The revised Sales Tax regime maintains exemptions for over 350 categories of essential goods under the Sales Tax (Goods Exempted From Sales Tax) Order 2025. Food staples like rice, vegetables, local fruits, meat, fish, milk, bread, and cooking oil remain untaxed, alongside critical items such as medicines, medical devices, books, and agricultural inputs like fertilisers and pesticides. Building materials including cement and sand also retain their exempt status, underscoring the government’s focus on shielding cost-of-living essentials.

A significant structural change takes effect on 1 July 2025 via the Sales Tax (Rate of Sales Tax) Order 2025, introducing a new 5% sales tax tier for approximately 4,800 types of goods. This intermediate rate strategically targets premium consumables such as king crabs, salmon, cod, truffles, and imported fruits like cherries and blue berries (excluding apple, mandarin oranges, dates and oranges), alongside luxury lifestyle products including silk fabrics and essential oils.

Any taxable goods that are not specifically classified under the 0% exemption or the newly introduced 5% category will be subject to the standard sales tax rate of 10%. This covers non-essential consumables and high-end items like caviar, shark fin, leather goods, scrap and waste made from tungsten, hand-painted antique artworks, and performance bicycles used for racing.

Commercial leasing activities now fall within the Service Tax net, with an 8% rate applying to businesses providing machinery, vehicles, equipment, or business premises for lease, provided their annual taxable services exceed RM1,000,000. This encompasses industrial assets like forklifts, excavators, and warehouse spaces, as well as temporary event infrastructure.

To reduce the impact of tax-on-tax-effects, several exemptions have been introduced. These include exemptions for residential property rentals, cross-border leasing arrangements, hire purchase agreements, intra-group dealings, and selected business-to-business (“B2B”) transactions. The service tax will not be applicable to micro, small, and medium enterprises (MSMEs) tenant whose yearly revenue falls below RM1 million.

In support of a stable implementation period, service tax will not apply to contracts signed before 1 July 2025, as long as they are non-reviewable contract. This transitional relief will remain in place for up to 12 months, provided the original contract terms stay intact.

Construction services retain their 6% rate but now cover a wider array of projects, including highways, commercial complexes, and industrial facilities, once the contractor’s annual taxable services exceed RM1.5 million. This threshold is in place to help ease the compliance burden for small and medium-sized contractors.

Residential projects, particularly public housing and community facilities like clinics and schools will remain exempt from service tax. Qualifying B2B transactions are also exempted to prevent the occurrence of double taxation.

Existing fix-term contracts signed before 1 July 2025 are granted transitional relief, exempting them from tax for 12 months, if the contract terms are non-reviewable.

Fee-based and commission-based financial services including investment advisory, securities brokerage, and insurance underwriting are now subject to 8% service tax when a provider’s annual taxable services exceed RM1 million. This strategic measure specifically targets discretionary financial activities while deliberately excluding core banking functions that serve the public.

Several critical financial activities remain exempt from this new levy. Interest from on loans or saving accounts and Islamic profit-sharing arrangements like Mudarabah or Murabaha remains exempt from tax. Brokerage commissions for life insurance and medical coverage policies also remains tax free, ensuring ordinary Malaysians face no additional costs when securing essential financial protection. Furthermore, transactions executed through Bursa Malaysia or conducted by Labuan-regulated entities maintain their exemption from tax, preserving Malaysia’s position as a competitive financial hub.

As part of the revised SST framework, private healthcare services classified under Group I are now subject to 6% service tax, but only when provided to non-Malaysian citizens. This includes private healthcare services, traditional and complementary medicine and allied health services.

Healthcare services rendered to Malaysian citizens remain fully exempt, in line with the Government’s objective to safeguard access to essential healthcare for the local population.

Selected education services now fall within the scope of service tax in Malaysia under Group M. Under the new framework, a 6% service tax applies without any registration threshold for the affected educational institutions.

Private education services that provide pre-school, primary school, lower secondary, upper secondary or post-secondary education services which imposes fees exceeding RM60,000 per student for each academic year will now subject to service tax. However, it should be noted that should the service provided to an individual who is a Malaysian citizen and is a holder of a valid disability card, the service will be exempted from tax.

In addition, higher education services and services provided by language centres will be taxable when they are provided to non-Malaysian citizens. The higher education services rendered to Malaysian citizens will remain fully exempted from service tax.

Notably, the initial proposed 8% tax on beauty services, following public announcement by Ministry of Finance (MOF). Services like haircuts, facials, manicures, and massages will not be taxed, reflecting the government’s commitment to alleviating living costs and supporting domestics SMEs.