Getting Ready for the Service Tax Rate Increase

Since the implementation of the Service Tax on 1 September 2018, the Service Tax rate has been set at 6%, except for credit cards and charge cards which are subject to a fixed fee of RM25 per card.

In the 2024 budget announcement on 13 October 2023, a proposal was made to increase the Service Tax rate to 8%, while certain types of taxable services were intended to maintain at their existing rate.

Effective Date for Service Tax Rate Increase

According to announcements from the Royal Malaysian Customs Department (“RMCD”) and information shared during a webinar conducted by the RMCD on 15 February 2024, the effective date for this Service Tax increase is set for 1 March 2024.

During the webinar, RMCD emphasised that the relevant legislation is currently undergoing a final review and approval process by the Minister of Finance.

Updates on Service Tax Rates

The Service Tax rates for most taxable services will be increased from 6% to 8%. 

Exceptions to Service Tax Rate Change: 

• Food and beverages in Group B will remain at 6%.
• Parking services in Group I will remain at 6%.
• Telecommunication services in Group I will remain at 6%.
• New taxable logistics services in Group J will be subject to 6% Service Tax rate. 
• Credit card and charge card in Group H will remain at a fixed fee of RM25 per card.

Updates on Service Tax Rates

In a recent RMCD webinar, it was explained that the Service Tax rates are determined based on the nature of taxable services rather than the registration groups.

For example, a hotel registered under Group A (i.e. accommodation) provides both accommodation and food services. In this case, the Service Tax on food and beverage should be subject to a 6% Service Tax, while the hotel room charges should be subject to an 8% Service Tax. 

Likewise, if a restaurant registered under Group B (i.e. food and beverage) provides both food and beverages along with management service, it should charge an 8% Service Tax for the provision of management services, despite being registered under Group B. 

In light of the above, businesses are advised to accurately apply Service Tax rates, particularly when providing taxable services with different Service Tax rates.