Sales Tax Revision and Service Tax Expansion 2025

Key Highlights

Announced by Prime Minister Datuk Seri Anwar Ibrahim during the tabling of Budget 2025 in October last year, the implementation of the Sales Tax revision and Service Tax expansion was initially set for 1 May 2025, but the changes were only gazetted on 9 June 2025.

According to the Ministry of Finance’s media release on 9 June 2025, to support compliance, the government will not pursue prosecution or impose penalties on companies working to meet registration and reporting requirements by 31 December 2025.

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Revision of Sales Tax Rate Effective 1 July 2025

Sales Tax rate for non-essential items and premium goods is revised effective from 1 July 2025.

SALES TAX RATE

10%

Sales tax on basic necessities remains at 0%. Example:

Non-processed goods such as chicken, fish, vegetables, local fruits
Processed goods such as flour, sugar, salt, cooking oil
Medicine
Books, journals, newspapers
Fertilizer

Examples of non-essential items that are subject to sales tax at 5%:

Abalone and lobster
Cheese
King crab
Salmon and cod
Truffle mushroom
Essential oil
Silk

Examples of non-essential items that are subject to sales tax at 10%:

Shark fin
Alcoholic drinks
Leather goods
Racing bicycle
Antique hand paintings

Expansion of Taxable Services Effective 1 July 2025

TAXABLE SERVICE	Registration Threshold	Service Tax Rate	Who Will be Affected
Group C – Wellness Centre Any treatment on any part of the body using any substance or equipment including aromatherapy, acupuncture, reflexology or cupping; Any care or treatment for postnatal mother and infant; or Wellness care for the elderly.	RM500,000	8%	Facial treatment providers; Hair salons and barbershops; Spa and wellness centers offering massage, body treatments, and slimming therapy, etc.
Group H – Finance Provision of financial services charged for fees, commissions or similar payments excluding the following: Interest-based payment or profit-based payment for Syariah compliant financing; Returns derived from the difference between the selling price and the purchase price; Basic banking services (savings account and current account); Exported financial services; Brokerage or underwriting services relating to life insurance or family takaful, medical insurance or medical takaful borne by an individual; and Fees on credit card and charge card.	RM500,000	8%	Any person who provides financial services based on fees, commissions or any other similar payment
Group I – Healthcare Provision of healthcare services to non-citizens, including: Healthcare services provided by healthcare facilities registered or licensed under the Private Healthcare Facilities and Services Act 1998 Practice of traditional and complementary medicine; and Services relating to allied health, excluding the following: Healthcare services provided by Government facilities; Private healthcare facilities under any university or university colleges registered under the University and University Colleges Act 1971 or the Universiti Teknologi MARA Act 1976.	RM1,500,000	6%	Private hospitals and clinics serving non-citizen patients; Allied health professionals such as physiotherapists, dietitians, or occupational therapists treating non-citizen clients, etc.
Group K – Rental or Leasing Services Provision of rental or leasing for tangible asset services, excluding the rental or leasing of the following: Housing accommodation; Reading materials; Tangible assets located outside Malaysia; or Financial lease.	RM500,000	8%	Landlords renting out commercial properties; Companies leasing machinery or equipment under operating leases; etc.
Group L – Construction Works Provision of construction works services, excluding the following: Construction of a residential building; and Construction of public facilities related to residential buildings.	RM1,500,000	6%	Construction companies involved in commercial or industrial buildings; Contractors working on roads, bridges, tunnels, or public infrastructure, etc.
Group M – Education Services Provision of pre-school, primary, lower secondary, upper secondary or post-secondary education services where fees exceed RM60,000 per student per academic year; and Provision of education services by higher education institutions and language centres to non-citizens.	NIL	6%	Private schools charging fees above RM60,000 per student per year; Universities and colleges offering courses to non-citizen students, etc.

Conclusion and Next Steps

The Sales Tax rates remain unchanged for essential goods to ease the financial impact on the public. The revision of Sales Tax rates of 5% or 10% apply to optional and non-essential goods to increase government revenue.

With the expansion of the Service Tax scope, businesses are now required to assess and monitor whether the value of their taxable services exceed the registration threshold within any 12-month period.

Unlike the Goods and Services Tax (GST), which includes an input-output tax credit system that helps prevent tax-on-tax and clearly shifts the final cost to end consumers, Sales Tax and Service Tax lack this mechanism. As a result, there is a risk of cascading tax effects, where tax is applied on top of tax, potentially increasing costs for businesses and leading to higher prices for consumers.

To help reduce the impact of double taxation, business-to-business (B2B) exemption and group relief are permitted for certain newly taxable services. In addition, non-reviewable contracts are granted a 12-month exemption from the effective date of the changes.

If you have any questions about the next steps or how these new measures could impact your business, we are here to support you.

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Meng Huei Foo

Head of TaxKuala Lumpur