5 sets of Service Tax amendment orders were gazetted yesterday, 26 February 2023 and the new rules will come into effect from 1 March 2024. Here are the key takeaways from these amendment orders:
1. Expansion of Scope of Taxable Services
These services are now subject to Service Tax:
Karaoke centre (8%)
Brokerage and underwriting services (8%)
Logistics services (6%)
Maintenance and repair services (8%) **
The inclusion of maintenance and repair service** in the scope of service tax came as a surprise as there was no advance notice or consultation with the industry players and tax practitioners. Given the broad definition of maintenance and repair - tax practitioners are seeking clarifications from RMCD. Additional details will be provided once the RMCD shares more information.
2. Increase of Tax Rate from 6% to 8%
The Service tax rate will increase from 6% to 8% effective 1 March 2024. As a concession, the new rate will not apply to the following services (will remain at 6%):
Telecommunication services
Food and beverage
Vehicle parking space services
Logistics services
3. Service Tax (Digital Service Tax Rate) Order (Amendment) 2024 (applicable to foreign registered person)
The Service Tax (Digital Service Tax Rate) Order 2019 [P.U. (A) 271/2019] has been amended in paragraph 2, replacing the phrase "six percent" with "eight percent". As a result, service tax will now be imposed at a rate of 8% on the value of digital services rendered by foreign registered persons, applicable to the portion of taxable services linked with the period after the effective date of this amendment.
Furthermore, for any digital service provided on or after the commencement date of this revision, any payments received before the said commencement date concerning the digital service will attract a service tax of 6% on the value of digital services provided by foreign registered persons.
Companies providing these services should assess the implications of their client’s current and future service terms and review and upgrade their current documentation, accounting, and filing systems.
Costs of business will also increase. As such, assessing the business costing and pricing is important.