(TAX UPDATE) e-Invoice Grace Period Extended, Construction Sector Gets Relief, SST Adjusted … What SMEs Must Know in 202

(TAX UPDATE) e-Invoice Grace Period Extended, Construction Sector Gets Relief, SST Adjusted … What SMEs Must Know in 202

Introduction

The start of 2026 brings several important tax and compliance changes that directly affect Malaysian SMEs.

On 5 January 2026, the Inland Revenue Board of Malaysia (IRBM) issued a revised e-Invoice Specific Guideline, clarifying the scope of consolidated e-Invoices, expanding sector-specific relief, and extending the interim relaxation period.

At the same time, the Ministry of Finance announced adjustments to the Sales Tax and Service Tax (SST) framework, and confirmed the scope of grace period treatment and penalty relief.

Together, these measures give SMEs breathing space — but they do not remove the obligation to comply.

This article summarises what has changed, what it means for SMEs, and what you should do next.

Key Summary for SMEs

1. Interim e-Invoice Relaxation Extended to 31 December 2026

For businesses under Phase 4 e-Invoice with annual revenue from RM1 million up to RM5 million, whose e-Invoice implementation date is 1 January 2026.

• The implementation date remains unchanged
• The interim relaxation period is extended from 1st January 2026 to 31 December 2026 for 12 months

During this interim period from 1 January 2026 to 31 December 2026 :

• Businesses may opt not to issue individual e-Invoices or individual self-billed e-Invoices

• Instead, businesses can issue consolidated e-Invoices of all business including industries/activities listed in Section 3.7 of e-Invoice Specific Guidelines. Even when buyers request individual e-invoices.

• Instead, businesses can issue consolidated self-billed e-Invoices for activities under self -billing scenarios under Section 8.3 e-Invoice Specific Guidelines.

• Use flexible product/service descriptions
• Consolidated e-Invoices must be submitted to IRBM within 7 days of the following month
• IRBM will not take prosecution action for failure to issue individual e-Invoices, as long as consolidated reporting is properly done.

This is a compliance relief, not a permanent exemption.

2. Construction Material Wholesalers and Retailers Get Special Relief

IRBM has removed the compulsory requirement to issue individual e-Invoices for wholesalers and retailers of construction materials (under 4th Schedule of the CIDB Act).

They may issue consolidated e-Invoices if:

• The transaction value is RM10,000 or below, and
• The customer does not request an e-Invoice

If the transaction exceeds RM10,000 or the customer requests an e-Invoice, an individual e-Invoice must still be issued.

This change reduces compliance burden for businesses with frequent, low-value sales.

3. SST Updates from the Ministry of Finance (Effective 1 January 2026)

(a) Service Tax on Leasing and Rental Services

• Service tax rate reduced from 8% to 6%
• MSME exemption threshold increased from RM1.0 million to RM1.5 million annual sales
• Newly established MSMEs enjoy a one‑year deferment/exemption from service tax on rentals, starting from their registration/establishment date, subject to conditions to be set by MOF/RMCD.

(b) Construction Service Tax Exemption Extended

For construction service contracts:

• Signed before 1 July 2025
• Without a price revision clause

The service tax exemption is extended until 30 June 2027, giving a total exemption period of 2 years.

4. Grace Period and Penalty Relief

Based on IRBM’s clarification on the grace period:

• As long as businesses comply with consolidated e-Invoice rules
• Submit within the prescribed timeline
• Maintain proper transaction records

IRBM will not impose penalties or prosecution during the interim relaxation period for failure to issue individual e-Invoices.

However, failure to issue consolidated e-Invoices or failure to submit them on time may still attract enforcement action.

Grace period does not mean no rules. It means softer enforcement during transition.

SME Implications

These measures aim to:

• Reduce early compliance stress
• Allow SMEs to stabilise systems and workflows
• Prevent unnecessary penalties during transition

But SMEs must still:

• Track transactions properly
• Prepare accurate consolidated reports
• Ensure system readiness before 2027

Poor preparation in 2026 will become expensive in 2027.

KTP’s View

We welcome the Government’s practical and business-friendly approach.

However, SMEs should use this period wisely.

This is the year to :

• Test and improve invoicing systems
• Train finance and operations teams
• Clean up customer and supplier data
• Align internal controls

Grace periods buy time. They do not remove risk.

Call to Action

If you are unsure whether your business qualifies for these relaxations, or whether your systems are compliant, speak to us early.

At KTP, we help SMEs:

• Interpret tax rules clearly
• Implement compliant processes
• Avoid penalties before they happen

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