KUALA LUMPUR: An eleventh hour amendment to include service tax on almost all maintenance and repair work is expected to hurt consumers and medium-sized small and medium enterprises alike.
A federal government gazette on an amendment to the service tax regulation that was published on the website of the Attorney General's Chambers last Friday, stated that service tax would be imposed on almost all maintenance and repair services from Monday (Feb 26, 2024).
Sales and Service Tax is due to be revised upwards to 8 per cent on Mar 1, 2024.
Universiti Kuala Lumpur Business School economic analyst Associate Professor Aimi Zulhazmi Abdul Rashid said that immediate effects of the extra tax will be felt in many segments especially those involving automotive repairs.
He said consumers would need to bear extra cost for automobile repairs especially those owning cars and motorcycles that are no longer under free warranty and maintenance.
"However, it will also help to boost new car and motorcycle sales packaged together with free maintenance and repair. "Transportation businesses like trailers, buses and lorries will also increase their pricing as their operating costs escalate."Imported parts also will be more expensive as weak ringgit compounds the effect of tax rise," he told Business Times.
He noted that the government may have opted to include the tax for maintenance and repair to "eliminate" the grey economy in the supply chain of automotive parts, which involve imported and local parts trades.
"Transfer pricing may be happening as well as the prices of the parts n repair jobs are left to the market forces."The imposition of tax on maintenance and repair will have a bad impact on the consumers in the short term as they have to suffer higher taxes expenditures. "However, the long term benefits would be good for the people as more transparency will rise over time and consistency of practice and price stability will improve," he added. Thannees Tax Consulting Services Sdn Bhd Senior Manager Thushaaraam Semaadderi said the definition of maintenance and repair is too vague and wide and businesses need clarity.
"Earlier businesses only have to assess whether it is just preventive or corrective, now businesses need to assess whether they provide repair, calibration, adjustment, reconditioning, reconfiguration or overhaul and implement immediately," he added.
Thushaaraam said the move will increase cost of living for consumers and or businesses engaging medium-sme companies.
"Perhaps it is high time to review the threshold for registration to avoid SMEs and small vendors. Because 500,000 for a business is not much especially with the increasing cost of doing business," he added.
He said more time should be given to businesses to implement and be prepared, saying that releasing the gazette order on Feb 23, 2024 and taxing it on Feb 26, 2024 indicates poor implementation.
vices.
While acknowledging the government's need to widen the number of taxable services, Thushaaraam said the vague definitions adds confusion and turmoil to taxpayer.