General insurance products will be subject to a service tax following the recent passing of the Service Tax Bill in Parliament, the General Insurance Association of Malaysia (Piam) said.
The tax will be applicable to individuals who purchase general insurance policies except medical policies.
“Consumers who purchase or renew their general insurance policies on or after Sept 1, 2018 will be charged a service tax of 6% on their premium.
“Policies bought prior that span the tax holiday period, that is from June to August and continuing after September will need to have Service Tax imposed on a pro-rated basis,” it said in a statement.
Piam clarified that individuals who purchased their insurance policies before June would be exempted from the tax because they had already paid the 6% goods and services tax (GST) which had been accounted for and paid to the Customs Department.
“For example, for those who purchased their car insurance on July 25, 2018 and the period of insurance is from Aug 1, 2018 to July 31, 2019, there will be two scenarios on tax applicable to his or her policy.
“Coverage for the month of August will have a zero-rated GST and a pro-rated service tax will be charged for the remaining 11 months, that is from September 2018 to July 2019.”
Piam also noted that one-time travel insurance policies purchased for travel overseas are not taxable.
However, annual travel policies will be taxable as the destinations are not specified under the policy.
Chairman Antony Lee said the service tax, that would take effect from Sept 1, was a contrast to the former service tax regime.
Insurance and takaful services including general insurance for individuals are among the items listed as taxable under the service tax.
“Some of the insurance products purchased by individuals like motor insurance to renew road-tax and fire insurance for properties bought under loans are mandatory,” Lee added.
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