Updates to the Expanded Sales Tax and Service Tax

Since the gazettement of the legislations regarding the expansion of Sales Tax and Service Tax on 9 June 2025, a number of updates, announcements and policies have been issued by the Ministry of Finance (“MOF”) and the Royal Malaysian Customs Department (“RMCD”). We set out below a brief summary of some of the key developments.

• RMCD has issued the following Service Tax Policies dated 29 June 2025, which provides exemptions from payment of Service Tax pursuant to Section 34(3)(a) of the Service Tax Act 2018:

1. Service Tax Policy No 1/ 2025 – Financial Services
   
2. Service Tax Policy No 2/ 2025 – Rental or Leasing Services
3. Service Tax Policy No 3/ 2025 – Construction Works Services
4. Service Tax Policy No 4/ 2025 – Education Services
5. Service Tax Policy No 5/ 2025 – Private Healthcare Services

All the abovementioned Service Tax Policies take effect from 1 July 2025. Notable mentions are:

- Non-reviewable contracts exemption for Financial Services, Rental or Leasing Services and Construction Works Services

- Business-to-business (B2B) exemption facility for Financial Services

- Group relief for Rental or Leasing Services

Businesses should take note of the above and consider the potential implications to their transactions.

• The registration threshold for Service Tax for Rental or Leasing and Financial Services (fee or commission based financial services) is to be increased from RM500,000 to RM1 million*.

Hence, relevant businesses that do not have revenue exceeding RM1 million in a 12-months period are not mandatorily required to register under Group K (Rental or Leasing Services) and Group H (Financial Services). 

* pending issuance of amendment Regulations to effect this.

• Tenants who are Small and Micro Enterprises (“SMEs”) with annual sales of not exceeding RM1 million (which has been increased from RM500,000) will be exempted from paying Service Tax on Rental or Leasing Services.

Hence, rental or leasing services provided to tenants whose annual sales do not exceed RM1 million will not attract Service Tax, subject to meeting conditions. Please refer to Service Tax Policy No 2/ 2025 for the details and conditions of this exemption.

• Beauty Services (Group C) will no longer be subject to Service Tax*.

Businesses who have registered for Service Tax should apply for cancellation, if RMCD has not cancelled the registration already.

* pending issuance of amendment Regulations to effect this.

• New registrants can apply for voluntary registration for the expanded Sales Tax and Service Tax starting from 28 June 2025. The effective date of registration will then be 1 July 2025.

New registrants who apply for voluntary registration for the expanded Sales Tax and Service Tax in July 2025 will have an effective date of registration of 1 August 2025.

Affected businesses should evaluate whether there is a need to voluntarily register early. Although it may result in having the need to charge Sales Tax and Service Tax effective 1 July 2025, depending on the business arrangement, early registration could avail businesses to Sales Tax (e.g. C1, C3) and Service Tax (e.g. B2B) exemptions earlier as well (i.e. from 1 July 2025), which it would otherwise not be available if the businesses are not yet registered.

• Existing registered persons can add the tariff code (under the revision of the Sales Tax rate) or the new taxable services (under the expansion of Service Tax) starting from 20 June 2025. The effective date to charge Sales Tax and Service Tax would be 1 July 2025.

• Selected imported fruits (i.e. apples, oranges, mandarin oranges and kurma) to be exempted from Sales Tax.

With all the developments, businesses are encouraged to continuously stay up to date as the changes could impact the Sales Tax and Service Tax treatment, business operations as well as competitiveness.

Please click on the above header links for the relevant announcements, updates and Service Tax Policies.

Evelyn Lee
Partner
evewflee@kpmg.com.my
+603 7721 2399

Crystal Chuah Yoke Chin
Associate Director
ycchuah@kpmg.com.my
+603 7721 2714

Regina Lau
Partner
reglau@kpmg.com.my
+603 7721 2188

Titus Tseu
Executive Director 
titustseu@kpmg.com.my
+603 7721 2822

Ng Fie Lih
Partner 
flng@kpmg.com.my
+603 7721 2514