KUALA LUMPUR: The government is expected to generate an additional service tax revenue of RM900 million in 2024 following its plans to increase the service tax rate to eight per cent from six per cent.
This change is accompanied by the expansion of taxable services to encompass logistics, brokerage, underwriting, and karaoke services, as outlined in the 2024 Budget.
Deloitte Malaysia country tax leader Sim Kwang Gek said, however, the immediate impact on businesses would be the rising costs of doing business as the service tax increase will be passed on to consumers and businesses at the end of the day.
"As we all know, the sales and service tax regime has a 'tax on tax' effect and will result in higher prices.
"To cushion this, it is hoped that the government will expand the business-to-business exemptions that is currently applicable to certain prescribed taxable services," she said in a statement late Friday in response to the 2024 Budget tabled by Prime Minister and Finance Minister Datuk Seri Anwar Ibrahim.
Echoing Sim's views, PwC Malaysia tax leader Jagdev Singh said the service tax increase appears to be a stopgap measure until the government is ready to implement a broad-based consumption tax in the form of the goods and services tax (GST).
"Although the strategy to maintain the rate of service tax for food and beverage and telecommunication services is prudent as these are consumed by the masses, some of the other services consumed by businesses will result in an increase in the cost of doing business.
"Also, expanding the service tax to cover logistics services will have a cascading effect on costs, and businesses will seek to pass these on to consumers in the form of increase in prices of goods and services," he said.
Similarly, Chartered Tax Institute Malaysia (CTIM) president Chow Chee Yen said the country may see an increase in charges or fees from the recipients of the services provided due to the two per cent increase.
"The effective date of the increase in service tax rate is not mentioned in the budget announcement, and it is expected to be announced in the Finance Bill (No. 2) 2023 or in a subsidiary legislation," he said.
Capital gains tax (CGT)
On the move to implement capital gains tax (CGT) for the disposal of unlisted shares by local companies based on the net profit at a rate of 10 per cent from March 1, 2024, Sim said it is expected that the current Real Property Gains Tax Act 1976 (RPGT) will be amended to remove RPGT on disposal of real property company shares to avoid double taxation.
"A challenge for the implementation of CGT is how do you value the cost base of the unlisted shares as the 10 per cent proposed CGT is applied on the net gain.
"In situations where the shares have been acquired many years ago or a company that has been incorporated many years ago with a low capital base, the net gain would be substantial, so it does not seem to be equitable to whack 10 per cent on the difference between the sale proceeds and the costs," she said.
Ernst & Young Tax Consultants Sdn Bhd (EY) Malaysia tax leader Farah Rosley said that with the new CGT proposed, mechanisms should be put in place to prevent double taxation, while CTIM's Chow anticipates there will be more details on the scope of CGT in the Finance Bill (No. 2) 2023 or in a separate draft legislation.
"We hope these will shed light on matters such as the interaction of CGT with the foreign source income exemption regime and RPGT," he said.
Value goods tax, global minimum tax
On the five to 10 per cent high value goods tax plan, Chow is waiting for further announcement on its implementation date as well as clarification if this is a revamp of the previous proposal to implement the luxury goods tax.
On the government's plan to implement the global minimum tax (GMT) in 2025, which only applies to companies with a global income of at least 750 million euros (1 euro = RM4.976), Chow said the deferment will give tax authorities and the affected multinational companies much needed time to make the necessary preparations.
"It is hoped that the draft guidelines, indicative timeline for implementation and draft legislative provisions on GMT and qualified domestic minimum top-up tax (QDMTT) will be made available for consultation and feedback soon," he said. -- BERNAMA
