Malaysia Expands SST in 2025: New Tax Rates & Rules

June 21, 2025

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The Malaysian Budget 2025, published in October 2024, included provisions related to the expansion of the Sales and Service Tax (SST). The measures announced in Budget 2025 were gradually developed, and amendments to the key Law were drafted, reviewed, and revised throughout the process.

Finally, on June 9, 2025, new measures and changes to the Sales Tax and Service Tax (SST) were published in the Official Gazette, with the effective date of July 1, 2025. However, the enforcement of new SST penalties is scheduled to take effect on January 1, 2026.

Key Changes to Sales Tax and Service Tax (SST)

The first significant amendments include the change in sales tax rates. Therefore, the applicable sales tax rate on a selected group of products, including certain types of fish, imported fruits, and industrial machinery, is changed from 0% to 5%. Additionally, sales of products such as racing bicycles and antique hand-painted artworks will be taxed at a 10% rate, instead of the current 5%.

The change in applicable sales tax rates affects manufacturers who previously operated as exempt. These manufacturers are now required to register and charge sales tax on their applicable goods.

The second significant change involves expanding the tax base to include additional services, such as leasing or rental, construction, financial services, private healthcare, education, and beauty services. The amendments published by the Ministry of Finance include specified rules for each of these six new categories of services subject to Service Tax.

For example, leasing or rental will be taxed at an 8% rate if the service provider exceeds the RM 500,000 (around USD 117,500) threshold. The same 8% tax rate will apply to fee or commission-based financial services. A 6% service tax on construction services will be imposed if the service providers' revenue exceeds the RM1.5 million threshold (approximately USD 353,000).

Conclusion

Considering that the proposal for recently adopted and published measures was announced in 2024, taxable persons had enough time to monitor and prepare for the inevitable changes. However, with the official announcement of new rules, taxable persons who did not start preparing on time must proactively act and adjust their accounting and pricing systems before July 1.

Source: Ministry of Finance - Press Release, Ministry of Finance - Appendix

When do Malaysia's new SST changes take effect?

The changes to Malaysia's Sales and Service Tax (SST) system take effect on July 1, 2025. However, new SST penalty provisions will begin enforcement on January 1, 2026.

What are the key sales tax rate changes under Budget 2025?

Selected products such as certain fish, imported fruits, and industrial machinery will now be taxed at 5% instead of 0%, while items like racing bicycles and antique hand-painted artworks will see an increase from 5% to 10%.

Which new services are now subject to Malaysia’s Service Tax?

The tax base has expanded to include leasing or rental, construction, financial services, private healthcare, education, and beauty services, each with specific tax rates and thresholds.

How does the 2025 SST update impact manufacturers?

Manufacturers who were previously exempt must now register and begin charging sales tax on affected goods due to the revised tax rates introduced in Budget 2025.

What are the new thresholds for SST on services?

Leasing or rental and financial services are taxed at 8% if providers exceed RM 500,000 in revenue, while construction services incur a 6% tax if revenue surpasses RM 1.5 million.

What should businesses do to prepare for the SST changes?

Businesses must review the new tax rules, update their accounting and pricing systems, and ensure they are compliant before the July 1, 2025, enforcement date.

Sales and Services Tax

Construction Services

Manufacturing

Retail