Car service tax likely to increase from 6% to 8%

PETALING JAYA: It could be more expensive to have your car serviced from next year, with the service tax likely seeing an increase from 6% to 8%.

Vehicle repairs and maintenance do not fall under the exempted categories under the higher tax regime which will be implemented from March 1.

However, there has been no official confirmation on the matter.

The Federation of Motor and Credit Companies Association of Malaysia will also be requesting the government to consider waiving the extra 2% hike on service tax for small workshops and those who drive second-hand cars.

Its president, Datuk Tony Khor, said the new service tax rate would not directly affect car prices but it would certainly affect maintenance cost.

“I guess the new tax rate will be applicable to car workshops too, although the government has not confirmed it," he said.

Khor said although the increase was small, it might be significant to second-hand car owners with a limited budget.

“I understand that car maintenance expenses may increase but as owners, we also need to ensure vehicle safety and roadworthiness,” he said.

Recently, the Customs Department announced that the rate of service tax under the Service Tax Act 2018 will be increased from 6% to 8% effective March 1.

However, the new rate excludes food and beverage, telecommunication, provision of parking spaces and logistics services.

According to the Second Schedule of the Service Tax Regulations 1975, motor vehicle services fall under Group G of the taxable services at the rate of 6%.

Tax expert Datuk Koong Lin Loong said that while car prices are not likely to be affected, owners would need to fork out more money for maintenance.

“Car prices will only be affected by sales tax, import duty, excise duty and approved permits.

“However, car-related services such as repairs and maintenance will involve a labour charge and the additional 2% tax,” he said.

“Car sales are not likely to be affected as repairs and maintenance are only a small fraction of the whole cost. Moreover, some brands provide absolutely free services during the warranty period,” he added.

Several other automotive industry players said they would wait for the Customs Department to issue a comprehensive guide on the new tax rate.

On a separate issue, Khor said the automotive industry is still in the dark over the High Value Goods Tax (HVGT) to be implemented in May.

“We are unsure if luxury cars would be double taxed when the HVGT is implemented. Prices now already include the existing sales tax,” he said.

The current sales tax rate under the sales and services tax (SST) for both completely knocked-down (CKD) and completely built-up (CBU) vehicles is 10%.

“So far, our association has not received any invitation to engage with the government. We hope to at least have a question-and-answer session with the Finance Ministry,” he added.

The HVGT is expected to be imposed on big-ticket items such as private jets, yachts, jewellery and luxury cars.

It is learnt that there will also be thresholds for these luxury items, such as cars that cost more than RM200,000, watches exceeding RM20,000 and jewellery worth RM10,000 and above.