW From PCA (other than SA) to JDA not subject to service tax subject to service tax not subject to service tax Late payment penalty Late payment penalty on the amount of service tax not paid is: 10% of the amount not paid after the last date of the first 30 days period 15% of the amount not paid after the last date of the second 30 days period 15% of the amount not paid after the last date of the third 30 days period Maximum penalty of 40% after 90 days Record keeping A registered person should keep the proper records for 7 years and the records must be kept: either in Bahasa Melayu or English; in Malaysia, except as permitted by DG to be kept outside Malaysia; and in soft or hard copy. Staying abreast with updates on SST In ensuring compliance with the reintroduction of SST on 1 September 2018, accountants should be aware on the impact on business and the current tax system in Malaysia. To this end, the RMCD has launched the MySST system from which the latest updates announcements related to SST matters can be obtained. In facilitating the implementation of SST, MIA has been providing feedback to the RMCD on SST implementation. In addition, MIA is organising various training programmes on SST to assist our members to comply with the new indirect tax regime. Page 14 of 15 Dewan Akauntan, Unit 33-01, Level 33, Tower A, The Vertical, Avenue 3
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