EXPLAINATION ON SERVICE CHARGE / GOVERNMENT TAX / SERVICE TAX

Introduction

Customs Department receives many complaints on Service Charges , Service Tax and Government Tax. This gives rise to some confusion among the public whether these are the same. The explanation below might be useful in clarifying the matter.

Differences

Service charges – is a charge over and above the cost of goods or services imposed by business in a bill. This is normally applied in the hospitality industry and the normal rate is 10%. This charge accumulates to the establishment imposing the charges and is pooled into a fund to be paid to workers in the industry. Service charges can be a replacement for tipping charge though not necessarily so.

Service tax / government tax – is a legislated tax at rate 6% (effective From January 2011) imposed under the Service Tax Act 1975. This is imposed by businesses in the hospitality industry (mainly hotels, restaurant, pubs & spas) under license by the Customs Department. The Service Tax license with the name  ,  address  and the license number is to be displayed prominently in the licensed premises. The service tax collected by the business is paid to the government once every two months.

Service tax is not imposed on the service charge but on the cost of goods or services provided.

The nature of businesses and the type of services subject to licensing and payment of service tax is listed in the Second Schedule  Of  The Service Tax Regulations 1975.

Prepared By : Internal Taxes Division, Putrajaya