In Malaysia, Service Tax was first introduced in 1975 and replaced with Good and Service Tax (GST) on 1st April 2015. Malaysia is considered one of the last few country to move to GST.

On the 9th May 2018, after the 14th General Election, the Malaysian has voted a new ruling government after 61 years of independence. This is the first time Malaysia has a changed in government. The voters have voted the previous ruling Barisan National to be replaced by Pakatan Harapan (PH) after PH has promised to replace the GST with SST (Sales and Service Tax).

After PH came into power, GST Act 2014 was revoked and replaced with the Sales Tax Act 2018 and Service Tax Act 2018 effective 1st September 2018. You can learn to Understand the Malaysian Sales and Service Tax from the training provided by Wanfah Prosper PLT (WFP). WFP conducts public programme on the Malaysian Sales and Service Tax once about every two month. To know when is the next public programme for Malaysian Sales and Service Tax training, visit https://wanfahprosper.com/latest-events/

Here, we would like to discuss about the Service Tax related to Advertising Services.

What is Advertising Services?
Lets discuss the following terms :

“Advertising” is the business of producing and promulgating an advertisement. Such advertising activities generally involve the advertiser, media owner or advertising agency.

“Advertisement” means an announcement or a notice to promote any product or services, or any other purpose and conveyed by or through any signage, image or sound disseminated through any medium for advertising purposes.

“Advertiser” is a person who place advertisements on his product, services, events or announcement in order to target his customers or audience.

“Advertising agency” is a person who provides any services related to advertising such as creative work, graphics and writing, design, creation of advertising campaigns and advertising placement includes selling of advertising space in any communication medium such as magazines, newspapers, billboards, radios and televisions or other media.

“Media owner” is a person who owns the right of medium for advertisement. Media owners refer to the owner of the respective media such as:

(a)  TV station

(b)  Print media (e.g. newspaper, magazine)

(c)  Radio

(d)  Outdoor advertising (e.g. billboards, bus panels, taxi panels)

(e)  Telecommunication (Mobile advertising through SMS, MMS andetc;)

(f)  Online advertising through internet

HOW IS THE TREATMENT OF SERVICE TAX ON ADVERTISING SERVICES?

Any advertising services provided by advertising agency, media owner or any person who is a taxable person to his customer for placing any advertisement for promulgation of products, services, events or announcements in Malaysia on any communication platform is subject to service tax at the rate of 6%. The communication platform includes but are not limited to the following:

(i) The advertisement for hardcopy print such as newspapers, magazines etc.;

(ii)  The advertisement for outdoor advertisements such as bus panels, taxi panels, bus stop shelters, billboards and etc.;

(iii)  Digital signage and floor graphic;

(iv)  Mobile advertisement through sms, mms and etc;

(v)  The advertisement for broadcasting in television and radio; or

(vi)  The advertisement for online advertising via internet.

Advertising services for promotion outside Malaysia is not a taxable services and hence is not subject to services tax in Malaysia.

In advertising industry, advertising agency will propose the best combination of media including placement of an advertisement, advertising method, design, graphic, photography and etc. for advertiser to convey the message and achieve their marketing campaign objective. This advertising service is subject to service tax of 6% in Malaysia under the Service Tax Act 2018.

The value of advertising services is based on the actual selling price chargeable to the advertiser including all costs incurred such as typesetting, formatting, printing, fitting the advertisement into any medium of communication, lighting, obtaining permit and approvals, all types of production cost, media cost and others.

Media owners or advertising agency who is a registered person and provide advertising services shall charge service tax on the actual price paid or to be paid to the advertisers. The calculations of service tax is as follows:

Advertisement selling price RM1,000

Add: Service Tax @ 6% RM60

Total amount payable RM 1,060

The total value to be stated in the invoice is  RM 1,060

For the purpose of service tax, any advertising agency or media owner who provide advertising services which has been prescribed under Group I, First Schedule of Service Tax Regulations 2018 is a taxable services and subject to service tax. Media owner who provided / rented out their media to the Advertising Agency do not need to charge the service tax

Charge service tax 6% Not subject to service on advertising services tax on rental billboard

Exemption Form Payment of Service Tax (Business To Business (B2B) Exemption)

Effective 1st January 2019, advertising services provider is now been granted exemption from payment of service tax on advertising services received by him. This exemption entitled to be used if fullfill condition prescribed under item 2, Schedule of Service Tax (Person Exempted from Payment of Tax) Order 2018 as below:

(i) The service that is exempted is an advertising services, not other services received by advertising service provider

(ii) Advertising service provider who is the recipient of such advertising services must be a registered person

If the Advertising Service Provider engage a media owner to advertise his services, i.e. he is now an advertiser, then the media owner will need to charge service tax on the advertising services he provided to the Advertising Service Provider and the Advertising Service Provider does not entitle to the exemption from payment of service tax as he is now the end consumer in this services

Responsibilities of Advertising Services Provider under B2B Exemption

Registered person under the category of providing advertising services, who has provided advertising services to any registered person entitled for the exemption is required to:

(i) Issue invoices with the following additional particulars;

1. (a)  Name and address of the customer
2. (b)  The customer’s service tax registration number
3. (c)  The customer’s total amount of service tax that are exempted

(ii) Declare the Total Value of Exempted Taxable Services
Declaration of the value of service exempted from tax (B2B exemption) to be made in column 18 (c) of SST-02 form.