KOLEJ POLY-TECH MARA, KUALA LUMPUR

PTX2023 Business Taxation

Chapter 9

Service Tax

Introduction
Service tax is a form of indirect taxation levied on consumers who consume food or services in places such as
restaurants, hotels, health centers, or engaged in professional services such as legal firms, auditing firms, etc.
Service tax is collected by these business enterprises (individual, partnership, or company) who are
accountable to the Royal Malaysian Customs and Excise Department (RMCED). The law governing the
imposition of service tax is Service Tax Act 1975 (Act 151) which takes effect 1 March 1975
Service tax is a single stage tax levied on consumers at the consumption stage. Thus it is also known as
consumption tax

Taxable services
Payment
Customer

Buss Enterprise

RMCED

Scope of charge
Service tax is charged and levied on taxable services provided by taxable persons. A new Second Sch of
Service Tax Regulations 1975 (STR) ]P.U.(A) 52/75] lists out the various categories of taxable person into
groups and also its corresponding taxable services, liable for service tax. The groups can be summarized as
follows:
Group
A
B1
B2
C
D
E
E1
F
G

Hotels
Restaurants located in hotel having > 25 rooms
Restaurants located in hotel having 25 rooms
Restaurants located outside hotel
night-clubs, dance halls, cabarets, health centers, massage parlours, public houses and beer houses
private clubs
Golf course and golf driving range other than in Group A and E
Private Hospitals
Other services providers

The full list is reproduced in Appendix 34.1

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Non-application of service tax
Services Tax applied throughout Malaysia except:
Joint Development Area
Labuan, Langkawi and Tioman
Service tax WILL NOT APPLY if the provision of services is in connection with goods or land situated outside Malaysia

Threshold limit
Service tax is only levied and charged when the taxable service provided by the taxable person for the year
(annual sales turnover) reaches the threshold
The threshold varies between RM150,000 and RM300,000, depending on the group of taxable person. The
ascertainment of this threshold is on a revolving 12 months basis
Annual sales turnover in relation to any day of any month is defined in Regulation 2 of the STR 1975 to mean
sales turnover made in the period of twelve months or part thereof immediately before that month

Licensing (section 8)
Taxable persons providing taxable services as indicated in the Second Sch are required to apply for service tax
license once the annual sales reaches the prescribed limit. No taxable person is allowed to carry on the
business unless he possesses a service tax license. The application shall be made in Form JKED No.1
The license must be displayed in a safe and conspicuous place of business, such as cashiers counter. The
license is in the Form JKED No.3
The taxable person shall only carry on the business at the place of premises as specified in the license

Voluntary Licensing (section 8A)

In situation where a business operator provides taxable service but the annual sales turnover has not reached
the prescribed threshold, he may apply for a service tax license on a voluntary basis and impose service tax
thereon. This is to avoid unnecessary service tax penalty being imposed on miscalculate of the threshold on
revolving method

Surrender licensing (section 9)

The taxable person shall surrender the license to the customs office in any of the following circumstances :
(a) He ceases business in providing any taxable service
(b) He goes into a partnership, retirement or admission of partner
(c) A registered company acquired his business
(d) He becomes a taxable person on another group as specified in Sch 2
(e) Any change in the name, location, number of business and addressed of business, and
(f)
He is called upon by DG

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Taxable services
In the case of taxable services provided by taxable person to non-related party (independent person) :
(i) The charge levied or collected
(ii) The premium for insurance coverage
where no charge or premium is levied or collected, the charge or premium which would have been levied or
collected in the ordinary course of business for providing such taxable service to a person independent of the
taxable person

Rate of tax
Rate is 5%

The levy of service tax

Service tax is levied at the time the taxable service is provided to the customer by the taxable person. The
amount of service tax payable is to be shown separately in an invoice, either in Bahasa Melayu or English
Out of pocket expenses (photocopying, travelling expenses, telephone, printing and stationery, postage are
NOT SUBJECT to service tax and have to be distinguished from the actual services rendered
The invoice has to be printed in serial number and multiple copies. The invoice shall contain particulars like
nature of transaction, amount charged, service tax amount and also any of the disbursement which are not
liable to service tax
Service tax is a single stage tax. It imposes once only on taxable service. If a taxable service has subjected to
service tax and subsequently re-billed, it will shown as a disbursement
Example 1 :
Legal firm
(license)

Accounting firm
(license)

Invoice :
Legal charge
Service tax 5%
Total

RM 200
10
210

Invoice :
Accounting charge
Service tax 5%
Total
Disbursement
Total

RM 250.00
12.50
262.50
210.00
472.50

Client

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Payment of service tax
Service tax is only accounted to RMCED when payment for goods or services is received by the taxable
person. Service tax shall be payable within 28 days from the expiration of that taxable period. There are SIX
(6) taxable period, each make up of two calendar months, in a calendar year. They are:
Taxable period
January February
March April
May June
July August
September October
November December

Due date of payment of ST

28 March
28 May
28 July
28 September
28 November
28 January

Late payment penalty

A penalty on late payment will be imposed on service tax which remains unpaid after the 28th day from the
expiration of taxable period:
i. A penalty of 10% on such unpaid service tax shall be payable
ii. A further 10% will be imposed if service tax due and payable remains unpaid for more than 30
days after the date of imposition of the 10% penalty
iii. An additional penalty of 10% will be imposed for every succeeding 30 days period or part thereof
until a maximum of 50% is reached

Services provided within a group of companies (regulation 3, 4, 8 of 2nd Sch STR 1975)
Where a company in a group of companies provides any taxable service mentioned in items below to any
company within the same group of companies, such service shall not be a taxable service. Thus, no service
tax is payable for such services provided in the group. These services referred to are:
(a) Provision of accounting, auditing, book-keeping, consultancy or other professional services
(b) Provision of legal services including consultancy services on legal matters
(c) Provision of engineering, consultancy or other professional services
(d) Provision of architectural services including professional consultancy services
(e) Provision of all types or surveying services including valuation, appraisal, estate agency or
professional consultancy services
(f) Provision of all types of consultancy services excluding consultancy services relating to medical and
surgical treatment provided by private clinics or specialist clinics
(g) Provision of all types of management services including project management and project
consultation
It should be noted that if the above-mentioned companies also provide the same services to companies
outside group, then the same services provided within the group of companies shall be taxable services and
service tax is payable

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Group of companies and control means:
(a) Company holds directly
(b) Company hold indirectly
(c) Together direct and indirectly
More than 50% of the issued share capital

Tourism industry
Malaysia is always in the forefront of promoting tourism industry. In the case that the provision of rooms for
lodging or sleeping accommodation as prescribed in the 2nd Sch is provided free of charge to tour operator or
person responsible for promoting the hotel or the tourism industry of Malaysia, no service tax is payable.
Exemption under section 6 [P.U.(A) 195/2003]