SINCE the introduction of the Sales and Service Tax (SST) in September 2018, many taxpayers have struggled to interpret the regulations and supporting guides due to numerous updates and wording differences between the Royal Malaysian Customs Department (RMCD) and taxpayers.
Although the legislation was introduced in September 2018, major changes followed – in January 2019, service tax was extended to imported services; in January 2020, to digital services; in March 2024, to logistics, repair and maintenance, and non-financial brokerage services; and in July 2025, to construction, rental and leasing, financial services, private education, and healthcare.
Amid all this, the tax rates were changed from 6% to 8% for a majority of the services.
Changes to sales tax during this period added further headache to taxpayers. In particular, July 2025 was pivotal with the expansion of sales tax to include many items which were exempted earlier became taxable at the rates between 5% and 10%.
Good example of a problem
Repair and maintenance illustrates the issue well. In September 2018, when SST applied only to preventive maintenance, the term was undefined, leaving taxpayers to interpret it themselves. Generally, preventive maintenance refers to a proactive approach involving scheduled inspections, adjustments, cleaning and parts replacement to prevent equipment failures, reduce downtime and extend asset life.
Many taxpayers initially believed that as long as the services were not preventive maintenance (done before an issue occurs), any other maintenance services would not be subject to SST. As time evolved, the interpretation adopted by the RMCD became wider and it came to a crescendo in March 2024 when RMCD defined both preventive and corrective maintenance (effective from March 1 2024).
At this juncture, taxpayers were past the post, and the new definition would catch the services provided earlier under the categories of preventive maintenance.
Since the law did not actually confine preventive maintenance to be effective from March 2024, taxpayers were now facing a tax bill retrospectively up to September 2018. Taxpayers faced a conundrum of being subjected to tax, which they genuinely believed were outside their scope.
Somewhat similar issues have occurred with the change of services from one category to another category. An example would be, financial consultancy services, which was previously taxed under Group G and qualifies for group relief, however, effective July 2025 it was moved to Group H and no longer qualifies for the group relief.
Group relief is given to services provided within a group of companies, which are subsidiaries of a holding company. Taxpayers who did not keep up with all these developments are facing additional taxes and penalties. The changes are constant and unless you have dedicated personnel monitoring these changes, you can accidentally be caught out.
A related issue is the exclusion of service tax for services rendered in relation to matters outside Malaysia. Since not all services qualifies for this exclusion, an ordinary taxpayer would be unaware of it without consulting the regulations.
Resolution through voluntary declaration
Currently, there is an opportunity to voluntarily declare any omitted tax without incurring penalties. During this period, RMCD will conduct a high-level audit rather than a detailed one and will largely rely on the taxpayer’s honesty. You can review transactions going back up to six years from the current taxable period. It is crucial to thoroughly assess your transactions, quantify any omissions, and prepare supporting calculations and documentation to substantiate the basis of any shortfall to RMCD.
It is an opportunity to clean up your past affairs and avoid the RMCD visiting you and using up your valuable management time to deal with audits which can be time consuming and expensive.
This article is contributed by Thannees Tax Consulting Services Sdn Bhd managing director SM Thanneermalai (www.thannees.com).
