What is service tax? What is the service tax rate? How is service tax calculated? What services are taxable?

Service tax is an ad valorem tax is imposed by the Government of Malaysia on certain taxable services provided by taxable persons.

The Service Tax Act 1975 [Act 151] which makes provision for the charging, levying and collecting of service tax came into force on March 1, 1975.

The Service Tax Act 1975 is applicable throughout Malaysia except in Labuan, Langkawi, Tioman, Free Zones and Joint Development Area (JDA). Therefore, taxable service provided by a taxable person to a person in a country other than Malaysia is not liable to service tax.

In 1999, Section 3 of the Service Tax Act 1975 was amended to exempt "exported taxable services" from service tax. However, the definition of "exported taxable services" was deleted by an amendment on January 1, 2003 and embedded in the Second Schedule of the Service Tax Regulations 1975.

Service Tax Rate

Rate of service tax was increased from 5% to 6% for all taxable services, except for credit card and charge card, under the Service Tax (Rate of Tax) Order 2010 which came into operation on January 1, 2011, following the Budget 2011 announcement.

Service tax is calculated on the charge, premium or value collected for the taxable service.

With effective January 1, 2010, the following annual service tax will be imposed on each credit card or charge card:
  • RM50.00 for principal card; and

  • RM25.00 for supplementary card.

Taxable Persons & Taxable Services

Taxable persons and services under the Second Schedule of the Service Tax Regulations 1975 are:
Group A: Hotel
Taxable Persons Taxable Services
Operators of hotels with more than 25 rooms excluding hostels for students of educational institutions and hostels established or maintained by religious bodies. Provision of:
  • rooms for lodging or sleeping accommodation;
  • serviced apartments;
  • sale of food, drinks or tobacco products;
  • services in the form of "corkage", "towel charge" or "cover charge";
  • premises for meetings or for promotion of cultural or fashion show;
  • health services such as foot and body massage, spa;
  • parking spaces for motor vehicles where parking charges are imposed;
  • valet parking services if service charges imposed are included as company's income;
  • golf course, golf driving range or services related to golf or golf driving range.
Non-Taxable Services
Provision of:
  • room reservation deposits;
  • room reservation cancellation fees;
  • complimentary rooms;
  • massage services provided in barber shops, hairdressing salons;
  • gymnasium services by health centres;
  • valet parking services if service charges imposed are not included as company's income;
  • premises rental such as swimming pool, tennis court, camping site;
  • laundry services and sale of products other than food, drinks and tobacco;
  • sale of food, drinks and tobacco products in hotel convenience stores not operated by the hotel;
  • taxi and limousine services;
  • service charges collected and distributed to hotel's employees;
  • rooms for lodging or sleeping accommodation with monthly rental term agreement or contract.

Service tax will be abolished on March 31, 2015 with the implementation of Goods and Services Tax (GST) on April 1, 2015.

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Knowledge Base ID :   1342
Last Reviewed :   June 25, 2014
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