(i) Any provision of taxable services;
(ii) Provided in Malaysia;
(iii) By a registered person; and
(iv) In carrying on his business
Service tax is not chargeable for imported and exported services under the STA 2018.
The rate of service tax is 6% of the price or premium for insurance policy, value of betting and gaming, etc. of the taxable service.
The rate of service tax on the provision of credit card or charge card services is RM25 per year on the principal and supplementary card.
The service tax is chargeable on the date of the issuance of the card and every 12 months thereafter or part thereof after the issuance of the card or on the date of the renewal of the card.
Taxable Service
The categories and thresholds of taxable services can be summarised as in Table 1.
Taxable services that are provided within companies in the same group of companies and the services are under category G (a, b, c, d, e, f, g, h, or i) excluding employment agency and private agency as in Table 1, the taxable services are not subject to service tax.
Two or more companies are eligible to be treated as companies within a group of companies if one company controls each of the other companies and a company shall be taken to control another company if the first mentioned company holds:-
(i) Directly;
(ii) Indirectly through subsidiaries; or
(iii) Together directly or indirectly from subsidiaries,
(a) More than fifty percent of the issued share capital of the second mentioned company; or
(b) From twenty percent to fifty percent of the issued share capital of the second mentioned company and the first mentioned company has exercisable power to appoint or remove all or a majority of directors in the board of directors in the second mentioned company.
Example
JSK Group of Companies is in the food and beverage business operating a number of restaurants, food courts, night clubs and private clubs under its various subsidiaries (each more than 50% shareholding).
Intra group provision of taxable services within the same group of companies is a taxable service and subject to service tax at 6%.
Example
PP Sdn Bhd is a consultancy company and has direct control (90%) to QQ Sdn Bhd. QQ Sdn Bhd is providing architectural services to PP Sdn Bhd.
The taxable services between companies in the same group of companies is not subject to service tax.
Advance payments are subject to service tax when invoices are issued. However, payment as deposit is not subject to service tax until such deposit is realized as payment for the taxable service rendered and invoice have been issued.
Registration of Branches or Divisions
For companies that wish to register the branches or divisions of the company separately, the application for the relevant registration shall be submitted to the Director General in the form SST-01 in the name of the branches or divisions. Registration of branches or divisions may be considered if:
(i) It is difficult to submit a single return for all the branches or divisions;
(ii) Each branch or division maintains a separate account;
(iii) Such branch or division is separately identifiable by reference to the nature of the business or its location; and
(iv) Every separately registered branch or division has the same taxable period.
Cessation of Liability to be Registered
The registered person shall notify the DG in writing by including the date of cessation if:-
(i) He ceases to carry on the business of providing taxable services; or
(ii) His total value of taxable services in that month and the eleven months immediately succeeding that month does not exceed RM500,000.
The registered person may make a written request to cancel his registration within 30 days from the date of cessation.
Cancellation of Registration
Generally, the service tax registration shall be cancelled by the Director General if the taxable person:
(i) Ceases to carry on business of providing taxable services;
(ii) Fails to provide taxable service by the date which the registration issued upon application for voluntary registration is to take effect;
(iii) A company is dissolved.
Taxable Periods
The invoice should contain the following information:
(i) The invoice serial number;
(ii) The date of the invoice;
(iii) The name, address and identification number of the registered person;
(iv) A description sufficient to identify the taxable services are provided;
(v) Any discount offered;
(vi) The total amount payable excluding service tax, the rate of service tax and the total service tax chargeable shown as a separate amount;
(vii) The total amount payable inclusive of total chargeable;
(viii) Any amount referred to in a currency other than the ringgit shall also be expressed in ringgit at the selling rate of exchange prevailing in Malaysia at the time of the taxable service is provided; and
(ix) It must be in the national language or English.
Example
Ali Furniture manufactures and sells kitchen cabinets and appliances besides providing consultancy services to design and remodel kitchens. Ali Furniture is manufacturing taxable goods and providing taxable services (consultancy services).
Hence, he is required to be registered under Sales Tax Act 2018 and Service Tax Act 2018. However, he may use the same invoice format for either the sale of goods or provision of services subject to approval of the Director General.
Once an invoice is issued no alteration shall be made on the invoice or receipt and copies thereof.
The invoices and their copies shall be treated as cancelled if a mistake has been made on such invoice and such documents shall be clearly marked “CANCELLED ".
Credit Notes and Debit Notes
A credit note is issued when the amount previously invoiced is reduced or a transaction is cancelled. On the other hand, a debit note is issued when the amount previously invoiced is increased for the same transaction. The reduction or addition to service tax amount is:-
(i) Due to a change in the rate of tax in force or
(ii) Due to any adjustment in the course of business.
The credit note and debit note shall contain prescribed particulars as follows:-
(i) The words “credit note” or “debit note” in a prominent place;
(ii) The serial number and date of issue;
(iii) The name, address and identification number of the registered person;
(iv) The reason for the issuance;
(v) A description which identifies the taxable services;
(vi) The quantity and amount for each taxable service; (vii) The total amount excluding tax;
(viii) The rate and amount of tax; and
(ix) The number and date of the invoice
Duty to Keep Records
It is a requirement that a taxable person keeps records which affects his liability to service tax for seven (7) years and the records must be in English or national language.
The records must be kept in Malaysia unless otherwise approved by the Director General.
The basic records to be kept are:
(i) Invoices and payment receipt;
(ii) Daily, Monthly or Yearly Sales Report;
(iii) Debtor Aging Listing;
(iv) Credit / Debit Note Listing;
(v) Audited Financial Statement;
(vi) Bank statement; and
(vii) Contractual Agreement and Progressive Report
Disbursement
The recovery of cost or a payment made by registered person on behalf of another party is termed as a “disbursement”. A disbursement does not constitute providing taxable services and hence, is not subject to service tax. Payment to third party or on behalf of the principal will be treated as disbursement if the registered person fulfils all the following criteria:
(i) Incur expenses on behalf of the client;
(ii) The client is the recipient of the services (invoice is in the client’s name);
(iii) The payment is authorised by the client;
(iv) The client knew that the services is made by a third party;
(v) The exact amount is claimed from the client and has no right to alter or add on the value of the services;
(vi) The payment is clearly an additional to the services made to the client.
Reimbursement
A reimbursement is subject to service tax. A registered person must fulfil all the following criteria:
(i) Incur expenses as principal;
(ii) The client is not the recipient of the services (invoice is in the principal’s name);
(iii) The principal is the person responsible to pay for the service;
(iv) The payment is not authorised by the client;
(v) The client has no knowledge that the service is made by a third party;
(vi) The principal has the right to alter or add on the value of the services;
(vii) The payment is for the service made to the client.
Submission of Returns
A taxable person has to furnish a service tax return and account for service tax in Form SST-02 every two months according to his taxable period which is defined as two calendar months.
The service tax return should be furnished whether or not there is tax to be paid.
The submission can be done electronically at MySST or the taxable person can download and print the Form SST-02 from the MySST portal. The return shall be furnished by post to the Customs Processing Centre (CPC).
Any taxable person who ceases to be liable to be registered or cease providing taxable services has to furnish a final return not later than thirty (30) days after such cessation.
Payment of Service Tax
Any service tax which falls due during any taxable period shall be payable to the Director General not later than the last day on which he is required to furnish the return.
Payment by cheque or bank draft may be made by mailing to the customs officer at CPC. Post-dated cheques are not allowed.
Example
Company ABC posted a cheque for the payment of service tax on 25 Jan 2019. The cheque was post-dated as 29 Jan 2019. The cheque was received by the Customs Processing Centre on 26 Jan 2019.
Cheques written by the registered person for a date in the future is not accepted as payment for service tax by RMCD.
Imposition of Penalty for Late Payment
(i) For the first thirty days period, that the tax is not paid wholly or partly after the expiry of the period, a penalty of ten percent of the amount of tax remain unpaid;
(ii) For the second thirty days period that the tax is not paid wholly or partly after the expiry of the period, an additional penalty of fifteen percent of the amount of tax remain unpaid;
(iii) For the third thirty days period that the tax is not paid wholly or partly after the expiry of the period, an additional penalty of fifteen percent of the amount of tax remain unpaid.
Deduction From Return of Refunded Service Tax
The Director General may approve, subject to such conditions as he may deem it to impose, an application by any taxable person to deduct, from time to time, from his tax return the amount of service tax paid which was subsequently refunded to his customer by reason of:
(i) Cancellation of taxable service;
(ii) Termination of taxable service;
(iii) Other reasons as may be approved by the Director General.
The deduction of service tax shall be made within one year from the date of payment of service tax.
This deduction facility is called the "contra system" which allows for the deduction of refunded service tax by way of set-off against future service tax payable.
An application to the Director General for approval to use this facility must be made and upon approval, the taxable person may proceed to deduct service tax refunded to his customers from his payment of service tax through the Form SST-02. In the event that the service tax deduction exceeds the service tax payable in a particular taxable period, the balance will be carried forward to the next taxable period.
In practice, the following transactions are allowed for deduction under the contra system:
(i) Termination of agreed transaction,
(ii) Discounts given subsequent to the payment of service tax,
(iii) Reduction or adjustment of price,
(iv) Cancellation of insurance policy before expiry,
(v) Reduction of insurance premium due to reduction in the period or risk covered
Payment by Instalment
The Director General may allow service tax or penalty to be paid in instalments. Following the approval to pay by instalments, the imposition of penalty shall not be applicable to such amount as from the date the Director General allows the payment by instalment under the instalment scheme, the amount of each instalment and the dates of payment shall be determined by the Director General.
If there is a default in the payment of any instalment on its date due, the instalment payment facility will be withdrawn and the person is required to pay forthwith the whole outstanding balance on that date. In addition, the whole outstanding balance shall be subject to a surcharge of 10% of that outstanding balance.
Claim for Refund of Service Tax in Relation to Bad Debt
Any claim for bad debts from the Director General can be made by a registered person or a person who has ceased to be a registered person. He may make a claim to the Director General for a refund of the whole or any part of the service tax paid by him in respect of taxable services subject to conditions and satisfaction of the Director General as follows:
(i) Service tax has been paid;
(ii) The whole or any part of the service tax payable has been written off in his accounts as bad debts;
(iii) He has not received any payment in respect of the provision of taxable services from the debtor; and
(iv) Reasonable efforts have been made by him to recover the service tax.
The payment in respect of taxable service provided by the person owed by the debtor shall be deemed as irrecoverable if:
(i) The registered person has not received the whole or any part of such payment after six (6) months from the date such service tax was paid by him and
(ii) The payment owed by the debtor has been provided as doubtful debt or written off in the registered person’s account.
The debtor where the whole or any part of the service tax payable to registered person has been written off in his account as bad debt. The registered person is entitled to a bad debt claim if the DG is satisfied that:
(i) In the case the debtor is an individual, he is adjudged bankrupt, a deed or arrangement is made for the benefit of his creditors or a composition or scheme of arrangement proposed by him is approved under the Bankruptcy Act 1967; or
(ii) In the case where the debtor is a company:
(a) It is ordered by the court to be wound up because it is unable to pay its debts within the meaning of the Companies Act 2016: and
(b) A receiver is appointed and the statement of affairs lodged with the Companies Commission of Malaysia shows that its assets would be insufficient to cover the payment of any dividend in respect of debt.
If he has received any payment in respect of the taxable services, the claim can be made for the difference between the service tax paid and the amount calculated according to the following formula:
Example
AB & BB Partners is a registered person. They provide taxable services to a client on 1 Oct 2018 where the total value of service including service tax is RM53,000.00 and the invoice is issued on the same day. AB & BB Partners has accounted for service tax of RM3,000.00 on 1 Oct 2019 (after 12 months from the date of invoice issued). On 15 November 2019, they have received a payment of RM43,000.00 from the client. However, six months later, the debtor has been declared bankrupt and was unable to pay the balance of RM 10,000. Therefore, AB & BB Partners can claim bad debt based on the calculation as follows:-
Repayment of Service Tax in Relation to Bad Debt
When a refund of service tax has been made by the Director General and any payment in respect of the provision of taxable services, the person shall repay to the Director General following the formula.
Example
AC & GG Associates is a taxable person under service tax who has claimed a bad debt refund and has received a refund of RM3,000.00 from the value of service RM 53,000.00. Four years later, his debtor has been release from bankruptcy and has paid RM 10,000 including service tax to AC & GG Associates to settle his debt. The AC & GG Associates under service tax has to pay back the service tax to RMCD according to the formula as follow:-
The application of bad debt shall be made by providing the documents as follows:
(i) A copy of invoice and receipt;
(ii) Form SST-02 or any other documents showing service tax have been paid and accounted for;
(iii) A record or document showing that there is no payment received;
(iv) A record or document showing reasonable efforts have been made to recover the payment of taxable service; and
(v) A record showing the bad debt has been written off
A person who manage to recover his bad debt shall declare the amount of service tax payable to the Director General of Customs in the SST-02 return according to taxable period which he receives the tax payment from his customer.
The person who is claiming bad debt is required to keep all the records and documents related to the claim for a period of seven (7) years from the date of the claim for inspection by the proper officer at any time.
Example
The registered person has performed his architectural services on 2 September 2018 and no payment has been received. His debtor has been declared bankrupt and the registered person is claiming the bad debt in the fifth year from the date of service tax was paid on 1 October 2023.
Hence, the records relating to the bad debt claim shall be kept for an additional period of seven (7) years until 30 September 2030.
Payment of Service Tax Short Paid or Erroneously Refunded
The Act allows the authorities to demand the whole or part of any unpaid service tax, penalty or other moneys payable under this Act from the person liable to pay such service tax, penalty or other money, or the deficient service tax, penalty or other moneys. Similarly, a demand may also be made for the whole or any part of service tax, penalty or other money, which, after having been paid, has been erroneously refunded, from the person to whom the refund was erroneously made.
The demand must be made within six years from the date on which the service tax, penalty or other moneys were payable, or the deficient service tax, penalty or other moneys were paid, or the refund was made.
Refund of Tax or Penalty Overpaid or Erroneously Paid
The Director General may grant a refund of service tax or penalty, which is proved to his satisfaction to be overpaid or erroneously paid because of error whether of fact or of law, subject to such limit as may be prescribed by regulation.
The claim of refund can be made within one (1) year from the time:
(i) Such exemption granted by the minister of finance;
(ii) Such overpayment or erroneous payment occurred; or
(iii) Such approval of remission given.
Application for refund shall be made in the prescribed form JKDM No. 2 and submitted together with the relevant supporting documents to the Revenue Accounting Branch (Cawangan Perakaunan Hasil) in the controlling zone / state / station with the following documents as follows:
(i) Application letter from the company that explain about refund of service tax, penalties, fee and any other money.
(ii) A copy of invoice and receipt;
(iii) A copy of exemption letter if applicable;
(iv) A copy of SST- 02 return form;
(v) Statement of refund; and
(vi) Other related documents.
Special Provisions Relating to Designated Areas (DA)
‘Designated area’ means Labuan, Langkawi, or Tioman;
Any taxable service provided within Malaysia by any person whose principal place in business is located in a DA is subject to service tax.
Any taxable service provided in a DA by any person whose principal place of business is located in Malaysia is subject to service tax.
Any person providing taxable services below within or between DA and SA is shall be chargeable to service tax are:
(i) Provision of passenger air transport services;
(ii) Provision of telecommunication services; and
(iii) Provision for clearing goods from customs control in SA.
Special Provisions Relating to Special Areas (SA)
Special areas means any free zone, licensed warehouse, and licensed manufacturing warehouse and Joint Development Areas (JDA).
Any provision of taxable service within or between SA is not subject to service tax.
Any taxable service provided within Malaysia by any person whose principal place in business is located in SA is subject to service tax.
Example
A company in SA provide engineering service to a company located at PCA. The engineering service is performed in PCA.
The service is subject to service tax.
Any taxable service provided in a SA by any person whose principal place of business is located in Malaysia is subject to service tax.
Example
A company in PCA provide accounting service to a company located at SA. The accounting service is performed in PCA.
The service is subject to service tax.
Example
A company in SA provide consultancy service to company located at PCA. The consultancy service is performed in SA.
The service is not subject to service tax.
Any person providing taxable services below within or between SA is shall be chargeable to service tax are:
(i) Provision of passenger air transport services;
(ii) Provision of telecommunication services;
(iii) Provision of accommodation premises;
(iv) provision of foods and beverages; and
(v) Provision for clearing goods from customs control in SA.
Review and Appeal
Any person, who disputes the decision of a proper officer acting in the course of his duty, may appeal to the Director General whose decision shall then be final. He may appeal to the Director General within 30 days from the date the he has been notified of the decision for a review provided no appeal has been made on the same matter to the Tribunal or court.
However, any person who is aggrieved by the decision of the Director General may appeal to the Customs Appeal Tribunal within 30 days of being notified of the decision of the Director General. The decision of the Customs Appeal Tribunal shall be final.
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Edited by: 浪子
Bibliography
Royal Malaysian Customs Department. (2018). General Guide - Service Tax. Retrieved from
https://mysst.customs.gov.my/assets/document/General%20Guides/1.%20General%20Guide%20Service%20Tax_07092018-v3.pdf
Service Tax - General Guide
Reviewed by 浪子
on
October 14, 2018
Rating:
Reviewed by 浪子
on
October 14, 2018
Rating:
