Further to the 2025 Budget announcement on the proposed review of goods for Sales Tax and expansion of scope for Service Tax, the Ministry of Finance has announced the details and implementation of such review and expansion effective 1 July 2025. The relevant amendments to the Sales Tax and Service Tax legislations have also been gazetted. We set out below a brief highlight of the announcement.
Sales Tax
It is noted that the existing Sales Tax rates in respect of certain essential goods are maintained at 0% or 5%, whereas non-essential goods such as salmon, imported fruits or racing bicycles will be subject to higher Sales Tax rates (i.e. increased from 0% to 5% or from 5% to 10%). These amendments in Sales Tax rates shall take effect on 1 July 2025.
Service Tax
The scope of Service Tax will be expanded to include the following:-
a) Rental or leasing services, excluding residential houses (amongst others) – taxable at 8%.
b) Construction services, excluding residential buildings (amongst others) – taxable at 6%.
c) Fee based financial services, including commissions or similar – taxable at 8%.
d) Private healthcare services, traditional and complementary medicine services and allied health services to non-Malaysians citizens – taxable at 6%.
e) Higher education services to non-Malaysians citizens and other private education services such as private preschools or private primary/ secondary schools – taxable at 6%.
f) Wellness/ Beauty services such as hairdressing and facial treatment – taxable at 8%.
Note that the above list is not exhaustive and there are different registration thresholds applicable for the above taxable services. These expansions of scope for Service Tax are also set to take effect on 1 July 2025.
For certain taxable services, there are intra-group reliefs and exemptions such as business-to-business (B2B) as well as non-reviewable contracts being exempted from Service Tax, subject to meeting conditions.
It is also noted from the announcement that companies who have taken action to comply with the requirements of the Sales Tax and Service Tax legislations will not be subject to any prosecution or penalties until 31 December 2025.
We will be issuing a detailed highlights (Tax Whiz) soon setting out our analysis and the mechanics of the changes.
