Service Tax Awareness

Many service providers in Malaysia are unaware that they may fall within the ambit of “taxable person” and in “the business of providing a “taxable service” under the Service Tax Act, 1975 (“STA”).

“Taxable person” means any person who is prescribed to be a taxable person and “taxable service” means any service which is prescribed to be a taxable service. The Second Schedule of the Service Tax Regulations, 1975 (“STR”) prescribed various categories of taxable person and taxable services for the purpose of the STA as divided into Groups as follows:-

Group A – Hotels;
Group B1 – Restaurant Located In Hotel Having More Than 25 Rooms;
Group B2 – Restaurant Located In Hotel Having 25 Rooms Or Less;
Group C – Restaurant Located Outside Hotel;
Group D – Night-Clubs, Dance Halls, Cabarets, Health Centres, Massage Parlours, Public Houses And Beer Houses;
Group E – Private Clubs;
Group E1 – Golf Course And Golf Driving Range Other Than Those In Groups A And E;
Group F – Private Hospitals; and
Group G – Other Service Providers.

Click here for detail list of “taxable person” and “taxable services”.

A “taxable person” who is in the business of providing a “taxable service” and having a total annual sales turnover (12 months rolling) as prescribed in the STR (the above website is refers) is required to apply for a service licence under the STA from the Customs Department and charges service tax of 5% accordingly. Should it be less than the prescribed threshold, the service providers would be relieved from being treated as a “taxable person”.

Total annual sales turnover is calculated based on entity and not according to branches. Total annual sales turnover for all the “taxable service” under the same Group is to be combined if the service providers are providing more than one “taxable service” under the same Group. Once the total annual sales turnover has reached the total annual sales turnover as prescribed in the STR, service tax licence must be applied.

To apply for a service tax licence, obtain a service tax license application checklist from the nearest Customs Department where the service providers’ business is located as the service tax licence application checklist may be vary depending on the Customs Department (e.g. if the service provider is running a business in Petaling Jaya, service tax licence checklist from Customs Kuala Lumpur is to be obtained). Prepare and furnish all the relevant documents as required in the checklist to the respective Customs Department. Service tax licence should be ready in a few weeks time.

Click here for the service tax licence checklist from Customs Kuala Lumpur.

Once the service provider is license under the STA, the service provider is required to submit bi-monthly service tax returns together with the payment of service tax to the Customs Department within 28 days after the end of the relevant taxable periods (two calendar months, whereby first taxable period is determined by the Customs Department). Service provider is still required to submit a return even there is no service tax payable for the relevant bi-monthly taxable period.

Late payment penalty of 10% would be imposed if the service tax returns together with the corresponding service tax payments are not submitted to the Customs Department within 28 days after the end of each taxable period. Further late payment penalty of 10% would be imposed for every subsequent 30 days period in which the service tax remains unpaid up to a maximum of 50%;

All service providers in Malaysia that potentially in the business of providing a “taxable service” under the STA, seek clarification and confirmation from the Customs Department now before a fine not exceeding RM5,000 is imposed and/or imprisonment for a term not exceeding 2 years for failure to apply for a service tax license as required by the STA.