Service Tax is a form of indirect tax imposed on specified services called "taxable services". Service tax cannot be levied on any service which is not included in the list of taxable service.
Service Tax was introduced in Malaysia in 1975. It is a consumption tax levied on services prescribed by the Minister of Finance as taxable services. The Service Tax Act, 1975 was enacted to make provisions for the charging, levying and collecting of service tax in Malaysia. In addition, to further effectively administer the service tax regime, the Minister executed his power under the Act to make the following regulations and orders:
- Service Tax Regulation 1975,
- Service Tax (Rate of Tax) Order 2000,
- Service Tax (Customs Ruling) Regulations 2007
Scope of Tax
The Service tax Act, 1975 applies throughout Malaysia with the exception of Labuan, Langkawi, and the Joint Development Area. As such, taxable services provided by taxable persons located outside Malaysia would not be liable to service tax.
Basis of Taxation
Service tax was initially charged and levied on prescribed goods sold or provided either by or in any prescribed establishment and on prescribed services provided by or in prescribed professional establishment. Over the years this list of prescribed services, prescribed establishment, and prescribed professional establishment grew longer.
In 1999, the Act was amended and of significance is the amendment to section 3. As provided under section 3, service tax is charged and levied on the provision of taxable service by any taxable person, except exported taxable services (this was later to be deleted by an amendment in 1 January, 2003).
Section 2 was also amended to provide for definitions of “taxable person” and “taxable services”. In this regard, taxable person is defined as any person who is prescribed to be a taxable person and taxable services means any service which is prescribed to be a taxable service. With the commencement of these amendments, the sales or provision of taxable goods is now a provision of taxable service rather than sale or provision of taxable goods itself.
Taxable Persons
Schedule 2 of the Sales Tax Regulations, 1975 provides the list of taxable persons and taxable services. They can be grouped into the following:
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Group A
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Hotels having more than 25 rooms
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Group B1
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Restaurants located in hotel having more than 25 rooms
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Group B2
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Restaurants located in hotel having 25 rooms or less with an annual sales turnover of taxable services exceeding Ringgit Malaysia (RM) 300, 000.
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Group C
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Restaurants located outside hotel with an annual sales turnover of taxable services exceeding Ringgit MalaysiaRM3, 000,000. In the case of food courts, the amount is RM3, 000,000
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Group D
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Night-Clubs, Dance Halls, Cabarets, Health Centers, Massage Parlors, Public Houses and Beer Houses
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Group E
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Private Clubs an annual sales turnover of taxable services exceeding RM300, 000
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Group E1
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Golf Course and Golf Driving Range other than those in Groups A and E with an annual sales turnover of taxable services exceeding RM300, 000
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Group F
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Private Hospitals with an annual sales turnover of taxable services exceeding RM300, 000
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Group G
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Other Service Providers
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