As announced during Budget 2024, the government is set to increase the service tax from the 6% rate at present to 8% as of March 1. There are a few categories that are excluded from the new rate, including F&B and telecommunications, but in general, consumers are set to pay more as a result of the hike.

It has already been indicated that vehicle servicing and repairs do not fall under exempted categories under the revision, and so vehicle maintenance is set to cost more from March 1. Bear in mind that the service tax in this case is only applied to labour charges and not on the parts themselves.

In any case, the fun doesn’t really end there, because another area where motorists are set to pay more is motor insurance. Nothing has really been highlighted about this in the news so far, but the segment will definitely see the 2% increase being applied on it, as all business-to-consumer general insurance or takaful, excluding medical insurance or medical takaful is subject to service tax.

Will it cost you significantly more? Well, not quite, although it depends on the coverage or rather how much you actually have to fork out for the premium itself. The service tax for motor insurance is charged on the actual premium paid, which means it is calculated on the sum after NCD, if any, is applied.

Taking the resident Honda CR-V’s 2023 insured sum of RM96,200 as an example, the service tax is RM102.84 on a premium costing RM1,713.97 (after applying 55% NCD). That’s at 6%, and if you apply an 8% rate on the premium to get a gauge of how things shape up, the service tax would be RM137.12, which is an extra RM34.27.

As it is with servicing costs, the margin of increase from a standalone viewpoint isn’t drastic (unless labour charges are exorbitant and the vehicle you’re insuring is well, expensive), but like with the increase in the electricity tariff for consumers who use between 601 kWh and 1,500 kWh a month, it represents additional, unavoidable spend, and it will add up.

Regarding the application of the new service tax rate, here’s an interesting bit – consumers may actually have to pay more for their existing motor insurance if coverage runs through March 1, if that in an FAQ by Zurich Malaysia is right.

The FAQ notes that the tax will be applied partially on existing policies, where a policy with a coverage period from July 2023 to June 2024 will see the duration of coverage from March 1 to the end of the coverage period in June being subject to the service tax increase.

It is not known if this process will actually be applied to existing policies that run months after the March 1 implementation date, and whether it is blanket across all providers. Should this be the case, the question would be, while the calculation will be pro-rated, how exactly will policy holders pay for the adjustment? We have reached out to PIAM to find out more about this, and will update when we get further information.

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