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Malaysia: Service charges and late-payment interest integrally connected to credit sale transactions and thus taxable as business income (High Court decision)

Taxable as business income rather than interest income

July 6, 2026

The High Court of Kuala Lumpur on May 30, 2026, held in Courts (Malaysia) Sdn. Bhd. v. Ketua Pengarah Hasil Dalam Negeri that service charges and late-payment interest arising from credit-sale transactions were integrally connected with the taxpayer’s business and thus taxable as business income under paragraph 4(a), rather than interest income under paragraph 4(c), of the Income Tax Act 1967.

In addition to establishing that the commercial arrangement was closely connected to its core trading activities, the taxpayer contended that its installment scheme possessed the same fundamental characteristics of debentures and mortgages, and hence fell within the meaning of "other sources" (i.e. the first limb of Section 24(5) is satisfied).


For more information, contact a KPMG tax professional in Malaysia:

Lian Seng Soh | lsoh@kpmg.com.my

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