Latest Indirect Tax Updates
- ThinkTx
- Jun 10
- 4 min read
Changes to Sales Tax Rates and Service Tax Scope Effective 01 July 2025
In line with the announcement made during Budget 2025, the Government reviewed the Sales Tax rates and expanded the scope of Service Tax taking effect through a targeted approach beginning from 01 July 2025. This move aims to strengthen the country’s fiscal position by increasing revenue and broadening the tax base.
Two (2) key observations:
The Government is taking a targeted approach to ensure basic goods and services remain tax-exempt.
Various facilities are provided to reduce the impact on Micro, Small and Medium Enterprises (MSMEs).
Further to the above, the Ministry of Finance (MOF) has announced on 09 June 2025 together with latest updates today, the following measures effective from 01 July 2025.
Revised Sales Tax Rates
Category | Sales Tax Rate | Examples (further items are specified in the Gazette Order provided at the end of this document) |
Daily essential goods | 0% (maintained) | Chicken, beef, mutton, fish, prawn, squid, vegetables, local fruits, rice, barley, oats, wheat, flour, canned sardine, sugar, salt, white bread, pasta, vermicelli, noodles, instant noodles, milk, cooking oil, medicine, medical devices, books, journals, newspapers and pet food. |
Basic construction materials | 0% (maintained) | Cement, stones and sand. |
Agricultural inputs | 0% (maintained) | Fertilizers, pesticides, agricultural and livestock machinery. |
Selected discretionary goods | 5% (previously 0%) | King crab, salmon, cod, truffle mushroom, imported fruits, essential oils, silk fabrics and industrial machinery. |
Selected discretionary goods | 5% (maintained) | Abalone, lobster, quinoa, cheese, fruit jam and smartphone. |
Premium discretionary items | 10% (increased) | Racing bicycles, antique hand-painted artwork and tungsten scrap waste. |
Premium discretionary items | 10% (maintained) | Caviar, shark fin, alcoholic beverages, cigarettes, cigars and leather goods. |
Service Tax Scope Expansion
Category | Service Tax Rate & Threshold Value | Exemptions |
Rental or leasing services | 8% (if value of taxable services reaches RM500,000 within a 12-month period) | - Rental or lease of residential property, reading materials, financial leases and foreign tangible assets - Lessees classified as MSMEs with annual sales below RM500,000 - Business-to-Business (B2B) and group relief to avoid cascading tax effects - 12-month exemption (from effective date) for non-reviewable contracts |
Construction services | 6% (on infrastructure, commercial and industrial building construction works, if service provider’s value of taxable services reaches RM1.5 million within a 12-month period) | - Residential buildings and public amenities related to housing - B2B exemption to avoid cascading tax effects - 12-month exemption (from effective date) for non-reviewable contracts |
Financial services | 8% (on fee / commission based financial services, if total value of fees or commissions reaches RM500,000 within a 12-month period) Note: Phased implementation | - Basic financial services (basic banking services such as savings accounts and current accounts, and interest or profit based Islamic financing) - Foreign exchange and capital market gains, punitive charges or fees, outward remittance transactions, financing facilities directly related to exported goods, charges to remittance agents abroad for inward transfers to Malaysia, and life insurance or takaful, medical insurance and family takaful-related broking or underwriting services for individuals - Fees on credit cards and charge cards, and penalty charges - B2B exemptions to prevent cascading tax effects - Certain fees in transactions conducted in compliance with Shariah principles - Service tax exemption treatment for Bursa Malaysia and Labuan is maintained |
Private healthcare services | 6% (on private healthcare, traditional and complementary medicine, and allied health services provided to non-citizens, if service provider’s value of taxable services reaches RM1.5 million within a 12-month period) | - Public healthcare services provided by the Government - For Malaysian citizens for private healthcare services as well as traditional and complementary medicine including Malay Traditional Medicine, Chinese Traditional Medicine, Indian Traditional Medicine, Islamic Medicine, Homeopathy, Chiropractic and Osteopathy - For Malaysian citizens for allied health services such as physiotherapy, audiology and speech therapy |
Education services | 6% (for private preschools / primary / secondary with tuition fees exceeding RM60,000 per academic year per student) | - Public education - For Malaysian citizens with disabilities (OKU cardholder) |
Education services | 6% (for higher education institutions and language centres that provide educational services to non-citizens) | - Higher education and language centre services provided to Malaysian citizens |
Beauty services | 8% (on all beauty treatments such as facial treatments, manicure and pedicure services, hairdressing, tattooing, makeup and bridal styling, body slimming treatments, and herbal, milk and floral baths, if service provider’s value of taxable services reaches RM500,000 within a 12-month period) | No exemptions presently |
Transitional Relief for Businesses Adopting Sales and Service Tax (SST) Changes
Companies that undertake measures to comply with the revised SST requirements will not be subject to prosecution or penalties until 31 December 2025. However, where applicable, the relevant taxes must still be charged, reported and paid to the Royal Malaysian Customs Department (RMCD).
Gazette Orders
In line with the announcement made on 09 June 2025, the Government has issued the relevant Gazette Orders to provide greater clarity on the regulatory changes. The following orders and regulations have been published for reference:
Sales Tax
Service Tax
These documents are intended to assist businesses in interpreting and complying with the revised legislative requirements. Further official communications, including subsidiary legislation, general rulings, guidelines and Frequently Asked Questions (FAQs) will be disseminated through the official platforms of MOF and RMCD.
Action Required by Businesses
Businesses are advised to undertake a thorough assessment of their current operations to determine whether they fall within the scope of the revised SST framework. This includes monitoring threshold satisfaction and ensuring accurate classification of goods and services. Furthermore, businesses should examine existing contractual arrangements to ensure the inclusion of appropriate tax clauses and engage proactively with customers to manage expectations. Proactive compliance with these requirements will help minimise disruption and facilitate a smooth transition under the amended SST regime.
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