Expanded Scope of Sales and Service Tax in Malaysia

The sales tax revision covers certain discretionary items that have been reclassified from 0% to 5%, including king crab, salmon, cod, truffles, mushrooms, imported fruit, essential oils, silk fabrics, and industrial machinery.

Several premium discretionary items are now subject to a higher sales tax rate of 10%, including racing bicycles and antique hand-painted artworks.

However, on 29 June 2025, the Ministry of Finance (MOF) decided to exempt imported oranges, apples, mandarin oranges and kurma from charging sales tax.

Leasing or Rental Services

Service tax will be imposed at a rate of 8% by service providers whose total leasing or rental revenue exceeds the RM 1,000,000* threshold within a 12-month period, except for the following:

• Leasing or rental of residential buildings, reading materials, financial leases, and tangible assets located outside Malaysia.
• Lessees classified as micro, small, and medium-sized enterprises (MSMEs) with annual sales below RM 1,000,000*.
• Business-to-business (B2B) transactions and group relief to avoid cascading tax effects.
• Non-reviewable contracts are granted a 12-month exemption from the effective date (conditions apply).

Construction Services

A Service Tax at a rate of 6% will be imposed on contractors with revenue exceeding RM1.5 million within a 12-month period, except for the following:

• Residential buildings and public amenities related to housing.
• Business-to-business (B2B) transactions.
• Non-reviewable contracts are granted a 12-month exemption from the effective date, provided certain conditions are met.

Financial Services

A Service Tax at a rate of 8% will be imposed on fee- or commission-based financial services. The following categories are exempt:

• Basic financial services including basic banking and interest or profit-based Islamic financing.
• Foreign exchange and capital market gains, punitive charges or fees, outward remittance transactions, financing facilities directly related to exported goods, charges to remittance agents abroad for inward transfer to Malaysia, and life insurance/ takaful, medical, and family takaful-related broking or underwriting services for individuals.
• Business-to-business (B2B) transactions.
• Shariah-compliant fee arrangements.
• Bursa Malaysia and Labuan services.

Private Healthcare Services

A service tax of 6% will be imposed on private healthcare, traditional and complementary medicine, and allied health services provided to non-citizens by service providers exceeding the RM1.5 million threshold.

The following categories are exempt for Malaysian citizens:

• Public and private health care services, as well as traditional and complementary medicine including Malay Traditional Medicine, Traditional Chinese Medicine, Traditional Indian Medicine, Islamic Medicine, Homeopathy, Chiropractic, and Osteopathy.
• Physiotherapy, audiology and speech therapy.

Education Services

A Service Tax at a rate of 6% will be imposed on the following:

• Private preschools, primary schools, and secondary school with annual tuition fees exceeding RM60,000 per student.
• Higher education services provided to non-citizens.

The following categories are exempt:

• Malaysian citizens with disabilities (OKU).
• Higher education services for Malaysian citizens.

Beauty Services

Following the Ministry of Finance’s (MOF) announcement on 29 June 2025, the government has decided to continue exempting this service sector from service tax.

* Revised on 29 June 2025 by the Ministry of Finance (MOF) Malaysia.

Any non-registered businesses that exceed the threshold in July 2025 must submit their registration application to the Royal Malaysian Customs Department (RMCD) by the end of August 2025. They will then be obliged to charge Service Tax from 1 September 2025 onwards.

Existing registrants do not need to register with RMCD again. Instead, they must update their registration details by adding the new category in the MySST portal, and charge service tax on new services from 1 July 2025 onwards.

To support a smooth transition, businesses affected by the expanded Sales and Service Tax (SST) will be granted a grace period until 31 December 2025. During this period, enforcement actions such as prosecution and penalties will not be pursued. This transitional arrangement aims to provide businesses, particularly micro, small and medium-sized enterprises, with sufficient time to adapt to the new obligations.

Remarks: All of the above may be subject to change as discussions between the relevant business societies and government authorities are ongoing.

Ang Heng Ann
Tax Consultant at ECOVIS Malaysia
Email: hengann.ang@ecovis.com.my