Tax expert raises concern over surprise service tax expansion to maintenance and repair jobs

• “Maintenance and repair are very broad terms, it doesn’t just cover air conditioning systems and elevators, it covers laptops too, everything's in there."

KUALA LUMPUR (Feb 27): With no prior warning or consultation, the government’s decision to include almost all maintenance and repair (M&R) jobs under the service tax’s scope came as a shock and has left the public ill-prepared for it, according to a tax expert.

Grant Thornton Indirect Tax & Transfer Pricing senior executive director Alan Chung said the tax consultant industry had not been properly consulted nor forewarned about the change that came into effect on Monday (Feb 26).  

“Two aspects of this which concern me is first of all this was brought in under the radar — there was no announcement whatsoever until the gazette order was released. Frankly, it caught us (the tax advisers) by surprise,” Chung told The Edge.

“Second, there was no proper consultation with the industry, with tax consultants — this is vital,” he said.

Chung is also concerned about how far-reaching the terms "maintenance" and "repair" are.

“Maintenance and repair are very broad terms, it doesn’t just cover air conditioning systems and elevators, it covers laptops too, everything's in there. If your television is sent for repairs, it is subject to services tax. The coverage is very wide, that’s one perspective of it,” he said.

While tax consultants have to analyse the impact of this move, the general public and businesses are not prepared for the services tax’s implementation.

“They’ve given us too little time, with no consultation made. Nobody's prepared for this. So, how we are going to go about this over the next four days is a big issue,” he added, referring to when the 6% service tax will be raised to 8% by March 1.

Another concern Chung raised is the risk of cascading taxation or double taxation.

“Unlike the goods and services tax (GST), whereby there is no cascading of taxes, the service tax has a very high tendency of being subject to (further) tax,” Chung said.

“Tax on tax is a very apparent issue and in terms of like (similar) repair and maintenance services, you can have it cascading across the board,” he added.

As example, Chung cited how a service provider, say Service Provider A, may outsource specialised repair work to Service Provider B, who will charge Service Provider A for the work, which is subject to the service tax. This will then be included in Service Provider A’s bill to the eventual customer which will then be subjected to another round of service tax.

“So, when it comes to repair and maintenance, my worry here is that there will be cascading taxes," he said.

“Of course, I am advocating for a broadening of the service tax [and] this is something towards that, but please do have some consultation for us to go and ponder over this and see whether there are any negatives from the implementation so we can address them before we implement it," he said.  

When asked whether those who failed to comply with the new service tax amendments on Monday would face any repercussions, Chung replied in the negative.

He said businesses that previously were not registered for the service tax will have until April 1 to implement the tax on the newly included taxable services. Existing registrants are legally required to charge from Monday.

“Nobody on the ground who is affected by this change in legislation has charged for service tax today, [and this issue] is still being debated among professionals in the tax industry. We are trying to interact with the Finance Ministry (MOF) and the customs to deal with this," Chung said.

“Ultimately, I suspect that they will come up with some form of exemption but it's going to be trying to rectify something that shouldn’t have appeared in the first place,” he added.

At the time of writing, the MOF has yet to release an official statement on the issue.

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