Indirect Tax Alert: Issuance of Service Tax Policy No. 10/2020

EY wishes to inform that on 17 April 2020, the Royal Malaysian Customs Department (“RMCD”) released Service Tax Policy No. 10/2020, via the MySST portal.

The salient points of the Policy, which provides clarification regarding service tax exemption on the provision of digital services in relation to local banking/financial services, are as follows:

Effective 1 January 2020, the provision of digital services by local service providers is a prescribed taxable service under Item (m), Group G, First Schedule of the Service Tax Regulations 2018.
The Minister of Finance has stipulated that with effect from 1 January 2020, the provision of digital services in relation to banking/financial services by local service providers is not subject to 6% service tax, with reference to Section 34(4) of the Service Tax Act 2018.
Recipients of the above-mentioned services provided by local service providers are exempted from paying service tax under Section 34(3)(a) of the Service Tax Act 2018.

The local digital service providers covered by the Policy, are as follows:

Banks, investment banks or any financial institutions which are licensed under the relevant financial services legislations;
Licensed financial development institutions; and
Any digital service provider who fulfills the following conditions:

A registered person under the Service Tax Act 2018;
A digital service provider in Malaysia; and

iii. Provides digital services in relation to the withdrawal or transfer of money from one bank account to another bank account, where the service charge is charged separately to the account holder

However, please note that the above service tax exemption does not apply to the following:

- Digital banking/financial services provided by foreign service providers to consumers in Malaysia
- Digital services in relation to services other than banking/financial services provided by the above-mentioned local service providers

As a consequence of the above, the following transitional rules will be applicable:

Where service tax has been accounted for on an accrual basis (i.e., based on the date of the issuance of invoice) and the corresponding payment has yet to be received for services rendered on or after 1 January 2020, the registered person is required to issue a credit note to the customer and thereafter, perform the necessary service tax adjustments.
Where the services were provided before 1 January 2020 and span after 1 January 2020, service tax shall be charged only on the portion of the service which is attributable to the period before 1 January 2020.
No refund of service tax will be given to anyone who has paid the service tax.

The full and complete copy of the above-mentioned Policy (only available in Bahasa Malaysia at this juncture) issued by the RMCD can be found in the MySST Portal.