Frequently Asked Questions (FAQ) for Service Tax (ST) 2018

 

Part A: General Information

1.      What is Service Tax?

The Government announced that service tax will commence on 1 September by substituting the prevailing Goods and Services Tax (“GST”). Unlike GST which taxes all goods and services unless exemption is provided, service tax is only charged on certain prescribed services made by prescribed taxable persons.

2.      Will the new Service Tax framework be similar to the previous Service Tax law that was in place before GST was implemented in 2015?

The framework is similar that it is a single staged tax by a service provider. However, there are changes to the prescribed services that are taxable based on the proposed taxable services list.

3.      Who can charge and collect ST?

For service tax, only service tax registrants can charge and collect the service tax. Both Allianz Life Insurance Malaysia Berhad (“Allianz Life”) and Allianz General Insurance Company (Malaysia) Berhad (“Allianz General”) are service tax registrants and hence will charged service tax on taxable services

4.      How will I know if someone is authorised to collect and charge ST?

The company must be a service tax registrant to charge service tax. The service tax registration number should be displayed on any invoice issued for taxable services.

5.      Why is Allianz Life and Allianz General charging ST?

Both Allianz Life and Allianz General are registered for service tax and hence will charge service tax on taxable services.

6.     Is ST chargeable on all insurance products?

Service tax is only chargeable on the premium paid for certain insurance products listed below. Any fees/charges in relation to the insurance product will not be taxable under service tax law.

 

No

Insurance Products

ST Treatment on/ After 1 September 2018

1

Term life/Death Coverage

Not taxable as categorized under life insurance*

2

Standalone Hospital & Surgical (Medical Insurance)

Not taxable as categorized under medical insurance*

3

Standalone Personal Accident and Critical Illness

Taxable at 6%

4

Fire Insurance

Taxable at 6%

5

Motor insurance

Taxable at 6%

6

Local travel insurance (coverage within Malaysia)

Taxable at 6%

7

Overseas travel insurance (coverage not within Malaysia)

Not taxable as specifically excluded

 

*Taxable if sold to business organisation or where assignee is a business organisation.

7.      How will I know that I have been charged with ST?

A service tax registrant must issue an invoice with the prescribed particulars to be listed in the Service Tax Regulations. One of the proposed particulars is that the service tax amount must be shown as a separate line item in the invoice.

8.      How will ST be charged on policies that spans after 1 September 2018?

Please refer to Part B: General Insurance or Part C:  Life Insurance section below on the implication to policies that spans post 1 September 2018.

9.      Some branches/agencies in Free Trade Zones were exempted from GST. Will the same exemption apply under the ST regime?

Companies in the Free Trade Zone are exempted from charging any service tax for services within or between the other Special Areas (Free Zone, Licensed Warehouse, Licensed Manufacturing Warehouse, and Joint Development Area). Service tax is applicable for taxable services between principal customs areas and Free Trade Zone and Special Areas.

 

Part B: General Insurance

1.      What general insurance products will be subject to service tax?

The provision of all types of general insurance contract or general takaful certificate to cover any risks incurred in Malaysia to an individual or business organisation is a taxable service and subject to service tax except: -

  • Medical insurance contracts to cover against any risks incurred to an individual.
  • The insuring or takaful coverage of risks relating to the transport of passengers or goods:
  • from a place outside Malaysia to another place outside Malaysia;
  • from the last exit point in Malaysia to any place in other country; or
  • from a place outside Malaysia to the first entry point in Malaysia.
  • The insuring or takaful coverage on educational institution and religious organization registered under any written law.
  • Provision of all types of insurance contract, takaful certificate, to cover against any risks incurred in the making of advances or the granting of credit directly relating to the export of goods, services or investments outside Malaysia.
  • Provision of insurance contract or takaful certificate to cover risks outside Malaysia.

2.      If I purchase the general insurance policies through an agent who is not a ST Registered Person, will I get cheaper insurance policies?

No, general insurance providers are service tax registered person, premium of the taxable service provided is subject to 6% service tax as laid out in the Service Tax Regulations 2018. Thus, the pricing of the insurance policy will not be affected by channel or mode of purchase.

3.      If my motor insurance policy expires on October 2018, can I renew my policy before 1 September 2018 in order to be exempted from ST?

You may renew your motor insurance before 1 September 2018. However, the insurance coverage with effective date from October 2018 onwards will be subject to 6% service tax on premium. A premium debit note will be issue to charge on the 6% service tax from October 2018 onwards.

4.      My motor insurance policy is expiring on 1 September and I need to renew the policy before 1 September 2018.  How will service tax law impact my policy? 

Yes, you may renew your motor insurance before 1 September 2018. The insurance coverage from 1 September 2018 onwards will be subject to 6% service tax on premium. A premium debit note will be issue to charge on the 6% service tax from 1 September 2018 onwards.

5.      My fire insurance policy is expiring on 1 September 2018 and I wish to renew the insurance. How will the service tax law impact my policy?

The fire insurance policy will be subject to 6% service tax starting from 1 September 2018 onwards. Your policy will be subjected to 6% ST

6.      My annual fire insurance policy has expired on 31 July 2018 and I have renewed and paid for the whole premium amount with the GST at 0% for the annual cover period starting from 1 August 2018. How will the service tax law impact my policy?

A premium debit note will be issued to charge the premium of the policy at service tax 6% for period from 1 September 2018 until 31 July 2019. While the premium allocated to the period from 1 August 2018 to 31 August 2018 is subject to GST at 0%.

7.      I will be travelling locally in Malaysia from 10 September 2018 until 14 September 2018. I have purchased my travel insurance from Allianz on 15 August 2018 and have paid the premium amount in full. Will my premium now be subject to service tax?

Yes, the premium is subject to service tax, as local travel insurance is under the category of general insurance and is not specifically excluded from service tax.

8.      I will be travelling overseas from 10 September 2018 until 14 September 2018. I have purchased my travel insurance from Allianz on 15 August 2018 and have paid the premium amount in full. Will my premium now be subject to service tax?

No, overseas travel insurance falls under the category of coverage of risks for transport of passengers outside Malaysia as mentioned in the answer for Question 1 above.

9.      Will I be charged service tax for policies which have been charged for GST (January to September 2018) for the insurance period that spans 1 September 2018?

No, if you have made full advance payment for the total premium amount inclusive of 6% GST, there will not be any service tax charged for the period from 1 September 2018 onwards.

10.  I have paid in advance my premium for my PA policy from 1 January 2018 to 31 December 2018, will I be charged ST for my premium from September onwards?  

No, if you have made full advance payment for the total premium amount inclusive of 6% GST, there will not be any service tax charged for the period from 1 September 2018 onwards.

 

Part C: Life Insurance

Part C (i): Life Insurance for Business to Business (B2B) 

1.      What life insurance products will be subject to service tax?

All Business to Business (B2B) life insurance policy sold to business will be subject to service tax (i.e. where policy owner or assignee is a business organization).

2.      If I have paid for my policy at the beginning of the year for coverage period from 1 January 2018 to 31 December 2018, will I be charged ST for my premium from September onwards?  

If you have made full payment for the total premium including GST, you will not be charged for service tax for the insurance coverage period from 1 September 2018 to 31 December 2018.

3.      In the past GST regime, general insurance or non-life policies were taxable supplies and hence subjected to GST at 6%. Life insurance was exempted from GST while PA insurance, medical & health insurance and critical illness insurance without death benefit were subjected to GST. Is the same applicable for ST?

No, all life insurance sold to business will be subject to service tax.

4.      My group term life insurance policy is not subject to GST and has expired on 31 July 2018 and I have renewed the policy and paid for the whole premium amount without tax for the annual cover period starting from 1 August 2018. How will the service tax law impact my policy?

All life insurance policy sold to business will be subject to service tax. We will apportion your policy and will charge service tax on the period from 1 September 2018 until 31 July 2019. The premium allocated to the period from 1 August 2018 to 31 August 2018 will not be subject to service tax.

 

Part C (ii): Life Insurance for Business to Consumers (B2C) 

1.   What will happen to the premium, cost of insurance and service charges on my investment-linked products?

Investment-linked products for life insurance are not taxable under service tax law. The Cost of insurance (“COI”) and charges deducted from the investment-linked funds are not taxable under service tax law.  These include the Monthly COI Charges for Hospital & Surgical cover, Personal Accident, Critical Illness Covers, Managed Care Fees, Monthly Service Charge and Switching Fees. 

 

There is no action needed on your part as a customer as Allianz Life has since 1 June 2018 set the GST rate to 0% and service tax is not applicable beginning 1 September 2018.

2.   What will happen to the premium, cost of insurance and fees of my universal life products?

As in the case of investment- linked products, the basic cover under universal life basic plans will not be taxable under service tax. Rider premiums (e.g. waiver of premium riders) and policy fee will also not be taxable under service tax.  

3.   Will there be a reduction in the payments due to Allianz Life because of the implementation of ST?

In the case of investment-linked policies and universal life policies, please refer to the answer to question 1 and 2 above regarding the impact on the premium, COI and fees.

 

For other types of medical related policies, such as standalone medical and health insurance which were subject to GST previously, they are no longer taxable under service tax law. See FAQ 6 on General Information for more details.

 

Part D: Agents

1.   I am an agent of the Company. Do I need to register to be a service tax registrant?

Based on the current proposed list of taxable services in the Service Tax Regulation 2018 issued 29 August 2018 by RMCD, agency services are not listed as a taxable service. Therefore, insurance agents are not required to register for service tax.

2.   What will happen to agent’s commission including profit commission and other types of commission after service tax is implemented?

There will be no change to the current commission payment as the amount paid by Allianz is currently at 0% GST for GST registered agents or without GST for non-GST registered agents. The amount of commission after 1 September 2018 will remain the same.

For GST registered agents, Allianz will no longer issue any self-billed invoice for commission payments in relation to services performed after 1 September 2018.     

3.   I am GST registrant. Do I need to apply to cancel my registration?

When the GST Act 2014 (“Act”) is repealed, you are automatically ceased to be a GST registered person. You are not required to apply for deregistration. However, you are required to submit the final GST return within 120 days from the Act being repealed.