The Royal Malaysian Customs Department (RMCD) has released an updated Service Tax Guide on 14 May 2026, providing clearer guidance on how electricity and water charges should be treated for Service Tax (SST) purposes.
This update is particularly important for landlords, property managers, serviced office operators, co-working spaces, and any business that recharges utility costs to tenants or customers.
What Has Changed?
Previously, many businesses treated electricity and water charges simply as cost recoveries, assuming they were outside the scope of service tax.
However, the updated guidance by the Royal Malaysian Customs Department clarifies that the tax treatment now depends on how the utilities are billed and recharged.
In essence, RMCD distinguishes between:
1. Disbursement (Generally Not Subject to SST)
This applies when:
- The utility account is in the tenant’s name, and
- The landlord or intermediary pays on behalf of the tenant, and
- The exact amount is recovered without any mark-up
In this case, the payment is treated as a disbursement and is generally not subject to service tax.
2. Recharge as Part of a Taxable Service
This applies when:
- The utility account is under the landlord’s or operator’s name, and
- Electricity or water charges are recharged to tenants, and
- The charges form part of a broader taxable service such as rental, accommodation, or management services
In such cases, the utilities may be treated as part of the taxable service value and could be subject to service tax.
Why This Matters
This clarification has significant implications for businesses that:
- Lease out commercial or industrial space
- Operate serviced offices or co-working spaces
- Manage shopping malls or multi-tenant buildings
- Provide accommodation or hospitality services
Incorrect classification may lead to:
- Under-declared service tax
- Exposure during RMCD audits
- Penalties and backdated tax adjustments
What Businesses Should Do Now
To ensure compliance, businesses should:
- Review tenancy and service agreements
- Check how utility accounts are structured
- Reassess billing methods for tenants
- Determine whether charges are disbursement or taxable recharge
- Seek professional advice if treatment is unclear
Final Takeaway
The key message from RMCD’s updated guidance is simple:
👉 It is no longer just about recovery of cost — it is about how the charge is structured and billed.
Businesses should review their current practice to avoid unintended SST exposure.
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