Malaysia: Guidance on service tax exemption for digital payment services by local non-bank providers

Service Tax Policy 1/2022 relating to service tax exemption on provision of digital payment services by local non-bank providers

Guidance on service tax exemption for digital payment services by local non-bank providers

The Royal Malaysian Customs Department on 1 August 2022, published the Service Tax Policy 1/2022 relating to the service tax exemption on the provision of digital payment services by local non-bank providers.

The guidance provides that the following local non-bank service providers that meet the relevant qualification requirements are exempt from charging service tax on digital payment services:

  • Payment instrument issuers
  • Merchant acquirers
  • Payment system operators

The exemption is not applicable to foreign service providers or other digital services except for digital payment services.

The exemption is effective from 1 August 2022 to 31 July 2025.

During the transitional period:

  • Service tax that has been collected on the provision of digital payment services between 1 September 2018 to 31 July 2022 must be remitted to the tax authority.
  • No refund is allowed for any registered person who paid the service tax before 31 July 2022.
  • When service tax has been accounted for on the invoice basis but payment has not been received on the services provided on or after 1 August 2022, the registered person needs to issue a credit note in accordance with the service tax legislation and make appropriate adjustments in the service tax return.
  • For services provided before 1 August 2022 and that straddle 1 August 2022, the registered person must charge and account for service tax on the services provided before 1 August 2022 only. 

Amendment to Service Tax Policy 10/2020 (Amendment No 2)

The Royal Malaysian Customs Department on 1 August 2022, also issued the Amendment to Service Tax Policy 10/2020 (Amendment No 2) relating to the service tax exemption on the provision of digital services related to banking/financial services, which: 

  • Limits the exemption period from January 2020 to 31 July 2025
  • Replaces “and” with “or” in paragraph 4.1 of the Service Tax Policy, which now reads—“Banks, investment banks or any financial institution licensed under the Financial Services Act 2013 [Act 758], Islamic Financial Services Act 2013 [Act 759], the Labuan Financial Services and Securities Act 2010 [Act 704] or the Labuan Islamic Financial Services and Securities Act 2010 [Act 705]”

Read an August 2022 report prepared by the KPMG member firm in Malaysia

 

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