As part of Malaysia’s fiscal reform under Budget 2025, significant changes have been made to the Sales and Service Tax (SST) regime. The adjustments, effective from 1 July 2025, aim to increase government revenue while maintaining fairness by excluding essential goods and focusing taxation on premium items and services.
This article provides a clear explanation of the SST system, its latest updates, categories affected, compliance requirements, and implications for businesses and consumers alike.
✅ What is SST?
SST refers to a single-stage tax system that replaced the GST (Goods and Services Tax) in 2018. It consists of:
- Sales Tax – charged on manufacturers and importers at the production or import level.
- Service Tax – imposed on certain prescribed taxable services provided by businesses.
SST is collected only once in the supply chain, unlike GST, which is multi-staged and creditable.
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Key Effective Dates
- Start Date: 1 July 2025
- Transition Period: July 1 – December 31, 2025 (no penalties for late compliance during this period)
๐ Sales Tax 2025: What's New?
The sales tax continues to apply to goods manufactured locally or imported, but the scope has been expanded to include more non-essential and luxury items. Tax rates remain at 5% or 10%, depending on the item category.
Key Changes:
Exemptions remain for basic food items, books, medications, and educational materials.
New taxable goods include:
- Salmon, avocadoes, cherries, and imported fruits
- Essential oils, skincare serums, spa devices
- Luxury goods such as high-end watches, racing bicycles, collectible art
⚙️ Service Tax 2025: Major Expansion
The service tax has undergone the most significant expansion to include more service categories. New rates apply, either 6% or 8%, depending on the nature of the service.
Newly Taxable Service Categories:
❌ Beauty services (e.g. haircut, spa) are excluded from the current expansion.
๐ Invoicing & Transition Rules
To avoid confusion during the switch, the government has set clear invoicing rules:
- If invoice issued before 1 July 2025 but delivery happens later, old tax rules apply.
- Invoices dated 1 July 2025 and later must apply the new SST rates.
- Grace period until 31 December 2025 allows businesses to comply without penalty.
๐งพ SST Registration Requirements
Businesses must register for SST if their taxable turnover exceeds specific thresholds.
๐ค Filing SST Returns
- Returns must be filed every 2 months (bi-monthly filing).
- Businesses must file even if no tax is due.
- Payment is due within 30 days of the taxable period’s end.
- Penalties for non-compliance may include:
- Late filing fines
- 10%–15% interest for late payment
- Legal prosecution (for serious violations)
๐ก Why the SST Changes Matter
The SST changes are designed to:
- Boost government revenue by taxing luxury goods and premium services.
- Avoid burdening the general population, as essential goods remain exempt.
- Support fairer taxation in line with rising incomes and consumption trends.
Government projections estimate an additional RM 3 billion/year in tax collection from this expansion.
๐งญ How Businesses Should Prepare
- Check Your Products/Services – Determine if you now fall under SST.
- Update Accounting Systems – Adjust tax codes, software, and pricing.
- Inform Customers – Especially if prices need to change due to new tax.
- Register for SST – If turnover exceeds threshold.
- Monitor Invoicing Dates – Apply the right tax based on transaction timing.
Guidelines for the transition of Sales Tax rate changes (01/07/2025) source: mysst
Expansion SST Scope (01/07/2025) source: MOF