Malaysia Service & Sales Tax Updates 2026

The Malaysian Customs Department released updates to service tax policies and introduced a new sales tax policy to implement changes announced earlier by the Ministry of Finance on January 5, 2026. The main purpose of these updates is to clarify how recent tax adjustments should be applied in practice and provide relief in specific sectors affected by the changes.

Clarification of Sales and Service Tax Changes

The first clarification concerns the implementation of a change announced by the Ministry of Finance regarding the service tax rate applicable to rental and leasing services. More specifically, the Ministry confirmed that the service tax rate for these services has been reduced from 8% to 6%, with the change taking effect on January 1, 2026. 

However, since the formal legislative amendments needed to enact the new rate have not yet been published in the Official Gazette, the updated policy introduces a temporary administrative solution. As a result, instead of immediately changing the statutory rate, the policy provides a 2% service tax exemption, allowing service providers to charge 6% rather than the current 8%.

Furthemore, the Customs Department published a revised policy introducing several updates to clarify and extend service tax exemptions for construction services. One of the key changes is the extension of the exemption for non-reviewable construction contracts. Additionally, with the revised policy, the Customs Department clarified the availability of a service tax exemption for the construction of religious buildings. Simultaneously, the policy introduces certain clear limitations on the scope of the exemption.

Also, the Custom Department introduced a sales tax exemption for specified raw materials used in the manufacturing of animal feed, fertilizers, and pesticides. These exemptions apply to raw materials listed in specific harmonized system tariff codes in Appendices I, II, and III of the policy and are effective retroactively from January 1, 2026. At the same time, the policy established a mechanism for manufacturers to claim refunds if they have already paid sales tax on the relevant raw materials on or after the effective date.

Conclusion

The latest tax updates in Malaysia point to a common reality where policies are moving faster than legislation. Nonetheless, by introducing temporary exemptions, extending sector-specific relief, and allowing retroactive refunds, the Malaysian Customs Department is effectively using administrative policy to bridge the gap between political announcements and formal legal implementation.

Source: Deloitte