Changes in Service Tax ruling

Beginning from July 1 2008 food & beverage outlets earning less than RM3 million p.a in Malaysia does not have to pay the 5% service tax to Royal Malaysian Customs. Service tax, being an indirect pass-through tax, is ultimately borned by the consumer of goods and services- the 5% tax which is charged by the F&B outlet is wholly paid up to the RMC. The current Service Tax Regulations 1975 states that outlets earning RM300,000 and above must pay service tax... with the ruling, many outlets will escape the tax band which will benefit the end customer. If one could remember the Service Tax was scheduled to be replaced by the new GST in January 1 2007 but it never happened due to various reasons. The implementation date of the GST is currently in 'to-be-advised' status.

The abolishment of outlets having a turnover below RM3 million to pay service tax will benefit the business as well as the customer.

The advantages I see with this tax abolishment are:

- customers save 5% when patronising these outlets
- small boost for small businesses if customers know which restaurant to go for savings
- for qualified businesses, the saving of administrative effort in collecting tax and paying tax

The drawbacks are of course enforcement of the new ruling- the RMC will have to be on the ground (most probably undercover) to check illegitimate charging of service tax. Customers must also be looking out- whether the restaurant in question appears to be earning above RM3 million a year. RM3 million a year translates into sales of RM250,000 per month, over RM8,000 sales a day- at over 800 bowls of noodles at RM10 per bowl. RM8,0000 sales is a lot for a small shop- so just take notice the next time you are charged service tax.


  1. Can you clarify if the "service tax" being mentioned refers to the 10% Service Charge or the 5% Govt Tax.

    I'm a bit confused.

  2. Sorry, re-reading the post, seems like it refers to the 5% govt tax (why then is it known as Service Tax?)

    Does these restaurants need to show their license? I looked through the customs website for the list of restaurants, and I noted that this restaurant is not in its list.

  3. Hi lotso, I'm referring to the 5% service tax, not the 10% service charge. This service tax is governed by the Service Tax Act 1975, a tax charged by a person providing taxable services to a taxable person. There is no such tax in tax free islands such as Langkawi, Labuan,etc.

    I must admit the two names are quite close. The service charge is a charge by the business establishment of that service which goes to its employees where else a service tax is collected by the business owner of behalf of the Customs & Excise. You can insist on the outlet showing their service tax licence and there should be nothing to hide on their part. Failure to show is an offence, please note. That restaurant mau be duping customers by pocketing the tax portion and not submitting to the C&E.

    Hope this answers your questions.

  4. Thanks for the clarification. This is indeed news to me then.

    The restaurant in question was TGI Friday in 1 Utama. I went to the customs website and, of the 400+ names in the list, theirs was not in the list (neither was Bistro Americana which was supposed to be what they were registered as)

    On the receipt, it was printed 5% Govt Tax. While I do not think that they make < RM8K per day in earnings (does this refer to profits or sales per day?), when I asked to see their service tax license, they only managed to show me their excise Act 1975 (liquor license).

    I was pissed when they offered to pay for my meal when it was not my intention to get a "free lunch".

    If what they are doing is against the law, then I want to put my foot down.

    There's too much unjust going on right now.

  5. Hi Lotso,

    1)Please search by their legal entity (company name) which could be different from their trading name. Try searching by company number?
    2)The excise act is not the same as the liquor license. I think you spotted the right thing with is the service tax license. The liquor license goes by the name of 'lesen menjual arak...' or something like that.
    3)RM3m should average over RM8k perday. It's the sales, not the profits. It is acceptable for an outlet to earn this much especially if located in busy area.

    Just few points of my thoughts before you ahead with any kind of action.