1 March 2% rise in Service Tax
Malaysia raised its Service Tax rate from 6% to 8% on 1 March 2024. However, some services remained at the old 6% rate. The separate Sales Tax on most goods rate remains at 10%.
Rise implementation guidance
The Royal Malaysian Customs Department (RMCD) has provided some basic guidance for traditional services on the implementation of its 2% rise in Service Tax from 1 March 2024. On the 14 February it issued separate guidance for non-resident providers of digital services.
It envisages three scenarios for taxation, and how to treat the rise:
- Where services are fully provided before 1 March, the existing 6% rate applies
- If the services have started their supply prior 1 March date and is completed by 31 August, then the 6% rate may still be applied in certain cases. This includes if the invoice has already been issued and paid before 1 March. However, if the invoice has not been paid by 1 March, then a fresh invoice is required to cover the 2% rise. For digital services, most supplies are on a subscription basis which should be apportioned if the invoice spans the tax rise – however, it is not clear how providers could measure this or RMCD monitor it.
- If the services are provided after 1 March (and do not qualify for 2.), then the new 8% rate will apply.
In addition to the rise, two new services are made subject to Services Tax:
- Financial brokerage and underwriting; and
- Karaoke services.
Key services to remain at 6% after rise
The following services remain at the 6% rate:
- Logistics, warehousing, courier, transport and supply chain services (replacing courier & warehousing services);
- Food and drink;
- Telecom services; and
- Parking.
Oct 2023: Malaysia’s 2024 Budget
The budget was presented to the parliament on 13 October 2023, includes a 2% rise in the Service Tax from 6% to 8%. Certain essential supplies will remain at 6% and a new Luxury Tax will be implemented. It is proposed that logistics will be now included within the Service Tax regime. These changes will apply from 1 March 2024.
Service Tax is a turnover tax on the supply of and services, including digital services. There is also a Sales Tax of 5% or 10% on turnover for the sale of goods.
Sales and Service Taxes were reintroduced in Malaysia after the country briefly operated a Goods & Services Tax between April 2015 and July 2018. The Malaysian is said to be considering reintroducing GST.
Food, beverages, car parks and telecommunications will be excluded from the rise, and therefore remain at 6%.
The Service Tax net will be extended to: logistics services (6%), brokerage and underwriting services as well as karaoke outlets
A new Luxury Tax will be introduced on the sales of jewellery and watches.
