15/04/2026
A recent High Court decision involving Tune Talk provides an important clarification on the treatment of service tax for income tax purposes. This case highlights a common area of misunderstanding and offers practical guidance for businesses.
1️⃣The Core Issue
The taxpayer sought to claim service tax paid to the Royal Malaysian Customs Department as a deductible expense under Section 33(1) of the Income Tax Act 1967.
The basis of the claim was that the service tax had been absorbed by the business and was incurred in the course of carrying on the business, and should therefore qualify as a deduction.
2️⃣Position of the Inland Revenue Board and the Court
The Inland Revenue Board rejected the claim. The High Court upheld this position. The reasoning is important:
* Service tax is legally imposed on the customer
* The business acts as a collecting agent on behalf of the authorities
* As a result, the payment does not qualify as an expense incurred wholly and exclusively in the production of income
3️⃣Practical Implications for Businesses
This decision has direct implications for how businesses should treat service tax:
* Absorbing service tax on behalf of customers does not automatically make it a deductible expense
* The legal character of the payment takes precedence over its commercial treatment
* Even if the cost is borne by the business in practice, it may not qualify for tax deduction
Conclusion
This case reinforces a fundamental tax principle. Not all payments made in the course of business operations qualify as deductible expenses. The legal nature and obligation underlying the payment remain the determining factors.
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