Expansion to financial services and other supplies to meet deficit
Malaysia’s Ministry of Finance has announced a significant revision to its Sales Tax rates and an expansion of the Service Tax scope, effective 1 July 2025. These fiscal measures aim to strengthen the country’s revenue base and ensure long-term financial sustainability, in line with the government’s 2025 Budget strategy.
Malaysia replaced GST with Sales Tax and Services Tax in 2013.
Sales Tax rate rises
Under the new rules, Sales Tax rates will be increased on non-essential and luxury goods, such as king crab, salmon, imported fruits, racing bicycles, and antique artworks. These items, previously taxed at 0% or 5%, will now be subject to higher rates ranging from 5% to 10%. Essential goods will continue to be taxed at existing lower rates.
The government will defer penalties for non-compliance until 31 December 2025.
Service Tax net widened
The Service Tax scope will see a broad expansion to cover a wider range of industries. New taxable services include:
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Rental or leasing services (excluding residential property): 8%
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Construction services (excluding residential buildings): 6%
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Fee-based financial services, including commissions: 8%
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Private healthcare and traditional/complementary medicine for non-Malaysians: 6%
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Higher education for non-Malaysians and private education (e.g., preschools, private primary/secondary schools): 6%
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Wellness and beauty services, including hairdressing and facial treatments: 8%
Certain exemptions and reliefs will apply, including intra-group transactions, business-to-business (B2B) services, and non-reviewable contracts, provided they meet specific conditions.
In a move to ease compliance, This grace period is intended to give businesses time to adapt to the new regulatory requirements without facing immediate legal consequences.
The amendments to both Sales Tax and Service Tax legislation have already been gazetted, ensuring legal enforcement starting in July. These changes mark a decisive step by Malaysian authorities to broaden the tax base, close revenue gaps, and bring more sectors of the economy under formal taxation.
