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An overview on how Service Tax operates (with legal provisions) and the transition from the rate of 6% to 8% from 1 March 2024.
1. Introduction
In 2023, the Malaysian Government announced that the rate of Service Tax in Malaysia would generally be increased from 6% to 8% and that the scope of tax would be widened.
On 1 March 2024, this increase in rate and widening of scope took effect. This article sets out a brief overview of how Service Tax works and the transitional rules governing the increase in the rate of tax.
2. Overview of Service Tax in Malaysia
What is the Governing Legislation?
Service Tax Act 2018
How Does it Work?
What is it Imposed Upon?
When does a 'Service' become a 'Taxable Service'?
What is the Threshold for Registration?
What is the Rate of Tax ?
Are there Services Exempted from Service Tax?
When Is Service Tax Due?
4. New Rate of Service Tax [1 March 2024]
New Service Tax Rate – 8%, 1 March 2024
Commencing 1 March 2024, the Malaysian Government increased the applicable Service Tax Rate from 6% to 8% on prescribed services.
However, Food and Beverage Services, Telecommunication Services, Parking Place services have been maintained at 6% and credit card/debit card services are maintained at RM 25 per year.
Additionally, Maintenance or Repair Services, Logistics Services, specific Brokering or Underwriting Services and Karaoke Centres were added to the list of taxable services.
Note: The following amendments were made vide the Service Tax (Rate of Tax) (Amendment) Order 2024 and the Service Tax (Amendment) Regulations 2024.
5.Transition Guidance From Rate of 6% to 8% For Taxable Service
With the transition of the service tax rate from 6% to 8%, confusion may arise as to the rate applicable depending upon the timing of service. Accordingly, Customs issued a Guideline on this transition on 26 February 2024. This may be accessed at:
In summary, Customs has stated as follows:
Where taxable service is provided before 1 March 2024 - Rate is 6%.
Where taxable service is provided after 1 March 2024 - Rate is 8%.
Where taxable service commences before 1 March 2024 and continues after 1 March 2024, apportionment is done (i.e the portion of service before 1 March is at 6% and after 1 March is at 8%).
Where any service is paid for prior to 1 March 2024 (even for services performed at 1 March 2024) - portion paid for before 1 March 2024 remains at 6%.
The below table has been prepared to summarise the various scenarios that may arise and the applicable tax rates (as provided for in Customs' Guidelines):
Note: We would note that Guidelines issued by Customs set out Customs' view of the law but do not have force of law and are not legally binding. Accordingly, matters stated in Customs' Guidelines are still open to legal challenge.
6. Transition Guidance From Rate of 6% to 8% For Imported Taxable Service
With regard to imported taxable services, Customs have stated that the same transition principles as taxable services in Part 5 above apply, with the addition that not only is any payment made prior to 1 March 2024 maintained at the rate of 6% (regardless of when the taxable service was provided), but where any invoice is issued prior to 1 March 2024, the tax rate of 6% is also maintained (regardless of when the taxable service was provided).
Note: See note above on Customs' Guidelines.