The Royal Malaysian Customs Department recently released Minutes of Meeting No. 1/2018 of the Technical Committee on Sales Tax and Service Tax Implementation Issues.
One of the issues raised at the meeting was the taxability of disbursements and reimbursements.
Service tax is charged and levied by reference to the value of taxable service. The Royal Malaysian Customs Department has said that costs incurred are part of the value of the services provided and therefore, the recovery of such costs is subject to service tax.
In our view, this is controversial.
Under the Service Tax Act, 2018, it is an issue of value of services, not the value of anything else.
Typically, costs, including disbursements and reimbursements, should not be taken into account. Disbursements and reimbursements are generally not part of the value of services.
The matter should go back to the terms of the relevant contract for services to determine what the value of the services is. If indeed, when one looks at the relevant contract, the costs incurred are not part of the actual value of the services, then the recovery of such costs should not attract service tax.
Nicholas Mark Pereira (Senior Associate)
(T): 603 – 2632 9911