The expansion of the scope for service tax as well as the change of service tax rate from 6% to 8% were anticipated since the announcement of Budget 2024.
However, it came as a surprise to many with the widening of scope to include repair and maintenance as well as the change of effective date from 1 March 2024 (as announced earlier) to 26 February 2024 following the Federal Gazette on the Service Tax (Amendment) Regulations 2024 (SST Amendment Act) dated 23 February 2024.
The Royal Malaysian Customs Department (RMCD) had recently released many guidelines covering a wide range of topics. We have summarised the key updates based on the SST Amendment Act as well as the guidelines as below:
SST on accommodation (Group A)
The type of accomodation subject to SST include hotel, inns, lodging house, service apartment, homestay and other similar establishments (e.g. camp sites).
Based on the SST Amendment Act, the coverage of SST on accommodation is now expanded to include other services within the area or place of business under the same control.
For example, if the homestay provider also charges parking fee on a parking space it manages, service tax will be applicable on the parking fee.
SST on food and beverages (Group B)
- Expansion of scope on area / place of business
The coverage of SST on food and beverages is expanded to include other services (except for rental of space), provided within the area or place of business under the F&B operator’s control.
For example, restaurant A provides animal petting services with an additional fee located on the second floor of the restaurant. The additional fee is subject to service tax. - Service tax on sale of cut fruits
RMCD had also clarified that the sale of cut fruits in the restaurant is subject to service tax.
SST on karaoke centre (Group C)
The operators of karaoke centres are treated as taxable persons (newly added in Group C) and the provision of all types of services (including sale of alcoholic / non-alcoholic drinks, cigarettes, tobacco products etc) are subject to service tax.
SST on repair and maintenance services (Group G)
Repair and maintenance services are now considered taxable services that cover a broad range of services such as maintenance management, corrective maintenance, and preventive maintenance. The following are further examples (not exhaustive):
- Calibration;
- Adjustment;
- Recondition;
- Reconfigure; or
- Overhaul.
Essentially, preventive maintenance is provided on a routine, scheduled, periodic basis to ensure that the device / equipment / machinery etc operate in a good condition.
On the other hand, corrective maintenance is provided on an ad-hoc, upon request, unplanned basis to return / repair a device / equipment / machinery to its original condition.
The following table compares the service tax requirements before and after the effective date based on the SST Amendment Act.
| Before 26 February 2024 | After 26 February 2024 |
| Maintenance management services (preventive). Note that corrective maintenance was not subject to tax. | All repair and maintenance services (corrective and preventive) |
| Exemption for residential buildings: – Sinking fund – Maintenance charges imposed by joint management body (JMB), developer, management corporation on homeowners | Exemption: – Repairs on residential building – Sinking fund – Maintenance management services provided by JMB, developer, management corporation on residential association on land and building for the use of residential |
The following are some examples (not exhaustive) on repair and maintenance services that are subject to service tax:
- Maintenance and repair services on water pressure monitoring hardware to ensure that it is operating optimally.
- Repair of ICT equipment such as computer, laptop, projector, photocopy machine etc when they do not function properly.
- Calibration work on x-ray machine for a hospital.
- Machinery overhaul that includes spare parts replacement, painting and testing.
On 1 April 2024, the RMCD issued the Service Tax Policy (5/2024), further clarifying the service tax treatments with respect to repair and maintenance on residential buildings:
- Repair and maintenance services on moveable items /equipment in a residential building is subject to service tax.
- Repair and maintenance services on items/equipment fixed to the structure of the residential building and provided to the owner or resident of the building is not subject to service tax.
- Sinking fund related to residential building charged by developer, JMB or management corporation is not subject to service tax.
Based on the above, all repair and maintenance services at residential buildings such as roof upgrades or for any item and fixture attached to or is part of the residential premise’s structure such as lifts, air conditioners, and water heaters etc are not subject to tax.
SST on training or coaching (Group G)
The provision of training or coaching services in connection with matters or goods or land situated outside Malaysia is no longer excluded from the scope of service tax. As such, these services are now subject to SST.
SST on brokering and underwriting service (Group I)
The type of brokering and underwriting services subject to SST is now expanded to include those related to non-financial services such as commodity, shipping and airplane etc.
SST on telecommunication services (Group I)
The scope of taxable services is now expanded to include digital services.
SST on logistic services (Group J)
A new category of taxable services has been introduced and it covers a broad range of logistic services that include the following:
- Logistic services;
- Delivery, distribution or transportation of goods services;
- Delivery, distribution or transportation of goods, documents or packages services through the E-commerce platform including on behalf of any person;
- Courier services;
- Services for the release of goods from customs control.
It covers all or part of the supply chain of the following categories of services:
| Categories | Description (not exhaustive) | Example |
| Logistic management services | Logistic service provider that organizes and manages partially or the entire goods delivery process on behalf of the others. | Company A manages the delivery, warehousing, documentation for its client although it does not own the warehouse, transportation vehicle and is not a registered custom agent. These services are subject to service tax. |
| Warehousing or warehouse management services | Warehousing activities include: – Handling – Loading and unloading – Storage – Installation – Bulk break – Repackaging – Re-labelling – Consolidation – Security Warehouse management services relate to management services provided to warehouse operators. | Company A rents its property to Company B for the use of its warehouse business. The rental charged by Company A is not subject to service tax. The rental charged by Company B to customers for the use of its warehouse facility will be subject to service tax. |
| Freight forwarding services | – Customs clearance – Handling – Bulk / break bulk (consolidation / de-consolidation) – Import and export documentation – Insurance – Packaging – Warehousing – Stock management – Transportation | Company A carries out handling services as well as custom related clearance for its customer. These services are subject to service tax. |
| Port and airport services | 1) Loading, unloading, handling services or storage of goods provided by the operator of a port / airport 2) Any person providing ancillary services in relation to the transportation and delivery of goods such as: – vessel or aircraft handling services, – navigation services, – installation of safety net – fumigation service – installation of crane – installation of gangway – other related services. | Company A provides cargo and container handling services at the port and charges container handling charges, container weighing, cargo handling, transshipment services etc to its customers. These services are subject to service tax. |
| Shipping services | – Transportation charges – Freight charges – Shipping local charges – Terminal handling charges – Documentation charges – EDI Charges – Other related charges | Company A ships a container from Australia to Thailand but stop at Port Klang for transshipment. The charges at Port Klang including transshipment services are not subject to service tax. |
| Flight services | – Flight services – Loading, unloading – Handling services – Cargo inspection, transfer, storage, weighing – Prepare or amend airway bill and consignment note | Amer purchase goods from Company A in Thailand and pays a delivery fee for the shipment of goods from Thailand to Malaysia. Company A appoints Company B in Thailand to delivery the goods to Malaysia. Company B separately assigns its Malaysia subsidiary, Company C to deliver the goods to Amer. The delivery from Thailand to Amer is considered door to door and is exempted from service tax. |
| Cold chain facilities services | Transportation and storage of products using thermal / cold packaging methods. | Company A manufactures ice cream and delivers the product to its distribution centre using a cold truck transportation lorry. The delivery service is subject to service tax. |
On 29 March 2024, the RMCD issued the Service Tax Policy (4/2024), further clarifying the service tax treatments with respect to logistics services:
- Merging of logistics services together with delivery/ distribution/ transporting services in widening the exemption scope for business-to-business activities.
In other words, logistic service providers can now enjoy exemption on service tax for acquiring services from other delivery / distribution / transportation service providers.
- All logistic services provided in or between Special Area/ Designated Area, between Special Area and Designated Area (vice versa) are not subject to Service Tax. This exemption excludes customs agent services.
In other words, Free Commercial Zones and Free Trade Zones such as the Port Klang Free Zone and West Port in Selangor as well as Pasir Gudang Port in Johor will benefit from this exemption.
- Service tax is exempted for the following:
| Categories | Details |
| Door to door logistic services | – Delivery services from a place outside of Malaysia to a place in Malaysia or vice versa without involve a third party; – Delivery services provided by a service provider (within the same group of companies) from the consignor to the recipient; – Goods are delivered via the same airway bill / bill of lading / consignment note from the consignor to the recipient; – Single billing invoice for delivery charge from consignor to the recipient.- |
| Transshipment | Transshipment via air, land and sea |
| Delivery of goods via sea | Limited to these routes / destinations: – Peninsular Malaysia to Sabah / Sarawak/ Labuan; – Sabah/Sarawak/Labuan to Peninsular Malaysia; and – Between Sabah, Sarawak and Labuan. |
General considerations
It is important to immediately assess if any of the above changes is applicable to your business in order to respond accordingly. Affected businesses should consider system readiness and whether any customisation is required, registration with RMCD, communication with customers, documentation including invoice formats.
Additionally, service providers can also consider whether it falls within the B2B exemption, especially where services are provided within the same Group.
For example, Company A charges repair and maintenance fees to its customer. Company A outsources the repair and maintenance service to Company C. Company can enjoy the B2B exemption and is not subject to service tax as the services rendered are of the same category / similar based on the first Schedule of the Service Tax Act 2018.
The applicable service tax rate for each grouping with the latest amendments are summarised in the table below:
