Expansion of scope of service tax and service tax exemptions
In addition to the introduction of Service Tax on digital services provided by foreign service providers (refer to article in Indirect Tax News Issue 3/2019 - October 2019), the scope of taxable services subject to Service Tax has been expanded. Under the Service Tax (Amendment) (No. 2) Regulations 2019, the following services are subject to Service Tax with effect from 1 January 2020:
- Distributing or reselling of information technology services on behalf of any person;
- Provision of an electronic medium that allows suppliers to provide supplies to customers;
- Provision of digital services, including transactions involving the provision of digital services on behalf of any person;
- Provision of digital services by telecommunication service providers; and
- Provision of digital advertising services.
Government Actions to Reduce Cascading Effect
In view of the expansion of the scope of the Service Tax and to address the double taxation of consumers (cascading effect), the Malaysian Government has extended the scope of the Service Tax exemptions as follows:
- Group relief for imported taxable services;
- Relaxation of conditions for group relief;
- Business-to-Business (B2B) Service Tax exemption for imported taxable services and digital services; and
- Service Tax exemption for digital services in relation to distance education services and subscription of online newspapers, journals, and periodicals (not yet included in the legislation).
Actions to be considered
In view of the above, businesses should review their current business activities to identify any additional Service Tax obligations (for example, registration and compliance related to digital services) from the expansion of the scope of Service Tax. Businesses could also explore opportunities from the extension of the group relief and the new B2B Service Tax exemptions.