Further to the announcement in Budget 2025, the Government of Malaysia has revised the rate of sales tax on selected goods and expanded the scope of taxable services for service tax. These changes are to take effect from 1 July 2025.
Revision of sales tax rate
Generally, sales tax on essential goods remains at 0%, while certain non-essential goods such as salmon, cod, imported strawberries, truffle mushrooms, silk and industrial machinery have been increased to 5%. Racing bicycles, antique hand drawings and tungsten waste scrap have joined the rank of goods subject to a 10% sales tax, which currently includes alcoholic beverages, cigarettes, cigars and leather goods.
Expansion of scope of taxable services for service tax
New / expanded categories of taxable services which will be subject to service tax are:
- Wellness centre services
- Financial services
- Healthcare services
- Rental or leasing services
- Construction works services
- Education services
| Taxable service group | Brief description | Service tax rate | Threshold for registration |
|---|---|---|---|
| Group C: Night-Clubs, Dance Halls, Cabarets, Karaoke Centre, Wellness Centres, Massage Parlours, Public Houses And Beer Houses | The Service Tax Regulations 2018 is amended to include a definition of “wellness centre” to mean any premises which provides the following services: 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; orwellness care for the elderly. The Customs’ Guide on Group C, D and E dated 9 June 2025 states that this definition clarified and expanded the scope of taxable services to include beauty treatment services. | 8% | RM500,000 |
| Group H: Finance Substituting the prior Group H: Credit Card and Charge Card | The scope of financial services chargeable to service tax is expanded to include: Provision of financial services charged for fees, commissions or similar payments (subject to prescribed exclusions) by any person who is regulated by—the Central Bank of Malaysia;the Securities Commision Malaysia; or the Labuan Financial Services Authority Provision of financial services including financial leasing, factoring, trade financing, credit facilities or syariah compliant financing services which are subject to fees, commissions or similar payments (subject to prescribed exclusions) by any person excluding the person who is regulated by—the Central Bank of Malaysia;the Securities Commision Malaysia; or the Labuan Financial Services Authority B2B exemptions are available under the Service Tax (Persons Exempted from Payment of Tax) (Amendment) Order 2025 (P.U. (A) 174/2025). Note: The provision of line of credit or syariah compliant financing services through credit card or charge card, as well as the provision of insurance or takaful services which are taxable services under the current service tax regime are regrouped under the new Group H. | 8% | RM500,000 |
| Group I: Other Service Providers Amended to include new items 14, 15 and 16 | The provision of the following services will be subject to service tax: Provision of healthcare services by any person who operates or provides a private healthcare facility registered or licensed under the Private Healthcare Facilities and Services Act 1998, except any university or university colleges registered under the University and University Colleges Act 1971 or the Universiti Teknologi MARA Act 1976 which operates or provides a private healthcare facility Provision of practice of traditional and complementary medicine services by 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 Provision of services relating to allied health by 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. “Activity relating to allied health” means any activity relating to allied health as follows:(a) audiology;(b) dietitic;(c) entomology (public health);(d) physiotherapy;(e) medical physic;(f) nutrition;(g) clinical psychology;(h) diagnostic radiography;(i) medical laboratory science;(j) occupational therapy;(k) speech-language therapy;(l) radiation therapy;(m) medical laboratory technology;(n) dental technology;(o) environmental health; or(p) health education. Malaysian citizens are exempted from service tax on the above healthcare related services under the Service Tax (Persons Exempted from Payment of Tax) (Amendment) Order 2025 (P.U. (A) 174/2025). | 6% | RM1,500,000 |
| Group K: Rental or leasing | 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 by any person who provides 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; orfor leasing of tangible asset through a financial lease Housing accommodation referred to above shall include a small office home office, serviced apartment, serviced condominium, serviced suite or residential suite. A B2B exemption is available under the Service Tax (Persons Exempted from Payment of Tax) (Amendment) Order 2025 (P.U. (A) 174/2025) i.e. where the person renting the asset is registered for service tax and is renting it for purposes of subletting or subleasing the asset and it’s not for personal consumption. It was also announced that MSMEs will be exempted and non-reviewable contracts will be given exemption of 12 months from the effective date. | 8% | RM500,000 |
| Group L: Construction works | Provision of any construction works services by any person who provides construction works services excluding the construction of a residential building and public facility related to the residential building. The ‘residential building and public facility related to the residential building’ referred to above shall not include a residential building and public facility related to the residential building approved for the purposes of mixed development by a local authority. “Construction works” is defined to mean the construction, extension, installation, repair, renewal, removal, renovation, alteration, dismantling, demolition of, or facility maintenance in the construction works period— any building, erection, edifice, structure, wall, fence or chimney, whether constructed wholly or partly above or below ground level;any road, harbour works, railway, cableway, canal or aerodrome;any drainage, irrigation or river control works;any electrical, mechanical, petrochemical or telecommunication works;any gasworks or waterworks; orany bridge, viaduct, dam, reservoir, earthworks, pipeline, sewer, aqueduct, culvert, drive, shaft, tunnel or reclamation works, which includes any works which form an important and integral part of or are preparatory to or temporary for the works specified in paragraphs (a) to (f) above. | 6% | RM1,500,000 |
| Group M: Education | The following services will be subject to service tax: Provision of pre-school, primary school, lower secondary, upper secondary or post-secondary education services by any private educational institution registered under the Education Act 1996 which imposes fees exceeding RM60,000 per student for each academic year. This excludes (a) a special school; and (b) a language centre. Exemption is granted to a Malaysian citizen who is registered as a person with disability i.e. a holder of a valid Kad OKU issued under the Persons with Disabilities Act 2008. Provision of services relating to education provided to a non-citizen by:higher education institution registered under the Universities and University Colleges Act 1971; orprivate higher education institution registered under the Private Higher Educational Institutions Act 1996; or higher education institution registered under the Education Act 1996 Provision of services relating to education to a non-citizen by any language centre registered under the Education Act 1996. | 6% | NIL |
The transition provision in the Service Tax Regulations 2018 provides that where a new service is specified as a taxable service and before the date of such change any payment is received in connection with such service that will be provided on or after the date of change, no service tax will need to be charged on the payment received. If the provision of services straddles the period before and after the change, service tax will need to be charged on the proportion of the service which is attributed to the part of the period after the date of such change.
For companies which have taken action to comply with the prescribed SST legal requirements, the Government has announced a concession whereby no prosecution action or penalties will be imposed until 31 December 2025.
In view of the upcoming implementation date of 1 July 2025, businesses should undertake a comprehensive evaluation of their service offerings to determine whether they fall within the expanded scope of service tax and the need to register and charge service tax. Contracts should also be reviewed and where necessary, drafted, revised or re-negotiated to include clauses on service tax to clarify the liability of parties to pay service tax.
Should you have any questions, please contact our Tax Practice Group.