Malaysia to implement revised Sales and Services Tax from July 2025

Effective 1st July 2025, Malaysia will implement a revised Sales and Services Tax (SST) framework aimed at enhancing fiscal sustainability and broadening the tax base. This move, part of the government’s Budget 2025 initiatives, seeks to increase revenue while minimising the impact on essential goods and services.

Key changes to the SST

Sales Tax adjustments

• Essential goods remain zero-rated
  Items such as rice, local fruits and vegetables, chicken, milk, cooking oil, and medicines will continue to be exempt from Sales Tax.

• Non-essential goods are taxed at 5%
  Products like king crab, salmon, cod, truffles, imported strawberries, essential oils, silk fabrics, and industrial machinery will now attract a 5% sales tax.

• Luxury items are taxed at 10%
  Items including racing bicycles, antique hand-painted artworks, caviar, shark fins, alcoholic beverages, cigarettes, cigars, and leather products will be subject to a 10% sales tax.

Expansion of service tax

The scope of the service tax will broaden to include six new categories:

1. Leasing or rental services
   An 8% service tax will apply, with exemptions for residential property rentals, reading materials, financial leases, and tangible assets located outside Malaysia.

2. Construction services
   A 6% service tax will be levied on infrastructure, commercial, and industrial building projects. Residential building construction and public facilities related to residential housing are exempt.

3. Financial services
   Fee-based financial services provided by financial institutions will now be taxable.

4. Private healthcare services
   Services provided by private healthcare institutions will attract a 6% service tax.

5. Education services
   Private educational services will be subject to a 6% service tax.

6. Beauty services
   Services such as spa treatments, massages, and cosmetic procedures will be taxed at 6%.

To support businesses during this transition, the government has announced that penalties for non-compliance with the updated tax regulations will not be imposed until after 31 December 2025.

Expected impact

The Ministry of Finance anticipates that these SST enhancements will generate an additional RM5 billion in revenue for 2025, contributing to a total expected SST collection of RM51.7 billion. This increase is intended to fund public services, including healthcare and education, and to provide direct cash assistance to citizens.

By targeting non-essential goods and expanding the service tax scope, the government aims to strengthen its fiscal position without overburdening the majority of Malaysians.