Repair and maintenance exposed to service tax
TTCS Virtual Sharing Session on Indirect Tax

08 July 2024

THERE has been a significant change in the treatment of repair and maintenance for service tax purposes from Feb 26, 2024, through the amendment to the First Schedule of the Service Tax Regulation 2018, where a new sub-item has been added under the heading “Provision of any maintenance or repair services”.

Although this applies to two words: maintenance and repair services, the application of service tax is extremely wide, and it has significant ramifications for businesses.

A good example would be the exposure of service tax for repair and maintenance services which are exported.

These services can either be performed in Malaysia or outside Malaysia and service tax is applicable in both cases.

Normally for all other matters, such as matters relating to land or where the subject matter is located overseas or the employment is overseas, service tax would not be applicable since the property or the matter in consideration is overseas.

However, when it comes to repair or maintenance services there is no confinement to the Malaysian boundary.

This places Malaysian businesses that export repair and maintenance services at a disadvantage.

The creation of this sub-heading and transferring existing services subject to service tax can lead to misinterpretation in addition to the current difficulty in understanding the rationale for the treatment for certain services which fall within this category.

For example, treating calibration services synonymously with repair and maintenance services does not seem to resonate with one another because the two categories of services are entirely different.

Some of the calibration services may have nothing to do with maintenance or repair services because they merely align an instrument on a regular interval basis.

Although Customs may have a case for its interpretation, this is a debatable issue because you must look at each service based on the industry and the circumstance of the case.

To broadly apply across all calibration services would be unfair to the taxpayer.

An example where service tax should not apply when you set up the machine initially as calibration is part of the installation and that service should not be subject to service tax.

Similarly, for the other services such as adjustment services, restoration services, rearrangement services etc, there are interpretation issues.

If the application of the law is just going to be applied on a ‘broad brush basis’, many businesses that fall outside the boundaries of this definition would be unnecessarily caught under service tax.

Another problem would be the borderline between repair service to a property versus enhancement of the property.

Repair service is defined as the process of returning a product to its original condition by replacing the damaged item or improving the existing specifications.

Enhancement of a property is by extending its useful life, increasing its value or permanently improving the property beyond its existing use or current state.

Enhancements should not attract service tax but at the moment it appears to attract service tax and that should not be the case.

Based on the current changes, practically all work done on the existing property could be caught within service tax.

The definition of property is extremely wide, it ranges from plant and machinery to buildings and intangibles such as maintenance services provided on software.

Software maintenance is already caught under IT services and therefore there will be confusion on which part you should be subject to service tax.

This has an implication when you apply for the Business-to-business exemption.

There will be many more interpretational problems if you go down to a granular level and industry-by-industry on the borderline between whether you fall inside or outside repair and maintenance which can lead to unnecessary disputes.

This article is contributed by Thannees Tax Consulting Services Sdn Bhd managing director SM Thanneermalai (

This article was originally published on The Sun Daily.

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