(TAX UPDATE) What is the Expanded SST?

Yesterday’s headlines?
SST expansion effective 1 July 2025 (less than 3 weeks from now & phase 3 of e-invoicing)
Panic… again.

Under the Madani economic framework, the goal is simple:
1. Broaden the tax base,
2. Collect more revenue,
3. Reduce reliance on petroleum.

Sounds fair — as long as it’s “targeted” and “equitable”. That’s the official line… without burdening “most” rakyat.

What’s new under SST 2.0?
Sales Tax (CJ):

Imported fruits, salmon, essential oils: now 5%
Racing bikes and antique artworks: now 10%

Service Tax (CP):

Rental and leasing: 8% (threshold RM500,000) (waiting for specific FAQ and see below)
Construction: 6% (RM1.5 million) (waiting for specific FAQ)
Financial services: 8%
Private healthcare for non-citizens: 6%
Education (if tuition > RM60,000): 6%
Beauty and wellness services: 8% (RM500,000)

8% Service Tax on Leasing and Rental Services

The 8% service tax is only applicable to service providers whose annual leasing or rental income exceeds RM500,000.
Providers with income below this threshold (mainly micro, small, and medium enterprises) are not required to register or charge the tax.

The tax covers most leasing and rental services for non-residential properties, equipment, vehicles, and other tangible assets within Malaysia.

Key Exemptions

Residential Property Rentals: All residential housing rentals are exempt from the 8% service tax, so individuals and families renting homes or apartments are not affected.
Reading Materials: Rentals of books and other reading materials are exempt.
Financial Leases and Overseas Assets: Financial leases and tangible assets located outside Malaysia are not subject to the tax.
Business-to-Business (B2B) Transactions: B2B leasing and rental transactions are exempt to avoid double taxation within the supply chain. (need to separate your account clearly between business and consumer!)
Non-Reviewable Contracts: Existing contracts that cannot be renegotiated are given a 12-month exemption from the tax, allowing businesses time to adjust.

Compliance and Enforcement

There is a grace period until December 31, 2025, during which penalties for non-compliance will not be imposed, giving businesses time to adapt.

6% on Construction Services

Scope and Application

Starting July 1, 2025, a 6% service tax will apply to construction services related to non-residential projects in Malaysia. This includes infrastructure works, commercial buildings, and industrial facilities.
The tax targets service providers (contractors) whose annual taxable construction service value exceeds RM1.5 million. Contractors below this threshold are not required to register or charge the service tax.

What Is Taxed?

Construction work on infrastructure (roads, bridges, utilities), commercial buildings (offices, malls, hotels), and industrial buildings (factories, warehouses) will be subject to the 6% service tax.
The tax is charged on the value of the construction services rendered, not on the sale of building materials or equipment.

Key Exemptions

Residential Buildings: Construction services for residential buildings, including public housing and amenities related to residential projects, are fully exempt from the 6% service tax. This ensures that homebuyers and residential developers are not burdened by the new tax.
Public Projects: Construction work for public amenities directly related to residential housing is also exempt.
Business-to-Business (B2B) Exemptions: To prevent double taxation, certain B2B construction transactions may qualify for exemption.
Non-Reviewable Contracts: Ongoing contracts that cannot be renegotiated are granted a 12-month exemption from the tax, providing a transition period for businesses to adjust.

Compliance and Transitional Measures

Contractors must register for service tax if their annual taxable construction services exceed RM1.5 million.
For projects that straddle the implementation date, transitional rules and exemptions apply, especially for non-reviewable contracts.
The government will defer penalties for non-compliance until December 31, 2025, to allow businesses time to adapt.

6% on Private Healthcare for Non-Malaysian Citizens

Who is Taxed?

A 6% service tax is imposed on private healthcare services provided to non-Malaysian citizens.
This includes services at private hospitals, clinics, traditional and complementary medicine providers, and allied health services (such as physiotherapy and speech therapy).
The tax only applies to providers whose annual turnover exceeds RM1.5 million.

Who is Exempt?

Malaysian citizens are fully exempt from this service tax, whether they receive care at public or private healthcare facilities.
The exemption also covers traditional and complementary medicine (Malay, Chinese, Indian, Islamic), homeopathy, chiropractic, osteopathy, and allied health services.
The aim is to keep healthcare affordable and accessible for Malaysians, while generating additional revenue from medical tourism and expatriate patients.

Additional Notes

Government healthcare services and those provided under certain university acts are also not subject to this tax.
The RM1.5 million threshold is designed to avoid burdening small and medium-sized clinics.

6% on Education Service

Who is Taxed?

A 6% service tax applies to private education services, but with a targeted approach:
- For private preschools, primary, and secondary schools: Only those charging more than RM60,000 in annual tuition fees per student must register and charge the tax.
- For higher education institutions and language centres: The tax applies to fees charged to non-citizens, regardless of the institution’s turnover.

Who is Exempt?

Malaysian citizens are largely exempt from the service tax on private education, both at school and university levels.
Public education services are not taxable.
Malaysian citizens with disabilities (OKU card holders) are also exempt from paying the service tax.

What to do now?

Check if your services fall under the expanded SST
Monitor your 12-month revenue
Update contracts, pricing, invoicing
Register with Customs if required
Study a 12-month relief for non-reviewable contracts

Final Thoughts

SST is pragmatic, yes.
But it’s also halfway GST … without the input tax credit, without the automation, and with more grey areas.

I still think GST is better — structured, fair, with refunds (at least in theory lah).
But we all know, GST died because of politics and tax credit refund, not accounting.

So…
Welcome to SST 2.0.
More complex, still clunky… but here to stay.

Visit Us

Wisma KTP, 53 Jalan Molek 1/8, Taman Molek, 81100 Johor Bahru
Wisma THK, 41, Jalan Molek 1/8, Taman Molek, 81100 Johor Bahru

KTP (Audit, Tax, Advisory)

An approved audit firm and licensed tax firm operating under the KTP group based in Johor Bahru providing audit, tax planning, advisory and compliance services to clients

THK (Secretarial, Bookkeeping, Payroll, Advisory)

A licensed secretarial firm in Johor Bahru providing fast reliable incorporation, secretarial services, corporate compliance services, outsourcing bookkeeping, and payroll services to clients