Starting today, Malaysia is implementing an expanded Sales and Service Tax (SST), a policy update aimed at strengthening the nation’s fiscal position. First announced in the 2025 Budget, this updated tax framework extends the SST to cover a wider range of goods and services previously untaxed.
This expansion means that consumers and businesses will notice new taxes on certain items and services. The government has clarified that the changes are carefully targeted to avoid impacting essential goods and services, seeking a balance between revenue generation and managing the cost of living for the public.
Understanding the Changes to Sales Tax
The Sales Tax will now apply to a broader category of goods, with a focus on non-essential and premium items. The tax rates for these newly included goods are set at either 5% or 10%.
One of the key areas of this expansion is a 5% sales tax on certain imported fruits and premium food items. However, responding to public feedback, the government has exempted popular imported fruits such as apples, oranges, and dates from this new tax. All locally grown fruits continue to be exempt. Other goods now subject to sales tax include premium seafood like king crab and salmon, as well as some industrial machinery. A higher rate of 10% will be applied to certain luxury goods, including items like truffle mushrooms.
The government has given its assurance that essential items necessary for daily life will remain free from Sales Tax. This includes basic foods like rice, chicken, and vegetables, as well as medicines.
New Services Now Under Service Tax
The Service Tax has also been broadened to include several new sectors, with tax rates generally set at 6% or 8%. This expansion primarily targets services that are not considered essential for day-to-day living.
For private healthcare, a 6% service tax will now be applied. It is important to note that this tax is only applicable to services provided to non-Malaysian citizens. Healthcare for Malaysian citizens at private hospitals and clinics will not be affected. Traditional and complementary medicine services for Malaysians are also exempt.
In the education sector, the expanded SST introduces a 6% tax on fees from certain private educational institutions. This tax applies specifically to schools where the annual fees per student are more than RM60,000. It also covers private higher education provided to international students.
Rental and leasing services for tangible goods will be subject to an 8% service tax. To lessen the impact on smaller operators, the government has raised the annual revenue threshold for this tax, which will now only apply to businesses earning over RM1 million per year from these services.
Other sectors now facing service tax include financial services, where an 8% tax will be applied to fees for loans and other products, also with a RM1 million annual revenue threshold. Construction services will be subject to a 6% tax. In a recent revision, the government has decided to remove beauty and wellness services from the SST expansion, meaning services like manicures, facials, and haircuts will not be taxed.
A Smooth Transition for All
To help businesses adapt, the government has announced a grace period until 31 December 2025, during which penalties for non-compliance will not be imposed. For services that cross the implementation date, the new tax will generally only apply to the portion of the service provided from 1 July 2025 onwards. Businesses that are newly required to register for SST have until the end of August to do so and will only need to begin charging the tax from 1 September 2025.
These changes represent a key part of the government’s economic reform agenda. By broadening the tax base while protecting essential goods and services, the initiative aims to build a more sustainable financial future for Malaysia.
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