Tax-focused measures for 2026 outlined in Prime Minister’s Department speech

The honorable Minister of Finance, YAB Dato’ Seri Anwar bin Ibrahim has announced the following tax measures in the Prime Minister’s Department monthly assembly on 5 January 2026:

• A voluntary disclosure program for stamp duty will be implemented for a six-month period, from 1 January 2026 to 30 June 2026. 
• Further announcements and detailed guidelines are expected to be issued by the Inland Revenue Board (“IRB”) on the voluntary disclosure program.

In line with the announcement, the Ministry of Finance (“MOF”) has issued a press release dated 5 January 2026 on policy updates relating to Sales Tax and Service Tax. We set out below key highlights of the policy updates:

1) Service Tax on rental or leasing services, effective 1 January 2026

• The Service Tax rate on rental or leasing services is reduced from 8% to 6%.
• The threshold of annual sales for tenants with Small and Micro Enterprise (“SME”) status to be exempted from paying Service Tax on rental or leasing services is increased from RM1million to RM1.5million.
• SME tenants that have just commenced business is exempted from paying Service Tax on rental or leasing services for a year from the date of registration. 

2) Registered manufacturers are exempted from paying Sales Tax on raw materials or critical inputs for the manufacturing of livestock and agricultural products such as animal feed, fertilizer and pesticide, effective 1 January 2026. This exemption aims to control the price of basic necessities for the people.  

3) Service Tax exemption on non-reviewable contracts for construction services signed before 1 July 2025 which is applicable from 1 July 2025 to 30 June 2026 is extended for another year to 30 June 2027.

4) The construction of places of worship such as suraus, mosques, temples, churches, and shrines that are religious and spiritual in nature is exempted from Service Tax, effective 1 July 2025.  In other words, construction of places of worship is not subject to Service Tax under construction services from the outset. 

Following the above, careful consideration must be given to the transitional issues particularly for the reduction of Service Tax rate from 8% to 6% on rental or leasing services.  Some of the issue to be addressed are:- 

• Which date determines the applicable Service Tax rate i.e. the invoice date, rental service period or payment received date?

• Would credit note adjustment be required for advance payment of rental? 

• What about invoice issued with 8% Service Tax, but remain unpaid?

• Can Service Tax “overpaid” at 8% to the Royal Malaysian Customs Department (“Customs”) be refunded?
  

Businesses must closely monitor further development on this matter, including clarifications from Customs and the official release of transitional rules to ensure compliance. 

The IRB has issued a media release, updated e-Invoice Specific Guideline (Version 4.6) and updated General Frequently Asked Questions (“FAQs”) on 5 January 2026 which replace the previous e-Invoice Specific Guideline (Version 4.5) dated 7 December 2025 as well as General FAQs dated 10 December 2025. 

The notable updates are detailed below:

1) Extended interim relaxation period 

• The interim relaxation period has been extended to 12 months (i.e. until 31 December 2026) for taxpayers in Phase 4 (Taxpayers with an annual turnover or revenue of up to RM5 million) of the e-Invoice implementation which begins from 1 January 2026. 
• During the interim relaxation period from 1 January 2026 to 31 December 2026, taxpayers are allowed to: 

- Issue consolidated e-Invoices for all activities and transactions, including those listed under Section 3.7 of the e-Invoice Specific Guideline. 

- Issue consolidated self-billed e-Invoices for all self-billed circumstances as outlined under Section 8.3 of the e-Invoice Specific Guideline. 

- Allow for any description to be included in the “Product or Service Description” field. 

- Taxpayers are allowed to issue consolidated e-invoice or consolidated self-billed e-Invoices, even if the buyer requests an individual e-Invoice or a self-billed e-Invoice.

• The IRB will not undertake any prosecution action under Section 120 of the Income Tax Act, 1967 (“ITA”) during the interim relaxation period on non-compliance with e-Invoice requirements, provided that taxpayers comply with the requirements outlined above. 
  

2) Wholesalers and retailers of construction materials are now allowed to issue consolidated e-Invoices 

• Wholesalers and retailers of construction materials have been removed from Section 3.7 of the e-Invoice Specific Guideline (Version 4.6). This change allows businesses in this sector to issue consolidated e-Invoices. 
• Nevertheless, it is important to note that the requirement to issue an e-Invoice for any single transaction with a value exceeding RM10,000 remains applicable and unchanged.

• A one-year transition period will be provided, whereby no penalties will be imposed on individual taxpayers who received CP500 for the Year of Assessment (“YA”) 2026. This applies to individuals with employment income and non-employment income such as rental, interest and royalty who do not comply with the tax instalment payment based on the CP500. However, taxpayers are encouraged to make voluntary payment to reduce the burden of paying the balance of tax payable when filing their income tax return. 

• CP500 may have been issued to individual taxpayers with only employment income, due to the incorrect reporting of income categories in the income tax return form submitted previously. The IRB has issued a media release clarifying that taxpayers with employment income only are not required to comply with the instalment payment instructions. Nevertheless, they are advised to update their income reporting in the income tax return form for YA 2025 to avoid receiving CP500 in the future. Where necessary, the IRB will contact affected taxpayers to clarify any errors reported previously by them.

• Generally, Institutions / Organizations / Funds (“IOFs”) that have been granted approved status under Section 44(6) may apply for an extension of the approval period by submitting a written application to the IRB within six months prior to the expiry date, together with the relevant supporting documents. The IRB will consider the extension based on the merits of the case.

• Further to the earlier media release by the IRB on the 10-year limitation applicable to the approval under Section 44(6) of the ITA (click here for further information), it is now announced that, an automatic 10-year extension will be granted to IOFs whose Section 44(6) status expiring before 31 December 2025, provided that the IOFs submit their audit report.

The relevant announcements can be accessed via the above links.

Poh Sin Yue
Partner
sypoh@kpmg.com.my
+603 7721 7285

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