Service Tax Act 2018 Assignment: Lexxa & Co. Case Study

This Group Project Is Related To The Application Of Service Tax Act 2018.

The Service Tax Act 2018 in Malaysia is a legislation that governs the imposition and administration of service tax, which came into effect on 1 September 2018. This Act was introduced to generate government revenue and support national development.

Your group, acting as a team of tax specialists, is tasked with advising a client on the application of Service Tax Act 2018. Your client’s background is as follows:

Messrs Lexxa & Co. is a legal firm based in Kuala Lumpur providing legal services including, but not limited to litigation, corporate advisory, and conveyancing. The firm is a partnership business and qualifies as a taxable person providing taxable services. The business commenced on 1 January 2025 and uses historical method to measure its threshold limit for service tax registration. The financial year end for the business is 31^st December.

Lexxa & Co. adopts the following billing practices for its local clients:

• Charges professional fees for legal services rendered;
• Recovers disbursement expenses incurred on behalf of clients;
• Some disbursements are strictly treated as non-taxable pure disbursements, while others are marked-up or bundled into service charges, making them taxable.

Below is the firm’s revenue data for selected months from commencement.

Required

1. Assume the current month is June 2025 and Lexxa & Co. is applying historical method to measure the threshold limit. Explain the followings to your client (specify the relevant section(s) of Service Tax Act 2018 to demonstrate your technical understanding):

i. Define taxable service and taxable person.

ii. Explain the taxable period for service tax purposes.

iii. Identify FOUR (4) specific examples of services provided by Lexxa & Co. that are subject to service tax.

iv. Determine the date Lexxa & Co. is liable to become a service tax registrant (support your answer with relevant computation)

v. Determine the effective date of Lexxa & Co. registration as a taxable person.

vi. Provide FOUR (4) statutory responsibilities of Lexxa & Co. as a taxable person.

(20 marks)

2. Based on the answer in Question 1, calculate the followings (indicate clearly the separation of items in your workings to demonstrate computation accuracy):

i. Service tax for the first taxable period
ii. Service tax for the second taxable period
iii. Service tax for the third taxable period

(18 marks)

3. Prepare the following statutory documents and records accurately for Lexxa & Co.:

i. SST-01

ii. SST-02 for the second taxable period

iii. An invoice issued to a client within Malaysia for the month of August 2025.

iv. A debit note issued to a client within Malaysia in the month of November 2025 for the transaction in October 2025.

v. A credit note issued to a client within Malaysia in the month of December 2025 for the transaction in November 2025.

(22 marks)

4. Strategic compliance in service tax refers to a proactive approach where a business plans its activities to comply with service tax laws while also achieving its business objectives. Based on Lexxa & Co.’s scenario:

i. Discuss THREE (3) strategic importance of proper invoicing and the strict segregation of pure disbursements from marked-up disbursements in determining the correct service tax liability for a legal firm.

ii. Assume Lexxa & Co. expands its operations and provides services to overseas clients in relation to their properties situated in Malaysia and outside Malaysia, discuss whether service tax will still apply to these exported services.

(10 marks)

5. In the context of service tax, sustainable decision making involves ensuring compliance with the Service Tax Act 2018 while maintaining transparency, ethical practices and long-term financial stability.

i. Evaluate the financial, legal and ethical risks faced by Lexxa & Co. if the firm incorrectly classifies all disbursements as non-taxable.

ii. Propose TWO (2) sustainable decision-making practices that the firm should adopt to ensure long-term tax compliance and maintain ethical relationships with client.

Experts Answer on Above Taxation Accounting Questions

Taxable service and person

A taxable service is a type of service that is subjected to service tax under the service tax regulations 2018. In the given scenario, the services provided by Lexxa & Co. Such as corporate advisory, litigation and conveyancing are considered as taxable. A taxable person on the other hand is a person who provides taxable services under the service Tax Act 2018.
Taxable period – taxable period is every 2 months for service tax purpose, and with respect to Lexxa & Co., the periods are july to august 2025, september to october 2025 and november to december 2025. The taxable Services provided by Lexxa & Co are litigation services, legal advisory services, conveyancing services and contract drafting services.

Service tax registration

The legal services threshold is RM500000 annual taxable turnover. The taxable turnover according to months are RM80000 for Jan, RM77000 for Feb including admin charges, RM90000 for Mar, RM88000 for Apr including marked up charges, RM95000 for May and RM105000 for June the entire amount is RM535000 which is well above the threshold of RM500000. The liable date is therefore 30th June.

Effective date of registration

The registration is required to be made within 28 days once the threshold is exceeded and it should be 1st of August 2025.

Four statutory responsibilities

The four statutory responsibilities are to register for service tax, start issuing tax invoices, submit SST-02 returns and make payment of service tax.

Service tax for the first taxable period

The professional fees in July is RM105000 and for August it is RM110000 which amounts to a total of RM215000 and service tax @8% is RM17200. For the second taxable period, the total taxable amount is RM223000 and service tax @8% is RM17840. With respect to the third taxable period, the total taxable amount is RM225000 which amounts to a service tax of RM20400.

SST-01 Registration information

The name of the business is Lexxa & Co and the business format is partnership. The address is Kuala Lumpur and the service nature is legal services. The threshold limit has exceeded in June 2025 and registration date is 1st Aug 2025.

Strategic importance of proper invoicing

It helps in accurate computation of tax liability, reduces any kind of audit risk, and leads to better client transparency.

Services to overseas clients

The service tax is applicable in situations when the property is located in Malaysia whereas if the property is outside Malaysia, it is qualified as exported services and may not be subject to Malaysian service tax.

Risks if all disbursements are treated as non taxable

The major types of risk are Financial Risk because of underpayment of service tax resulting in tax assessments, legal risk in the form of fines and possible enforcement action, and ethical risk in terms of loss of credibility with regulators because of incorrect tax treatment.

Sustainable decision making practices

It is important to implement SST review procedures so that every invoice can be reviewed for proper classification before billing, and regular staff training for accurate tax treatment and ethical compliance.

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