The Finance Ministry has announced that mobile phone prepaid services provided by telecommunications companies (telcos) will be exempted from service tax.

The ministry said this was to offset the problems faced by telcos in changing their systems to accommodate the newly re-introduced sales and service tax (SST) on Sept 1.

This had led to complaints from mobile prepaid users who claimed they were being shortchanged as the credit value for top-ups purchased were being deducted for SST, despite it being in the list of tax-exempted goods and services.

In a statement today, the ministry explained that the exemption for prepaid services under Section 34(3)(a) of the Service Tax Act 2018 would be enforced from tomorrow, Sept 6.

"Through this exemption, customers of telecommunication prepaid service will receive full credit value when topping up and will no longer be charged service tax," the ministry said.

“Other methods will be announced later for telcos to ensure the government does not suffer losses in its efforts to ensure customers receive the full value for their payments,” it added.

Finance Minister Lim Guan Eng had recently reiterated that mobile prepaid reload cards were not subjected to the SST and said there was no need for telcos to "make lives difficult". He promised his ministry would meet with telcos to clear the matter.

Lim also assured prepaid card buyers that they should receive the full amount when they reload their mobile prepaid, or receive a rebate of the same value to make up for any amount taxed.

Putrajaya was forced to rush out the new taxation system to meet the Sept 1 deadline in order to avoid a potential operating deficit of RM4 billion.

The finance minister had also stated that the list of goods under the SST would be reviewed and amended by the end of the year, after studying consumer feedback.