KUALA LUMPUR: The government does not expect the increased rate of service tax (ST) to eight per cent on March 1, to cause a sudden increase in the price of services and shock the economy.
Finance Minister II Datuk Seri Amir Hamzah Azizan said the government took a careful approach in its efforts to reform the country's taxation system.
"Although there is a need to widen the revenue, the government took into account the need to protect the people from excessive burden," he said.
Amir Hamzah added that the government needs to widen the tax base to strengthen the country's fiscal base towards a sustainable economic growth as outlined in the Madani Economy framework.
"At the same time, the government is joining all forces to readjust the country's economic trajectory by practicing prudent spending, reducing leakages and attracting foreign direct investments (FDI)," he said.
"The government does not expect this change to cause a sudden increase to the price of services at once and will not bring a shock to the economy. This is because the tax rate increase of two percentage points involves several taxable services only," Amir Hamzahe said in a statement today.
The revised taxation system is expected to generate additional revenue estimated at RM3 billion.
The minister said the additional revenue will be used to improve targeted assistance to the people on top of improving the maintenance of public infrastructure such as health, schools and roads.
According to the Service Tax (Amendment) Regulations 2024 which was gazetted on Feb 23, all listed taxable services in the First Schedule of the Service Tax Regulations 2018 will be subjected to a tax at the rate of eight per cent.
Amir Hamzah said, the coverage of the tax will also be expanded to coordinate and ensure equal tax measures to certain services in the same industry.
"For example, karaoke centers that have an entertainment element will be subject to the eight per cent tax, same as other entertainment centers that includes night clubs, dance halls, cabarets and wellness centers," he said.
The increase in the tax rate does not involve services that are deemed as basic needs such as food and beverages, telecommunications and permanent vehicle parking.
These services will be subjected to the existing tax rate of six per cent.
"For electricity services, the service tax is only charged for consumption of more than 600kWh. Almost 85 per cent of electricity consumers are below this threshold, and are not affected by this tax. "The service tax will also not be charged to treated water services," added Amir Hamzah.