Expansion of Sales and Service Tax (SST) Scope: Effective July 1, 2025 (CD/5/2025)
June 10, 2025
Head Office, KL
In a Media Statement issued on June 9, 2025, the Ministry of Finance (MOF) announced that the Government will implement an expansion of Sales and Service Tax (SST) scope effective July 1, 2025, in line with measures outlined under Budget 2025. This initiative aims to strengthen the country’s fiscal position by increasing revenue and broadening the tax base.
FMM has actively engaged with the Ministry of Finance and the Royal Malaysian Customs Department to provide inputs on the proposed expansion of the Sales Tax scope. While the Government has broadened the coverage of taxable goods, FMM’s advocacy contributed to improvements in the exemption list for essential items. More importantly, FMM successfully secured a longer grace period for enforcement to support members’ compliance efforts. As announced by the Government, no prosecution or penalties will be imposed on companies that take steps to comply with SST registration and reporting requirements by December 31, 2025. However, FMM was not consulted on the service tax expansion of scope despite repeated written requests and continues to urge the authorities to consider industry interests particularly the need for clearer and more practical transitional guidelines. The following highlights are based on the gazette Orders issued by the Ministry of Finance on the expanded scope of the SST:
1. Sales Tax Expanded Scope
A. Exempted Goods (0% Sales Tax)
The SALES TAX (GOODS EXEMPTED FROM SALES TAX) ORDER 2025 [P.U. (A) 171/2025] retains sales tax exemptions or 0% sales tax for over 350 HS Codes, covering essential goods such as chicken, beef, mutton, fish, prawns, squid, vegetables, local fruits, rice, barley, oats, wheat, flour, canned sardines, sugar, salt, white bread, pasta, noodles, instant noodles, milk and cooking oil. The exemption also covers healthcare and consumer necessities such as medicine, medical devices, books, journals, newspapers and pet food. Additionally, basic materials used in construction such as cement, stones and sand are exempt. The exemption extends to goods used in agriculture and livestock, including fertilisers, pesticides, and agricultural and livestock machinery.
B. Goods Now Subject to 5% Sales Tax
Under the SALES TAX (RATE OF SALES TAX) ORDER 2025 [P.U. (A) 170/2025], over 4,800 HS codes are now subject to 5% sales tax. These include high-value food items such as king crabs, salmon, cod, truffles and imported fruits, as well as luxury and lifestyle products such as essential oils and silk. More notably, the 5% rate now applies to a broad range of industrial goods such as 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.
The list also covers machinery for packaging, filling, labelling and processing. Raw materials such as certain iron and steel products, chlorine, and industrial minerals are also included under the 5% rate. Generally, machinery and equipment used in industrial and commercial sectors are now taxable at 5%, with the exception of agricultural and livestock machinery which remain exempt.
C. Goods Subject to 10% Sales Tax
All taxable goods not covered by the exemption list or the First and Second Schedules are subject to the standard 10% sales tax. This includes general consumer goods that are not classified as essential, as well as non-essential or luxury items such as caviar, shark fin, alcoholic beverages, cigarettes and cigars, leather goods, tungsten scrap, racing bicycles, and antique hand-painted artworks as well as industrial products already subject to sales tax at 10%.
This major policy shift carries significant compliance and operational implications for businesses, particularly those manufacturing or utilising newly taxable goods or involved in mixed supplies. To ensure readiness by the July 1, 2025 implementation date, members are strongly encouraged to take the following preparatory steps:
As part of the Government’s effort to broaden the service tax base, several new service categories have been brought into scope under the amended Service Tax framework effective July 1, 2025. These include leasing and rental of goods and premises, logistics and delivery services, and selected financial, healthcare, and education-related services. While the general service tax rate has 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:
B. Construction Services: Construction services are taxed at the rate of 6% and the scope covers all construction works related to infrastructure, commercial buildings, and industrial facilities. The service tax is applicable where the total value of taxable construction services reaches RM1.5 million within a 12-month period, a threshold intended to reduce the compliance burden on small and medium-sized contractors. Residential building construction and public facilities related to housing remain exempt from service tax. Additionally, to prevent tax cascading, business-to-business (B2B) exemptions are provided for eligible transactions. For transitional purposes, existing non-reviewable contracts signed before July 1, 2025, will enjoy a 12-month exemption from service tax, provided they are not amended or renewed during that period.
C. Financial Services: Service tax now applies to fee or commission based financial services once the total value of such charges reaches RM500,000 within a 12-month period. This includes advisory, brokerage, and underwriting services, which may affect businesses using general insurance and financial consultancy. However, service tax does not apply to interest or profit-based income (such as Islamic financing), foreign exchange gains, or capital market transactions. Additionally, services involving the brokerage and underwriting of life insurance, medical insurance, or family takaful for individuals are not subject to tax. Exemptions are also provided for business-to-business (B2B) transactions to prevent double taxation, certain fees under Shariah-compliant financial arrangements, and transactions involving Bursa Malaysia and entities regulated under Labuan laws, which continue to enjoy tax-exempt treatment.
D. Healthcare Services: Private healthcare services provided to non-Malaysian individuals fall under Group F and are taxable at 6%. Services rendered to Malaysian citizens remain exempt.
E. Education Services: Group H covers fee-based services by private preschools, primary, and secondary institutions to non-Malaysian students, which are taxable at 6%. Services provided to Malaysians and certain higher education institutions remain exempt.
F. Logistics and Delivery Services: The scope of Logistics has been expanded to explicitly cover delivery services including same-day, express, and scheduled deliveries whether fulfilled via courier companies, private fleets, or digital platforms. While major postal services were already taxed, this amendment broadens coverage to private logistics and fulfilment services previously outside the tax scope.
To support compliance with the expanded SST scope, the Government has announced that no prosecution or penalties will be imposed on companies that take steps to meet registration and reporting requirements by December 31, 2025. However, businesses should not delay in preparing for implementation. Companies are strongly encouraged to act now to review their tax positions, update internal systems, and align their operations with the new requirements.
For technical guidance and assistance, please contact Royal Malaysian Customs Department Call Centre (CCC) at 1300 888 500 or via email at ccc@customs.gov.my.
For enquiries, please contact Ms Shamini Sakthinathan at Email: shamini@fmm.org.my or Ms Farah Nabilah at Email: farah_nabilah@fmm.org.my of the FMM Secretariat at Tel: 03-62867200
FMM has actively engaged with the Ministry of Finance and the Royal Malaysian Customs Department to provide inputs on the proposed expansion of the Sales Tax scope. While the Government has broadened the coverage of taxable goods, FMM’s advocacy contributed to improvements in the exemption list for essential items. More importantly, FMM successfully secured a longer grace period for enforcement to support members’ compliance efforts. As announced by the Government, no prosecution or penalties will be imposed on companies that take steps to comply with SST registration and reporting requirements by December 31, 2025. However, FMM was not consulted on the service tax expansion of scope despite repeated written requests and continues to urge the authorities to consider industry interests particularly the need for clearer and more practical transitional guidelines. The following highlights are based on the gazette Orders issued by the Ministry of Finance on the expanded scope of the SST:
1. Sales Tax Expanded Scope
A. Exempted Goods (0% Sales Tax)
The SALES TAX (GOODS EXEMPTED FROM SALES TAX) ORDER 2025 [P.U. (A) 171/2025] retains sales tax exemptions or 0% sales tax for over 350 HS Codes, covering essential goods such as chicken, beef, mutton, fish, prawns, squid, vegetables, local fruits, rice, barley, oats, wheat, flour, canned sardines, sugar, salt, white bread, pasta, noodles, instant noodles, milk and cooking oil. The exemption also covers healthcare and consumer necessities such as medicine, medical devices, books, journals, newspapers and pet food. Additionally, basic materials used in construction such as cement, stones and sand are exempt. The exemption extends to goods used in agriculture and livestock, including fertilisers, pesticides, and agricultural and livestock machinery.
B. Goods Now Subject to 5% Sales Tax
Under the SALES TAX (RATE OF SALES TAX) ORDER 2025 [P.U. (A) 170/2025], over 4,800 HS codes are now subject to 5% sales tax. These include high-value food items such as king crabs, salmon, cod, truffles and imported fruits, as well as luxury and lifestyle products such as essential oils and silk. More notably, the 5% rate now applies to a broad range of industrial goods such as 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.
The list also covers machinery for packaging, filling, labelling and processing. Raw materials such as certain iron and steel products, chlorine, and industrial minerals are also included under the 5% rate. Generally, machinery and equipment used in industrial and commercial sectors are now taxable at 5%, with the exception of agricultural and livestock machinery which remain exempt.
C. Goods Subject to 10% Sales Tax
All taxable goods not covered by the exemption list or the First and Second Schedules are subject to the standard 10% sales tax. This includes general consumer goods that are not classified as essential, as well as non-essential or luxury items such as caviar, shark fin, alcoholic beverages, cigarettes and cigars, leather goods, tungsten scrap, racing bicycles, and antique hand-painted artworks as well as industrial products already subject to sales tax at 10%.
This major policy shift carries significant compliance and operational implications for businesses, particularly those manufacturing or utilising newly taxable goods or involved in mixed supplies. To ensure readiness by the July 1, 2025 implementation date, members are strongly encouraged to take the following preparatory steps:
- Review product classifications against the gazetted lists to identify which goods are now subject to sales tax.
- Register for SST if your company qualifies as a taxable manufacturer and meets the RM500,000 threshold especially if your products were previously exempt.
- Apply for Schedule C exemptions if eligible, particularly for raw materials, components or packaging used in producing taxable finished goods.
- Update internal systems and processes, including invoicing, procurement, accounting, and ERP configurations, to ensure correct SST application.
- Engage suppliers and customers to review contract terms, pricing structures, and delivery timelines in light of the new tax requirements.
As part of the Government’s effort to broaden the service tax base, several new service categories have been brought into scope under the amended Service Tax framework effective July 1, 2025. These include leasing and rental of goods and premises, logistics and delivery services, and selected financial, healthcare, and education-related services. While the general service tax rate has 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:
- P.U. (A) 172/2025 - SERVICE TAX (AMENDMENT) REGULATIONS 2025
- P.U. (A) 173/2025 - SERVICE TAX (RATE OF TAX) (AMENDMENT) ORDER 2025
- P.U. (A) 174/2025 - SERVICE TAX (PERSONS EXEMPTED FROM PAYMENT OF TAX) (AMENDMENT) ORDER 2025
B. Construction Services: Construction services are taxed at the rate of 6% and the scope covers all construction works related to infrastructure, commercial buildings, and industrial facilities. The service tax is applicable where the total value of taxable construction services reaches RM1.5 million within a 12-month period, a threshold intended to reduce the compliance burden on small and medium-sized contractors. Residential building construction and public facilities related to housing remain exempt from service tax. Additionally, to prevent tax cascading, business-to-business (B2B) exemptions are provided for eligible transactions. For transitional purposes, existing non-reviewable contracts signed before July 1, 2025, will enjoy a 12-month exemption from service tax, provided they are not amended or renewed during that period.
C. Financial Services: Service tax now applies to fee or commission based financial services once the total value of such charges reaches RM500,000 within a 12-month period. This includes advisory, brokerage, and underwriting services, which may affect businesses using general insurance and financial consultancy. However, service tax does not apply to interest or profit-based income (such as Islamic financing), foreign exchange gains, or capital market transactions. Additionally, services involving the brokerage and underwriting of life insurance, medical insurance, or family takaful for individuals are not subject to tax. Exemptions are also provided for business-to-business (B2B) transactions to prevent double taxation, certain fees under Shariah-compliant financial arrangements, and transactions involving Bursa Malaysia and entities regulated under Labuan laws, which continue to enjoy tax-exempt treatment.
D. Healthcare Services: Private healthcare services provided to non-Malaysian individuals fall under Group F and are taxable at 6%. Services rendered to Malaysian citizens remain exempt.
E. Education Services: Group H covers fee-based services by private preschools, primary, and secondary institutions to non-Malaysian students, which are taxable at 6%. Services provided to Malaysians and certain higher education institutions remain exempt.
F. Logistics and Delivery Services: The scope of Logistics has been expanded to explicitly cover delivery services including same-day, express, and scheduled deliveries whether fulfilled via courier companies, private fleets, or digital platforms. While major postal services were already taxed, this amendment broadens coverage to private logistics and fulfilment services previously outside the tax scope.
To support compliance with the expanded SST scope, the Government has announced that no prosecution or penalties will be imposed on companies that take steps to meet registration and reporting requirements by December 31, 2025. However, businesses should not delay in preparing for implementation. Companies are strongly encouraged to act now to review their tax positions, update internal systems, and align their operations with the new requirements.
For technical guidance and assistance, please contact Royal Malaysian Customs Department Call Centre (CCC) at 1300 888 500 or via email at ccc@customs.gov.my.
For enquiries, please contact Ms Shamini Sakthinathan at Email: shamini@fmm.org.my or Ms Farah Nabilah at Email: farah_nabilah@fmm.org.my of the FMM Secretariat at Tel: 03-62867200
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