Tax rate for widely used services stays

KUALA LUMPUR: The increase in the service tax rate from 6.0 per cent to 8.0 per cent, effective from March 1, 2024, only affects discretionary services activities and business-to-business (B2B) activities, according to the Ministry of Finance (MoF).

It does not involve services that are basic necessities and part of the people’s lifestyle.

For example, services widely used by the people such as food and beverages, telecommunications and parking remain subject to a service tax rate of 6.0 per cent.

Minister of Finance II, Datuk Seri Amir Hamzah Azizan, said the specification is to ensure that the people are not burdened with higher consumption tax rates, especially in terms of essential services such as food and beverages, parking, telecommunications and logistics.

“To ensure a successful economic transformation, the government is taking a cautious approach to reforming the national tax system.

“Despite the need to increase national revenue, the government must take into account the need to protect the people from excessive burdens,” he said in a statement issued by the MoF on Wednesday.

He said the government needs to broaden the tax base to strengthen the country’s fiscal base to ensure more sustainable economic growth as outlined under the Madani Economic framework.

“At the same time, the government is making every effort to realign the trajectory of the national economy, including practising prudent spending, reducing wastage, and attracting foreign direct investment (FDI),” he added.

The new tax system is expected to generate an estimated additional revenue of RM3 billion for the country, which can be used to improve targeted assistance to the people and increase the upgrades and maintenance of critical public infrastructure such as healthcare, schools, and roads.

As for electricity services, the service tax is only imposed on usage exceeding 600 kilowatt hour (kWh), and nearly 85 per cent of electricity consumers in the country are below this threshold and thus are not affected.

It will also not be imposed on treated water services.

The full list of taxable services and frequently asked questions (FAQs) can be found at https://www.mof.gov.my/portal/ms/berita/soalanlazim/soalan-lazimpeluasanskop-perkhidmatan-bercukaidan-perubahan-kadar-cukaiperkhidmatan.

Meanwhile, Treasury SecretaryGeneral Datuk Johan Mahmood Merican said that over 85 per cent of domestic users whose monthly electricity consumption is 600 kilowatts per hour (kWh) and below will continue to enjoy zero service tax on their power bills.

He said only domestic households who consume more than 600 kWh of electricity a month will be affected by the eight per cent service tax hike that came into force on March 1, 2024.

“We did not change the goalposts for those who are subject to the service tax; we just wanted to clarify that currently, the (six per cent) service tax has been imposed on this segment (over 600 kWh a month consumption), which is rather a small segment, “he told an editors briefing here Wednesday.

Johan Mahmood said commercial and industrial electricity consumers will also not be charged for the service tax, as they are not subject to the tax all this while.

Similarly, the service tax will not be imposed on the water bill, he added.

The government is slated to raise the service tax to eight per cent from March 1, 2024, from six per cent currently.

However, the increase will not include services such as food and beverage (F&B), telecommunications, parking space and logistic services that include delivery of goods.

Asked if physiotherapy under the Allied Health Professions Act 2016 (Act 774) could enjoy the service tax exemption like the traditional and complementary medicine (TCM) practitioners who are registered under the T&CM Act 2016 (Act 775), Johan Mahmood said the government is still reviewing the matter.

“We try to achieve some consistency on treatment for similar types of services, but we have not finalised the review yet,” he said.

According to Johan Mahmood, the two per cent service tax hike is expected to bring the government an additional RM3 billion in revenue next year.

Responding to a question on whether the government would consider reimplementing the goods and services tax (GST) to increase its coffers, Johan Mahmood said that currently, it is not the right time to bring back the consumption tax.

Despite the need to increase national revenue, the government must take into account the need to protect the people from excessive burdens.

Datuk Seri Amir Hamzah Azizan