How Misunderstanding Service Tax Can Jeopardize Your Business

First 6% and then 10%? Boss, do you know what you are paying? If you are unsure of the charges on your invoice, then READ ON to find out more!

Bill please!

The bill arrives and you are charged a 6% service tax and then another additional 10% service charge on the invoice.

After verifying the items on your bill correctly, you proceed to pay.

But do you know what you have just paid?

Do you know the difference between a service tax and a service charge?

Think you REALLY understand service tax and service charge?

  Here are some main differences between service tax and service charge.

Service Tax	Service Charge
A government-imposed tax on the cost of certain goods and services provided.	A fee charged by businesses, usually in the hospitality industry as a form of gratuity or tip.
A legislated tax rate at 6% or 8% (subject to type of taxable services and threshold).	Usually imposed at a rate of 10% but may vary depending on the establishment.
Applies to services listed as taxable under the law.	Applies at the discretion of the business and not linked to government law and regulations.
Collected by the business and paid to the government once every two months.	Charges are collected by establishment and pooled into a fund to be paid to their workers.

Boss, now that you know the differences between a service tax and service charge, as a business owner, do you know if you have been charging the legislated 6% and 8% service tax rate correctly to your customers?

A Tale of TWO Tax

Okay, here’s an example.

Go Go Golf Sdn Bhd is a company that has been in the golf business for more than 30 years.

It has established itself not only as a leading golf retail and service provider, but it also has other golf focused businesses such as golf academies and golf entertainment (food and beverage services and golf simulators.)

ABC Solutions, a local IT company, recently held a birthday celebration for their CEO, at Go Golf Fun (a golf entertainment outlet owned by Go Go Golf Sdn Bhd.)

As part of the company’s celebration, ABC Solutions organized a game of virtual golf and ordered food and drinks from the venue.

Which service tax rate does Go Golf Fun charge in their invoice to ABC Solutions?

6%? 8%? Or both?

The nature of business falls under Group E (based on the service tax policy document issued by the RMCD) ⛳

As they provide golf simulators, the service falls under section E(a) which has an 8% service tax rate. 💡

They also provide food and beverage which falls under E(b)(1) which has a 6% service tax rate. 💡

Therefore, if the final invoice to ABC Solutions of golf simulator + food and drinks amounts to RM 1,500, a 6% service tax will be imposed on the food and beverage portion, while the 8% service tax will be imposed on the use of the virtual golf course. 

Calculation example:

This is an example of how service tax will be reflected on the invoice to ABC Solutions.

Remember to always declare and pay your service tax on time!

In our last article on sales tax, we emphasized the importance of submitting, remitting and paying your due taxes back on time.

The same applies to service tax as well.

Service Tax Penalties

1. Failure to submit tax returns:

• Penalty up to RM 50,000 or; imprisonment for up to 3 years; or both ⚠️

2. Failure to remit taxes collected:

• Penalty up to RM 50,000 or; imprisonment for up to 3 years; or both ⚠️

3. Late payment penalties:

• First 30 days: 10% of unpaid tax
• Second 30 days: additional 15% of unpaid tax
• Third 30 days: additional 15% of unpaid tax
• After 90 days: 40% of unpaid tax😱

We hope that you have gained a little bit of information of how sales and service tax work.

Whether you are an employer or consumer, it is important to understand these taxes correctly to avoid any unwanted penalties.

Should you have any further questions regarding SST, we have a dedicated team of experts that will gladly help you maneuver through any difficulties you might encounter.

** Just visit us at our website or submit the form below and find out more!