[UPDATED] Service tax hike on Mar 1 to affect high electricity users, won’t touch most basic needs: MoF

KUALA LUMPUR – The service tax increase from 6% to 8% starting March 1 will only affect electricity bills where usage is above 600kWh, the Finance Ministry said.

As almost 85% of electricity users are below this threshold, they will not be affected, the ministry said in a statement today.

The tax also does not apply to treated water supply services, nor will it be applied to other services that are basic and essential to the people, the ministry added.

“The change in service tax rate does not involve services that form a basic need and intrinsic part of the rakyat’s lifestyle. For example, the service tax rate for services that are widely used by the rakyat such as food and beverage, telecommunications and parking remain unchanged at 6%. This also applies to logistics services which will be subject to 6% service tax. 

“For food and beverage delivery services, no service tax will be imposed.”

“The government does not anticipate the changes to engender sharp price increases that would lead to an economic shock as the small two-percentage increase affects selected taxable services.”

The service tax increase will also generate an estimated RM3 billion more in revenue for the country, to be used for social assistance schemes and improving public infrastructure, the ministry said.

The 8% service tax, announced in the tabling of Budget 2024, was gazetted on February 23 under the Service Tax (Amendment) Regulations 2024.

It will be applied to imported taxable services and digital services.

It will also be expanded to harmonise the tax treatment for selected services within the same industry. 

“For example, karaoke centres will be subject to an 8% service tax, similar to other entertainment such as nightclubs, dance halls, cabarets, and wellness centres. 

“Brokerage and underwriting services, which currently only apply to financial services, will be expanded to cover other brokerage industries such as ship/aircraft brokerage, commodities and real estate,” the ministry said.

As to implementation deadlines, all existing registered taxable services, and registered new taxable services, are to comply with the increase on March 1. 

Only new registered providers of new taxable services have until April 1 to comply.

Group reliefs – for companies within the same group – and exemptions for business-to-business transactions – will be available to reduce the impact of paying “tax on tax” for services, the ministry added.

In a fact sheet provided by the finance ministry, the following services will be affected by the new 8% service tax:

•⁠  ⁠Hotels, serviced apartments and accommodations

•⁠  ⁠Night clubs, dance halls, cabarets, wellness and massage centres, and karaoke centres

•⁠  ⁠Private clubs, including club houses based on membership, profession or class

•⁠  ⁠Golf clubs and driving ranges

•⁠  ⁠Gambling centres, including betting, lottery, slot machines and any games of chance

•⁠  ⁠Professional services such as legal, accountancy, valuation, engineering, design, consultancy, training, IT and digital services, management and maintenance, and security services

•⁠  ⁠Insurance and takaful, customs agents, motor vehicle services, courier, rental and tour vehicles, advertising, electricity usage of more than 600kWh, cleaning, brokerage and underwriting.

Services that are exempted from the tax increase and will remain at 6% are telecommunications, parking lots, food & beverage, and logistical services including delivery of e-commerce items.

Credit card charges are also not affected by the tax hike and remain at RM25. – February 28, 2024