Experts: Clarify service tax rates

PETALING JAYA: The Customs Department should clarify whether food and beverage (F&B) operators should specify the different rates of service tax imposed on their services beginning March next year, say tax experts.

They said the move was necessary to avoid confusion, as the rates are going to be different.

For example, wedding banquets held in hotels and event spaces will be imposed with an 8% service tax, while those that take place in restaurants will pay 6%.

This is because food and beverage are among several services exempted from the tax increase, as announced in the Budget 2024.

According to the national fiscal announcement, from March 2024, the service tax rate will increase from 6% to 8% on all taxable services, except for F&B, telecommunication services, vehicle parking space services and logistic services.

The scope of service tax will also be widened to include karaoke centre services, delivery services, brokerage and underwriting services, as well as logistics services, effective March 1, 2024.

Tax expert Christine Koh highlighted the need to specify the type of service and its relevant taxes.

“Take note that wedding can include other services, like karaoke and event planning besides F&B.

“I think the Customs Department should clarify that, because previously the rate is the same, no one bothered to separate them,” she said.

Koh pointed out that there has been no issuance of any latest sales and services tax (SST) guide for food and beverage that specifies the need to split the services and charge 8%.

However, she said the government is likely to do so if they want to widen their tax collections.

When asked, Koh, who is the managing director of a public accounting firm, said that hotels would not split their bills, because they are registered as accommodation providers, not F&B providers.

“According to the SST guide on accommodation issued by Customs on June 27, 2023, the hotel wedding package is a single taxable service, hence they can charge 8% service tax.

“When a hotel provides F&B service, it is considered as other taxable services at 8%,” she said.

However, Koh noted that if a hotel rents its space to a restaurant operator, then the restaurant operation falls under the F&B rule, with a 6% service tax if its revenue threshold makes it eligible to impose SST.

According to a Customs Department SST guide issued on June 27, 2023, which is before Budget 2024, the 6% taxable services included accommodation, food and beverage, night clubs, dance hall, cabarets, health and wellness centres, massage parlours, public houses and beer houses, private clubs, golf clubs and golf driving ranges, betting and gaming, professionals and other service providers.

Credit cards and charge cards will have a service tax of RM25 per annum.

Tax agent MK Tang also called for clearer guidelines, so business operators’ rights are safeguarded.

“Since there is still time before the new interest rates kick in next year, we should do the necessary to avoid teething issues.

“Otherwise, it can be confusing later for business operators during implementation,” he said.

Citing his workplace for example, Tang said the bills, which have been issued quarterly to clients, have to be split in two in the first quarter of next year to reflect the change in tax rates.

“One bill is from January to February 2024 at 6% service tax.

“The March bill will be 8% service tax,” he said, adding that the following quarterly bills will reflect 8% service tax.

Tang explained that the SST registration threshold for hotels and entertainment services is RM500,000 per annum and RM1.5mil for F&B services.

“The new tax rate will be imposed based on when the services are provided or consumed, not when payment is made.

“For example, a booking for a 30-table Chinese wedding banquet at a hotel in June next year will be charged the new tax rate of 8% although it is made now,” Tang explained.

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