The government will be raising the Service Tax rate from 6% to 8% in efforts to raise collection, however, tax consultant Tan Eng Yew of Deloitte feels this may increase the cost of businesses and impact prices down the supply chain.
“We continue to see adjustments made to plug leakages and enhance indirect tax collection. However, we are concerned that increasing the service tax rate and expanding the scope may increase the cost to businesses and impact prices down the supply chain. Thus, we anticipate the Government will adopt further indirect tax reforms to increase compliance and widen the tax base. ”
Increase in service tax rate
The rate of service tax is to be increased from 6% to 8%. To reduce the burden on the Rakyat, the increased rate will not apply to services such as food & beverages and telecommunications. Deloitte anticipates further clarification on the scope of telecommunications services to be excluded. Additional prescribed taxable services for service tax are to be expanded to logistics services, brokerage services, underwriting services, and karaoke services. No further details were provided on the scope of these services to be taxed. It should be noted that logistics services were previously excluded under the management services category.
Luxury goods tax
A new Luxury Goods Tax at rates ranging from 5% to 10% will be introduced. It would apply to certain high value goods such as jewelry and watches based on value thresholds. The Minister of Finance mentioned in his speech, that a tourist refund scheme will be implemented for this tax.
Alcoholic beverages and cigarettes
Effective 1 January 2024, these measures will be implemented: Transhipment activities for alcoholic beverages will be limited to certain ports only. Immigration, Customs, Quarantine and Security Complex, Bukit Kayu Hitam will be made the sole exit point for the northern region.
Importation of cigarettes for the domestic market shall be made by way of a full container load. Increase in excise duty on sugar-sweetened beverages Excise duty on sugar-sweetened beverages is proposed to be increased from the current RM0.40 per litre to RM0.50 per litre, from 1 January 2024.
Imposition of excise duty on chewing tobacco. The Government has proposed to levy excise duty on chewing tobacco under the tariff code 2403.99.5000, at the rate of 5% + RM27/kg from 1 January 2024.
Tax exemption on manufacturing aids
Import duty and sales tax exemption are to be granted to eligible manufacturers on the importation and local purchase of manufacturing aids, subject to the predetermined type of industry and the category of goods. It is proposed to be effective from 1 January 2024.
This clarifies some anomalies that existed in the past and is a welcome result of appeals made by the industry.
