Since the implementation of the Service Tax on September 1, 2018, the prevailing rate has been set at 6%, excluding credit cards and charge cards, which are subject to a fixed fee of RM25 per card. The 2024 budget announcement on October 13, 2023, proposed an increase in the Service Tax rate to 8%, with certain specific taxable services maintaining their existing rates.

As per the announcements from the Royal Malaysian Customs Department (RMCD) and insights shared during a webinar on February 15, 2024, the effective date for this proposed Service Tax increase is March 1, 2024. It's important to note that the relevant legislation is currently undergoing a final review and approval process by the Minister of Finance.

The Service Tax rates for most taxable services are expected to undergo an increase from 6% to 8%. However, there are exceptions to this rate change. Food and beverages in Group B, parking services in Group I, and telecommunication services in Group I will remain at the existing rate of 6%. New taxable logistics services in Group J will be subject to a 6% Service Tax rate. Credit card and charge card services in Group H will continue to be charged a fixed fee of RM25 per card.

A key clarification from a recent RMCD webinar highlighted that Service Tax rates are determined based on the nature of taxable services rather than registration groups. For instance, a hotel registered under Group A providing both accommodation and food services should apply a 6% Service Tax on food and beverages and an 8% Service Tax on hotel room charges. Similarly, a restaurant registered under Group B offering both food and beverages along with management services should apply an 8% Service Tax for the provision of management services, even if registered under Group B.

In light of these developments, businesses are strongly advised to accurately apply Service Tax rates, especially when providing taxable services with differing Service Tax rates.

Source / Image Credit : Crowe , Vatcal. Awani