Effective July 1, 2025, Malaysia has implemented a significant expansion of its Sales and Service Tax (SST) regime. The changes aim to broaden the tax base, enhance revenue generation, expecting to raise RM5 Billion in revenue, and support long-term fiscal consolidation. The expanded SST framework includes new tiers for sales tax and a widened scope for service tax, reflecting the government's efforts to realign the tax system in line with economic demands while safeguarding essential goods and services.
Sales Tax
The sales tax maintains its existing 10% rate for most taxable goods but introduces a new 5% tier to accommodate select items. Essential goods such as local fruits, rice, milk, baby food, and basic construction materials remain exempt. The new 5% rate targets items like imported fruits (excluding apples, oranges, and dates), seafood such as king crab and salmon, and certain industrial and consumer goods. This tiered approach allows for more targeted taxation without disproportionately impacting lower-income groups.
Luxury and non-essential items, including truffles, antique collectibles, high-end watches, and alcohol, continue to attract the standard 10% rate. The Ministry of Finance has clarified that locally produced agricultural goods remain exempt, reinforcing the government’s commitment to food security and local industry support.
Service Tax
The service tax scope has expanded to include previously untaxed sectors. Key additions are:
- Logistics and Delivery Services, taxable at 6%: Courier, express, and scheduled delivery services are now taxable.
- Leasing and Rental Services, taxable at 8%: Applies to commercial property and equipment rentals which reaches RM500,000 within a 12 month period, excluding residential rentals and intra-group transactions.
- Construction Services taxable at 6%: Non-residential construction projects are subject to SST, with grandfathering provisions for pre-existing contracts.
- Financial Services, taxable once the total value of such charges exceed RM500,000 within a 12 month period: Fee-based services such as fund management and brokerage now fall under the SST regime, with exemptions for interest-based income.
- Private Healthcare and Education, taxable at 6%: Only services for non-Malaysian individuals are taxed.
Certain wellness and beauty services initially proposed for taxation have been excluded following stakeholder feedback.
Outlook
A grace period lasting until 31 December 2025 has been introduced. During this transition, businesses making reasonable efforts to register, charge, and remit the correct tax will not be penalised. The SST expansion represents a strategic step in Malaysia’s fiscal reform agenda. By diversifying revenue sources and maintaining exemptions for essentials, the government seeks to balance fiscal responsibility with economic inclusivity. The phased rollout and transitional support reflect an attempt to ensure that businesses have sufficient time to adapt without disrupting market stability. As implementation progresses, ongoing dialogue between policymakers and industry stakeholders will be critical to fine-tuning the system for long-term effectiveness.
Chelsea covers business and economic news in Malaysia, providing insights on market trends, corporate developments, and financial policies. More about Chelsea Low.
