💣BOOM!💣 SERVICE TAX LANDMINES You Never Knew!

Published: 2 April 2025

Previously, we delved into the complexities of logistics and service tax, particularly the taxability of delivery services between Free Trade Zones (FTZs) and non-FTZs.

This time, we are shedding light on TWO common service tax misconceptions that many businesses unknowingly make—mistakes that could lead to significant tax underpayment and potential penalties.

Case Study 1: Delivery Services by Trading Businesses

Scenario: GB Electronics Sdn. Bhd., is a local electrical store that sells home appliances and electronic goods.

In addition to this, they also offer delivery services at a fee, to customers who purchase products from their store.

A widespread misconception among businesses which are trading in nature, but offer delivery services, is that they are service tax exempted.

While trading is not one of the industries required for registration, the delivery services by GB Electronics Sdn. Bhd. are still subject to service tax (under Group J), (if revenue from such service exceeds the RM500,000 threshold in 12 months.)

Case Study 2: Extended Warranties and Service Tax

Scenario: The electrical and electronic products sold at GB Electronics Sdn. Bhd.,come with a standard warranty from the manufacturer.

As a value-added service and peace of mind, GB Electronics Sdn. Bhd. offers their customers the option to purchase an extended warranty for the products purchased.

But what is an extended warranty?

While GB Electronics Sdn. Bhd. nature of business is considered as trading, the provision of extended warranties is a taxable service under Group G, as maintenance or repair services.

As a result, these extended warranties are subject to service tax!

⚠️ Boss, here’s a REMINDER: Even if your company is primarily involved in trading, additional services like delivery and extended warranties ARE taxable services⚠️

You need to be informed of proper classification of taxable services to avoid non-compliance!

Key Takeaways for Businesses:

1. Delivery services are taxable under Group J even if your business is categorized as trading. (If total revenue from such services exceeds RM500,000 in a 12-month period.)
2. Extended warranty is a taxable service under Group G (classified as maintenance OR repair) (If total revenue from such services exceeds RM500,000 in a 12- month period.)

*The threshold of RM500,000 for Category J and G is to be assessed separately*

As always, you need to stay informed on service tax regulations to avoid underreporting and penalties.

The tax authorities are vigilant, and unintentional mistakes could result in significant financial repercussions. Don't fall into these common tax traps—assess your business activities carefully and ensure full compliance with Malaysia’s service tax laws.

Need guidance on service tax compliance? Our team of experts are here to help.

Contact us today to safeguard your business from costly tax errors!