Following the announcement by the Ministry of Finance, the Sales and Services Tax (“SST”) scope will be expanded and will be effective 1 July 2025. In summary, a 5% or 10% sales tax will be imposed on selected and non-essential goods. On the other hand, a 6% or 8% service tax will be imposed on the following services:
- Rental or leasing
- Construction
- Finance
- Private healthcare
- Education
- Beauty
There will also be no prosecution and penalties to be imposed for the period up to 31 December 2025 on companies undertaking the necessary steps to comply with SST.
Sales Tax
The following table summarises the new Sales Tax rate for the following selected items
| Details | Sales tax rate |
|---|---|
| Selected items e.g. king crab, salmon, cod, truffle mushroom, imported fruits, essential oil, industrial machinery and silk fabrics. | 5% |
| Premium items e.g. racing bicycle, antique paintings / artwork, tungsten scrap etc. | 10% |
Service Tax
The following table summarises the expanded scope for the following categories of services
| Service categories | Service tax rate | Threshold (RM) | Business to business exemption applicable? | Non-reviewable contracts | Other exemptions |
|---|---|---|---|---|---|
| Rental and lease services | 8% | 500,000 | Yes | 12 months extension from the effective date. The effective date shall be 1 July 2026. | (a) Rental and lease relating to residential building, reading materials, financial leases and assets located in overseas. (b) Smaller businesses i.e. micro, small and medium enterprises (tenants) with annual turnover of less than RM500,000 (c) Rental and leasing services performed for federal government, state government and local authorities (e) Designated areas such as Labuan, Langkawi, Tioman Pangkor and Pulau 1 |
| Construction services | 6% | 1,500,000 | Yes | 12 months extension from the effective date. The effective date shall be 1 July 2026. | (a) Residential building (b) Public facilities in residential buildings (c) Construction works performed for federal government, state government and local authorities (d) Liquidated and Ascertained Damages (LAD) (e) Compensation |
| Financial services | 8% | 500,000 | Yes - limited to recipient of financial services regulated by the Labuan Financial Services Authority. | N/A | (a) Basic banking and Shariah-compliant financing (b) Foreign exchange gains and capital market services (c) Remittance services |
| Private healthcare services | 6% | 1,500,000 | N/A | N/A | All categories of healthcare services for Malaysian citizens |
| Education services | 6% | 60,000 annual fees per student. Threshold not applicable for tertiary education and language centre | N/A | N/A | All categories of education services for Malaysian citizens. |
| Beauty services | 8% | 500,000 | N/A | N/A | N/A |
The details with respect to each new taxable services are further explained below:
Construction services (Group L)
All construction related services including construction of residential buildings in a mix development project (approved by local authorities) will be subject to Service Tax at 6%. The scope includes construction services, EPCC, civil engineering, mechanical and electrical (M&E), engineering and facility management services.
The value of taxable services refers to the actual value of construction services that include construction material costs provided by the contractor. Where the value of taxable services exceeds the threshold of RM1.5 million, registration for the purposes of Service Tax shall be made. It is important to note that although construction services provided to the Government are exempted, they should be included as part of the calculation for threshold purposes.
The applicability of Service Tax during the transition period is summarised in the table below:
| Scenario | Services rendered | Invoice issued | Payment received | Service Tax Applicable? |
|---|---|---|---|---|
| 1 | Before 1/7/2025 | Before 1/7/2025 | Before 1/7/2025 | No |
| 2 | Before 1/7/2025 | Before 1/7/2025 | After 1/7/2025 | No |
| 3 | Before 1/7/2025 | After 1/7/2025 | After 1/7/2025 | No |
| 4 | After 1/7/2025 | Before 1/7/2025 | Before 1/7/2025 | No |
| 5 | After 1/7/2025 | Before 1/7/2025 | After 1/7/2025 | Yes |
| 6 | After 1/7/2025 | After 1/7/2025 | After 1/7/2025 | Yes |
The following table further summarises the applicability of Service Tax on retention sum:
| Scenario | Construction completed and handover | Liability period end | Applicability of Service Tax on retention sum |
|---|---|---|---|
| 1 | Before 1/7/2025 | Before 1/7/2025 | No |
| 2 | Before 1/7/2025 | After 1/7/2025 | No |
| 3 | After 1/7/2025 | After 1/7/2025 | Yes |
The proportion of retention sum with respect to construction work performed after the effective date will be taxable. On the other hand, the proportion of retention sum with respect to construction work performed before the effective tax will not be taxable.
Rental and leasing services (Group K)
Rental and leasing services including rental of property for commercial purposes, operating lease arrangements, repair and maintenance relating to the rental / lease are taxable services subject to Service Tax at 8%.
Where the value of taxable services exceeds the threshold of RM500,000, registration for the purposes of Service Tax shall be made.
The applicability of Service Tax during the transition period is summarised in the table below:
| Scenario | Rental period | Invoice date | Payment date | Applicability of service tax |
|---|---|---|---|---|
| 1 | Before 1/7/2025 | Before 1/7/2025 | Before 1/7/2025 | No |
| 2 | Before 1/7/2025 | After 1/7/2025 | After 1/7/2025 | No |
| 3 | After 1/7/2025 | Before 1/7/2025 | Before 1/7/2025 | No |
| 4 | After 1/7/2025 | After 1/7/2025 | After 1/7/2025 | Yes |
Financial services (Group H)
Financial services including banking, insurance and reinsurance provided by services providers (both regulated and non-regulated) are subject to Service Tax at 8%.
Private healthcare services (Group I)
Private healthcare services provided by those registered or licensed under the Private Healthcare Facilities and Services Act 1998 (excluding UMSC, UKM Specialist Centre, University Teknologi Mara Medical Specialist Centre, International Islamic University Malaysia Medical Specialist Centre) are subject to Service Tax at 6%. The services may include clinics providing healthcare, pharmacy, dental, nursing etc.
Additionally, the provision of traditional and complementary medicine services and the provision of private allied health services (e.g. physiotherapy, nutrition, speech-language therapy, occupational therapy, radiation, chiropractic, radiation therapy etc) are subject to Service Tax at 6%.
Although private healthcare services to Malaysian citizens are exempted from payment of service tax, they should be included as part of the calculation for threshold purposes. The current threshold is RM1.5 million.
The applicability of Service Tax during the transition period is summarised in the table below:
| Scenario | Service rendered | Invoice date | Payment date | Applicability of Service Tax |
|---|---|---|---|---|
| 1 | Before 1/07/2025 | Before 1/07/2025 | Before 1/07/2025 | No |
| 2 | Before 1/07/2025 | Before 1/07/2025 | After 1/07/2025 | No |
| 3 | Before 1/07/2025 | After 1/07/2025 | After 1/07/2025 | No |
| 4 | After 1/07/2025 | After 1/07/2025 | Before 1/07/2025 | No |
| 5 | After 1/07/2025 | After 1/07/2025 | After 1/07/2025 | Yes |
Education services (Group M)
Private education services including pre-school, primary school, lower secondary, upper secondary and post secondary services with fees exceeding RM60,000 per student per academic year are subject to Service Tax at 6%. It includes international school and chinese schools under the Malaysian Independent Chinese Secondary Schools curriculum standard. The threshold
Tertiary education services provided to non Malaysian citizens and education services provided by language centres to non Malaysian citizens are subject to Service Tax at 6%. There is no applicable threshold for this category of services.
The type of charges subject to service tax includes course fees, registration fees, co-curriculum charges, purchase of books and equipment, facility related fees and other charges relating to the education services rendered.
It is also important to note that imported services (e.g. having a foreign teacher to teach in Malaysia, online academic courses obtained from overseas education provider to students in Malaysia etc) are subject to Service Tax. Additionally, even though a student may be under scholarship / sponsored, Service Tax is still applicable as long as the conditions (outlined above) are met.
Beauty services (Group C)
The expansion of Group C for beauty services include beauty and wellness services such as facial treatment, hair treatment, slimming treatment, sauna, acupuncture, manicure and pedicure, spa, aromatherapy, reflexology, cupping etc. These services are subject to Service Tax at 8%.
It is important to monitor the transitioning rules as well as the period in which the threshold of taxable services are met so that registration can be made on a timely basis for the purposes of complying with SST.
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