Targeted Revision Of Sales Tax Rate And Expansion Of Service Tax Scope Effective 1 July 2025

As announced in Budget 2025 on 18 October 2024, the MADANI Government will implement a revision of items subject to Sales Tax and an expansion of the scope of the Service Tax, effective 1 July 2025. This measure aims to strengthen the country’s fiscal position by increasing revenue and broadening the tax base without adding undue burden on the majority of Malaysians.

The Sales and Service Tax (SST) revision underwent an engagement process with key stakeholders, particularly industry associations and tax agents. The preparation of legislation also took into account feedback and input from the industry to ensure that the majority of the rakyat would not be affected, and to mitigate the impact on businesses.

“The Government remains committed to advancing reforms under the Ekonomi MADANI framework. To ensure that the majority of Malaysians are not affected by the SST adjustments, the MADANI Government has adopted a targeted approach by exempting essential goods and services from taxation. In addition, various relief measures are in place to minimise the impact on micro, small, and medium enterprises (MSME),” said Finance Minister II YB Senator Datuk Seri Amir Hamzah Azizan.

“In addition to the MADANI Government’s broader efforts to stimulate the economy and reinforce the social safety net, the additional revenue generated through the SST enhancements will enable further improvements in public services — particularly through increased direct cash assistance to the rakyat, enhanced infrastructure development, and more efficient public service delivery. These efforts will benefit the nation as a whole without placing undue burden on the majority of Malaysians,” he added.

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

1. The Sales Tax rate remains unchanged for essential goods consumed by the public;
2. Sales Tax at rates of 5% or 10% will apply to discretionary and non-essential goods; and
3. The scope of the Service Tax will be expanded to include new services such as 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 MADANI Government also takes into account the need for regulatory compliance by companies that will be subject to SST. Accordingly, for companies that take steps to comply with the prescribed SST legal requirements, no prosecution or penalties will be imposed until 31 December 2025.

Please refer to the Appendix for detailed information. Public announcements, subsidiary legislation, general rulings, guidelines, and frequently asked questions (FAQs) will also be issued via the official media channels of the Ministry of Finance and the Royal Malaysian Customs Department.

Ministry of Finance
Putrajaya
9 June 2025

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