VAT and Sales Tax in Malaysia

Malaysia operates a Sales and Service Tax (SST) framework rather than a value-added tax. Goods and Services Tax (GST) was introduced at 6% in April 2015 but was abolished effective 1 September 2018 and replaced by the reinstated SST system. The SST framework is governed by the Sales Tax Act 2018 and the Service Tax Act 2018, both administered by the Royal Malaysian Customs Department (RMCD). A landmark expansion effective 1 July 2025 significantly broadened the Service Tax net and revised the Sales Tax scope, making SST the most consequential indirect-tax change since the 2018 reinstatement. For jurisdiction context see the Malaysia country overview.

How does SST differ from the abolished GST?

GST was a multi-stage, broad-based tax applied at every link in the supply chain, allowing businesses to claim input-tax credits on purchases. SST is structurally different in two respects. First, Sales Tax is single-stage: it applies once -- either at the point of manufacture for locally produced taxable goods, or at the point of importation for goods brought into Malaysia. There is no input-tax credit mechanism for Sales Tax; tax paid on inputs at one stage does not flow through to the next. Second, Service Tax is imposed only on prescribed taxable services supplied by registered service providers to their customers -- it is not levied at every intermediary level. The result is a narrower tax base than GST but simpler compliance for most small businesses. The RMCD administers SST through the MySST portal (mysst.customs.gov.my), where registration, return filing, and payment are handled electronically.

What are the current SST rates?

Two components make up SST:

Sales Tax is charged at 5% or 10% depending on the category of goods. The 5% rate applies to specific goods such as certain construction materials, selected food products, petroleum oils, and specified industrial inputs. The 10% standard rate applies to most other manufactured taxable goods -- including electronics, motor vehicles, beverages, and a wide range of consumer goods. Low-value imported goods (below RM 500 per consignment) became subject to 10% Sales Tax effective 1 January 2024. Essential goods -- including rice, chicken, beef, vegetables, eggs, local fish varieties, milk, cooking oil, and core medicines -- remain exempt.

Service Tax was raised from 6% to 8% effective 1 March 2024 under Budget 2024 for most prescribed taxable services. The 6% rate is retained for a defined group: food and beverage, telecommunications, car parking, and logistics services. From 1 July 2025 the 6% rate also applies to the newly added categories of private healthcare services (for non-Malaysian patients) and private education services (for international students above the threshold). The table below summarises the rate and registration threshold for each service group as of 1 July 2025.

What did the July 2025 SST expansion change?

The Malaysian government announced a targeted revision to Sales Tax and a significant expansion of Service Tax scope effective 1 July 2025, described by the Ministry of Finance as strengthening the fiscal position without imposing undue burden on the majority of Malaysians [MOF press release, 2025].

On the Service Tax side, four new service categories entered the Service Tax net:

• Leasing and rental -- commercial leasing of tangible assets (machinery, equipment, commercial property) taxed at 8%. Residential tenancies and leasing of ships and aircraft are specifically excluded.
• Construction services -- general construction works including those on mixed-development land taxed at 6%. Previously untaxed residential-only construction received carve-out protection after industry feedback, though the RMCD subsequently clarified that mixed-development projects attract tax on the full project value.
• Financial services -- fee-based and commission-based financial services (banking, insurance, digital financial services, remittance, brokerage) taxed at 8%. Basic deposit-taking and lending interest is excluded.
• Private healthcare and education -- private healthcare for non-Malaysian patients taxed at 6%; private education services above RM 60,000 per student per academic year taxed at 6%.

Beauty services (manicure, pedicure, facial, hairdressing, barber) were proposed in the original June 2025 announcement but were withdrawn after public feedback, and are not taxable under the July 2025 expansion.

On the Sales Tax side, selected luxury and non-essential imported goods that were previously exempt became taxable from 1 July 2025 -- including king crabs, salmon, selected imported fruits (with certain staple fruits such as apples, oranges, mandarin oranges, and dates subsequently re-exempted after public feedback), premium fabrics, essential oils, antique artworks, and racing bicycles. Essential staple goods retained full exemption.

The RMCD granted a grace period through 31 December 2025 during which no prosecution or penalties are imposed on businesses that take reasonable steps to comply with the new requirements. Existing SST registrants must update their registration details in the MySST portal to add any new taxable service category.

Who must register for SST and how?

Registration is mandatory for manufacturers and importers of taxable goods whose annual taxable sales exceed RM 500,000 in the preceding 12 months. For service providers, the threshold varies by service group as shown in the table above -- RM 500,000 for most established service categories, RM 1,000,000 for leasing and financial services, and RM 1,500,000 for construction and private healthcare. The education threshold is expressed differently: RM 60,000 per student per academic year.

Registration is completed through the MySST portal at mysst.customs.gov.my. Once registered, the registrant must file bimonthly SST-02 returns -- covering January-February, March-April, and so on through the calendar year -- with each return due by the last day of the month following the taxable period. Payment accompanies the return. Records must be kept for seven years under the Sales Tax Act 2018 and Service Tax Act 2018. Late payment carries graduated penalties: 10% on the overdue amount for the first 30 days, a further 15% for days 31-60, and a further 15% for days 61-90.

For small businesses, RMCD published an illustrative diagram showing the compliance cycle:

How do imported and digital services fit into SST?

Malaysia extended Service Tax to digital services supplied by foreign providers effective 1 January 2020 under the Service Tax on Digital Services (SToDS) framework. Foreign digital service providers -- including streaming platforms, software-as-a-service vendors, digital advertising networks, and online marketplaces -- must register when their annual supplies to Malaysian customers exceed RM 500,000, charge Service Tax at 8%, and file quarterly returns. Malaysian recipients of imported services from non-registered foreign providers must self-account and remit tax directly. This mirrors the imported-service self-accounting rules that apply to registered Malaysian businesses receiving B2B cross-border services.

For businesses in Malaysia's Free Trade Zones (FTZ) or Licensed Manufacturing Warehouses (LMW), Sales Tax is suspended on imported inputs used in qualifying manufacturing or re-export activity. Tax crystallises only when finished goods enter the domestic Malaysian market -- a framework designed to support Malaysia's manufacturing-export competitiveness in electronics, automotive components, and pharmaceuticals.

Exports of goods are zero-rated under Sales Tax: manufacturers and exporters claim exemption through export documentation (K2 declaration for re-export, ZB-1 for direct export). Export of services generally falls outside Service Tax scope under destination-based principles when services are consumed outside Malaysia.

Given the July 2025 expansion, businesses operating in leasing, construction, financial services, private healthcare, or private education sectors should review their registration obligations before the end of the grace period on 31 December 2025. The Malaysia country overview provides broader tax context; a qualified tax professional can confirm whether a specific business activity falls within the expanded taxable service categories.