Sales and Service Tax (SST) Expansion in Malaysia – Effective 1 July 2025

Starting 1 July 2025, Malaysia is implementing a wider scope for Sales Tax and Service Tax (SST) as part of extensive fiscal reform (Budget 2025). This update is critical for businesses, consumers, and tax professionals preparing for heightened tax responsibilities. Here's everything you need to know and how you can act now.

What’s Changing?

Sales Tax expansion:

• 5% or 10% sales tax will apply to new non-essential, high-end goods.

• Approximately 3,400 HS‑coded items are removed from the zero-rate list; ~1,800 remain exempt

Service Tax expansion: Six service sectors newly taxable (6–8% rates):

• Construction Services (6%, >RM1.5M)
  A 6% service tax applies to contractors with annual revenue exceeding RM1.5 million. However, construction of residential properties and public infrastructure within residential areas remains exempt.

• Leasing and Rental Services (8%, >RM500K)
  Subject to an 8% service tax, excluding residential property rentals, reading materials, and tangible assets located outside Malaysia with annual rental revenue below RM500,000.

• Financial Services (8%, >RM500K) 
  Fee and commission-based financial services will be taxed at 8%. Exemptions apply to basic banking services, Shariah-compliant financing, foreign exchange gains, and capital market activities.

• Private Healthcare Service (6%, >RM1.5M for non-citizens) 
  Services provided to non-citizens will incur a 6% tax for operators earning above RM1.5 million annually. Malaysian citizens are exempt from all private healthcare taxes, including traditional and allied health services.

• Private Education Services (6%, per-student >RM60K or non-citizens)
  A 6% tax will apply to premium private education providers (charging over RM60,000 per student annually) and foreign students in higher education. All services provided to Malaysian citizens remain tax-exempt.

• Beauty and Wellness Services (8%, >RM500K)
  Services such as facials, massages, hairdressing, medicure & pedicure and wellness treatments will be subject to an 8% service tax, provided the annual taxable value exceeds RM500,000.

Perfume, racing bikes, antique artworks, drones, machines, and imported fruits now taxed at 5%–10%.
 

Key Takeaways

• Focus on luxury and non-essential goods: premium bicycles, imported fruits, silk, king crab, antiques, etc. 

• Service sectors affected: construction, leasing, finance, private healthcare, premium education, beauty/wellness.

• Thresholds matter: Registration required only if annual revenue exceeds RM500K or RM1.5M (depending on sector).

• Grace period granted: No penalties for compliance till 31 December 2025.

• No double-taxation provisions: B2B relief, intragroup exemptions, and transitional rules apply.

What Businesses Should Do

Conclusion

The revised SST regime from July 2025 signals a broader tax base focusing on luxury goods and discretionary services. With defined thresholds and transition reliefs, proactive preparation is essential. Businesses must evaluate their product/service offerings, register early, and revise pricing and contracts to navigate this change effectively.

Staying compliant ensures smoother operations and avoids penalties. Need help? Consider consulting with an SST expert or tax advisor and take action before July.

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Reference: 
https://www.pwc.com/my/en/publications/taxavvy/2025/pwc-my-2025-taxavvy-issue-16.html
https://www.reuters.com/en/malaysia-introduce-revised-sales-tax-expand-services-tax-july-1-2025-06-09/
https://harakahdaily.net/2025/06/sales-tax-quietly-expanded
https://www.crowe.com/my/news/sales-tax-revision-and-service-tax-expansion-2025
https://madeinmalaysia.com.my/what-is-sst-and-whats-changing-on-1-july-2025
https://theedgemalaysia.com/node/758356
https://assets.kpmg.com/content/dam/kpmg/my/pdf/sst-brochure-proposed-expansion-of-scope-2025.pdf
https://tratax.my/wp-content/uploads/2025/06/SST-Expansion-TRATAX-e-Alert-2.pdf