Upping the services tax affects only the wealthy

SHAH ALAM - The government's decision to up the services tax from six to eight per cent is expected to have a limited impact on those of the low-income but will instead affect the wealthy with means for extravagant spendings.

This was so as the Second Schedule of the Service Tax Regulations of 1975 includes professional services such as legal, consulting, and insurance among the categories subjected to it.

To the unfamiliar, services tax also extended to upscale dining establishments, hotels, dance clubs, nightclubs, spas, pubs, private clubs, private hospitals, golf courses, and driving ranges.

Dr Razli Ramli of Universiti Teknologi Malaysia explained that generally, most of the services covered under services tax were more geared towards the high-class and luxury service sector.

"With the food and beverage and telecommunication sectors excluded, it can be said that most of the special services included in the service tax consist of high-class services that are only enjoyed by the wealthy and super-rich.

"There is only a slight concern when the electricity bill is also subject to service tax through the sales and service tax (SST) and I think this concern will be clarified by the government in the near future," he told Sinar.

The increment of SST was revealed by Prime Minister Datuk Seri Anwar Ibrahim when he tabled Budget 2024 in Parliament on Friday in which the upped rate will not include food, beverages, and telecommunications.

Razli also added that while services tax is a part of SST, the said tax is only subjected to specific types of services provided by companies earning more than RM500,000 per year.

Concurring with Razli’s remark on services tax being part of the SST, tax attorney Ezmeer Zulkarnaen however reminded the public that they should be confused get the two taxes mixed up.

"Service tax is only applied to specific services, whereas sales tax is applied to certain items at the manufacturing and import stages and therefore will be included in the selling price to customers.

"In simpler terms, the cost of our lodging is actually subjected to sales tax if we stay at a hotel. However, if we use additional services at the hotel, service tax will be charged.

“So, there is no issue of users being charged separately through service tax because that charge is already included under the SST system," explained Ezmeer who was a former official from the Inland Revenue Board.

He also reasoned that the government’s decision to maintain SST rather than reverting to the Goods and Services Tax (GST) – as espoused by certain quarterts – was a decision that took into account current constraints.

A hasty switch back to GST, argued Ezmeer, could disrupt various business sectors, necessitating significant changes in business operations, including re-registration of GST accounts and the issuance of tax invoices from the GST era.

"This measure will also somewhat affect investor confidence because indirect taxes have undergone drastic changes in less than 10 years.

"Most importantly, it will invite the risk of additional inflation compared to the maintenance of SST.

“This is because the implications of a double increase in cost prices at every level of the production, distribution and service chain are expected to occur," he said.