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.