Expansion of scope in Sales and Service Tax (SST) | RÖDL

The Ministry of Finance has announced that the expansion of the scope of SST, as introduced in Budget 2025, will come into effect as of 1 July 2025.

In general, the revision of the Sales Tax and the expansion of the Service Tax scope encompass the following:

Revisions of Sales Tax at rates of 5 % or 10 % will apply to discretionary and non-essential goods. The Sales Tax rate remains unchanged for essential goods.
Expansions of the Service Tax scope to include leasing or rental, construction, financial services, private healthcare, education, and beauty services. This expansion includes targeted exemptions to avoid cascading tax effects and to ensure that certain essential services for Malaysian citizens remain exempt.

The government acknowledges the need for businesses to adapt to SST regulatory requirements. As such, companies that make genuine efforts to comply with the applicable SST laws will not be subject to prosecution or penalties until 31 December 2025.

Expansion of Sales Tax

The Sales Tax (Rate of Sales Tax) Order 2025 and the Sales Tax (Goods Exempted from Sales Tax) Order 2025 were released to update the Sales Tax rate and the list of goods exempted from Sales Tax with effect from 1 July 2025.

Exempted goods (0 % Sales Tax)

Sales Tax (Goods Exempted From Sales Tax) Order 2025 retains Sales Tax exemptions (zero-rated Sales Tax) for the following goods:

Unprocessed items (e.g., chicken, beef, mutton, tilapia, tongkol, prawns, squid, vegetables, local fruits, rice, barley, oat, wheat);
Processed items (e.g., flour, canned sardines, sugar, salt, white bread, pasta, mee hoon, noodles, instant noodles, milk, malt drinks, cooking oil);
Healthcare and consumer necessities (e.g., medicine and medical devices, books, journals, newspapers, pet food);
Basic materials used in construction (e.g., cement, stones, sand);
Agriculture and livestock (e.g., fertiliser, pesticide, agricultural and farming machinery).

Goods now subject to 5 % Sales Tax

Based on the Sales Tax (Rate of Sales Tax) Order 2025, some goods that were previously exempted are now subject to a 5 % Sales Tax. Example of goods are as follows:

High-value food items (e.g., salmon, cod, truffles, king crabs, imported fruits);
Luxury and lifestyle products (e.g., essential oils and silk);
Industrial goods (e.g., industrial machinery and mechanical appliances, electrical equipment, pumps, compressors, boilers, conveyors and furnaces used in manufacturing processes, as well as tools and apparatus for chemical, electrical and technical operations).

Goods subject to 10 % Sales Tax

All taxable goods not covered by the exemption list or the First and Second Schedules of Sales Tax (Rate of Sales Tax) Order 2025 are subject to the standard 10 % Sales Tax. This includes general consumer goods that are not classified as essential, such as:

Non-essential or luxury items (e.g., caviar, shark fin, alcoholic beverages, cigarettes and cigars, leather goods, tungsten scrap, racing bicycles, and antique hand-painted artworks.

Expansion of Service Tax

New taxable services have been introduced effective 1 July 2025, which cover rental or leasing, construction work, financial, private healthcare, education and beauty. While the general Service Tax rate has been increased from 6 % to 8 % for most taxable services; essential sectors such as construction, logistics, healthcare, and education continue to be taxed at the 6 % rate. Highlights of the following gazette orders relating to Service Tax include:

Service Tax (Amendment) Regulations 2025
Service Tax (Rate of Tax) (Amendment) Order 2025
Service Tax (Persons Exempted from Payment of Tax) (Amendment) Order 2025

Details of the taxable services and new service groups with effect from 1 July 2025 are as follows:

Service Category	Group	Tax Rate	Registration Threshold annually (RM)	Details
Rental or Leasing Services	Group K	8 %	500,000	Provision of all types of rental or leasing of tangible asset services including any other services which form part of the rental or leasing services except the provision of services: for rental or leasing of housing accommodation; for rental or leasing of reading materials; for rental or leasing of tangible assets located outside Malaysia; or for leasing of tangible asset through a financial lease. Available exemptions are as follows: Business-to-Business (“B2B”) exemption is available for sublease or sublet, subject to meeting conditions; A special exemption is granted to tenants who are Micro, Small and Medium Enterprises (MSMEs) with annual sales of less than RM500,000, subject to further conditions to be specified by RMCD; 12 months exemption for non-reviewable contracts subject to further conditions to be provided by RMCD; Group relief (as mentioned in the Ministry of Finance media statement of 9 June 2025); Federal Governments, State Governments and Local Authorities (based on Panduan Perkhidmatan Sewaan Atau Pajakan as at 9 June 2025)
Construction Services	Group L	6 %	1,500,000	Provision of construction works services excluding the construction of residential buildings and public facilities related to residential building. However, residential buildings and associated public facilities that are part of a mixed development project (approved by local authorities) will be taxable. Available exemptions are as follows: B2B exemptions applicable are subject to the fulfilment of conditions stated in the Schedule of the Service Tax (Persons Exempted From Payment of Tax) Order 2018; Non-reviewable contracts will receive a 12-month exemption from the effective date (i.e. 1 July 2025).
Financial Services	Group H	8 % RM25 (for credit card and charged card)	500,000* *not applicable to credit card or charge card, which are not subject to any registration threshold and already subject to specific rate of RM25 per card, per year (pre 1 July 2025)	Updates to Group H, First Schedule of Service Tax Regulations 2018 as follows: Item 1: Credit or charge cards Item 2: Insurance or takaful services Item 3: Financial services (by regulated persons) Item 4: Financial services (by non-regulated persons) Expansion of scope: The provision of any financial services that are charged for fees, commissions or similar payments by any person regulated by the Central bank of Malaysia, Securities Commission Malaysia; or Labuan Financial Services Authority; by non-financial service providers who are not regulated by the authorities listed in (1) above where the fees, commissions or similar payments are applicable, such as financial leasing, factoring, trade financing, credit facilities, Syariah compliant financing. A new taxable category, Group H: Finance, has been introduced, imposing an 8 % tax on financial services, with an exception for credit and charge cards, which will remain taxed at RM25. Available exemptions are as follows: B2B exemption is exclusively available to only recipients of financial services regulated by the Labuan Financial Services Authority.
Private Healthcare Services	Group I	6 %	1,500,000	Service Tax applies to the following: Any person who operates or provides a private healthcare facility registered or licensed under the Private Healthcare Facilities and Services Act 1998. However, this excludes those under a university or university colleges registered under the University and University Colleges Act 1971 [Act 30] or the Universiti Teknologi MARA Act 1976 [Act 173], as well as certain private healthcare facilities; Any person who operates or provides a place for the practice of private traditional and complementary medicine services excluding private healthcare facility under the Private Healthcare Facilities and Services Act 1998; Any person who operates or provides a place for the activity relating to private allied health services excluding private healthcare facilities under the Private Healthcare Facilities and Services Act 1998, which includes services such as audiology, dietic, physiotherapy, nutrition, environmental health, or health education, amongst others. Exceptions are applicable for provision of public healthcare services provided by the government. The exemption is applicable for Malaysian citizens.
Private Education Services	Group M	6 %	NIL	Service tax applies to services provided by: Any private educational institution registered under the Education Act 1996 – excluding special school and language centre: – Provision of pre-school, primary school, lower secondary, upper secondary or post-secondary education services which imposes fees exceeding RM60,000 per student per academic year; Any public or private higher education institution registered under the prescribed act providing education-related services to a non-citizen; Any Language Centre registered under the Education Act 1996 providing education-related services to a non-citizen. This excludes services provided by the state in pre-school, primary, secondary and post-secondary education. The exemptions are provided to Malaysian citizens and holders of a valid Kad OKU.
Beauty Services (Wellness Centres)	Group C	8 %	500,000	Service Tax applies to services provided by: A “Wellness centre” which includes: – any treatment on any part of the body using any substance or equipment including aromatherapy, acupuncture, reflexology or cupping; – any care or treatment for postnatal mother and infant; or – wellness care for the elderly Massage parlour. Other examples specified by the Ministry of Finance include beauty-related services such as facial treatment, hair treatment, spa, manicure, pedicure, slimming treatment etc. Exemption: not applicable

Transitional Provisions

The government has introduced the following transitional provisions under the Sales Tax

(Rates of Tax) Order 2025 and Service Tax (Rates of Tax) (Amendment) Order 2025:

Sales Tax

For changes in the Sales Tax rate on taxable goods manufactured and sold, used or disposed by the registered person:

For invoices issued before 1 July 2025, the old Sales Tax rate applies, even if the goods are delivered on or after 1 July 2025;
For invoices issued on or after 1 July 2025, Sales Tax shall be charged and levied at the new rate;
For usage and disposal on or after 1 July 2025, Sales Tax shall be charged and levied at the new rate, even if the usage or disposal was recorded before 1 July 2025.

For changes in sales Tax Rate on taxable goods imported into Malaysia by any person, the new Sales Tax rate applies when goods are released from Customs control on or after 1 July 2025.

For an exempted person which becomes a Sales Tax registered manufacturer on or before 30 September 2025, no Sales Tax shall be charged on the existing stock of taxable goods as at 1 July 2025.

Service Tax

Services rendered prior to 1 July 2025 are not liable for Service Tax;
Services rendered on or after 1 July 2025 are liable for Service Tax;
For services spanning 1 July 2025, only the portion rendered on or after 1 July 2025 is liable for Service Tax;
For payment received in full prior to 1 July 2025, Service Tax does not apply to services provided on or after 1 July 2025.