This article first appeared in The Edge Financial Daily on January 29, 2019

KUALA LUMPUR: The sales and service tax (SST) target for 2019 of RM22 billion can be easily surpassed, says Royal Malaysian Customs Department director-general Datuk Seri Subromaniam Tholasy.

He said this comes as Customs broadens the scope of taxes to be imposed on services, stressing however that this is not intended to burden the bottom 40% (B40) income earners and to some extent the middle 40% (M40) households.

“There is so much of potential from the services side, and we used to collect 65% to 70% of the tax from the services, under the goods and services tax (GST).

“We now are looking at broadening the scope for services [under the SST regime], but what we will not do is impose tax on services that [will] impact the B40 and the M40 to some extent,” he told a news conference yesterday in conjunction with a tax seminar organised by KPMG Malaysia.

Earlier this month, Customs announced that four additional services will be subjected to SST from March 1. They are e-training or coaching services, amusement park services, brokerage and underwriting services, and cleaning services (for industrial purposes).

“These four service sectors were chosen as they do not add further burden to the B40 group. For example, services such as brokerage and underwriting — this would not involve the B40. We believe that taxing these [additional four] services will not influence the consumer price index.

“However, the revenue contribution from these four sectors will help further strengthen the financial position of the country,” said Subromaniam.

He then urged businesses which are involved in the four sectors to register for service tax as soon as possible, if they have not done so.

Those who fail to do so before March 1 face a fine of up to RM50,000 or imprisonment for a term not exceeding three years, or both.

“Our intention is not to take them to court. We are using a very soft approach, we want them to register, failing which there are other implications.

“For example, we can still collect backdated taxes from them. Secondly, there will be an additional late payment penalty of a maximum 40%. If they don’t pay up there will be a civil suit,” said Subromaniam.

Customs officers will also be checking on unlicensed nightclubs, health and wellness centres, massage parlours and beer houses, and collecting service tax from them.

In the past, service tax was only collected from these businesses that had local authority approval.

“Sometimes they may have opened a business, for example a nightclub, that might not have gotten their licence from the local authority. However, it is not right for us to not collect taxes, as the registered nightclubs are paying service tax.

“Whether they are registered with the tax authorities or not, they have to charge service tax. We do have our intel unit that checks on these businesses,” said Subromaniam.