7 Must-Know Facts About Malaysia’s SST Expansion Effective 1 July 2025: A Guide for SME Owners

Updated: 30 June 2025

Effective 1 July 2025, Malaysia will implement a major expansion of the Sales and Service Tax (SST). The new structure significantly widens the tax base — impacting thousands of goods and services across industries.

Here’s what every SME owner needs to know to stay compliant and cost-conscious:

1️. Sales Tax Expansion: More Goods Now Become Taxable

The sales tax scope has expanded to include over 3,400 categories of goods that were previously exempted. These include:

5% Sales Tax Applies To:

• Premium foods (e.g., king crab, truffles, cod, salmon)
• Imported fruits (excluded oranges, apples, mandarins and dates)
• Lifestyle and luxury items (e.g., essential oils, silk fabrics)
• Selected industrial and commercial inputs (e.g., tools, electrical parts)

10% Sales Tax Applies To:

• Racing bicycles
• Antiques
• Original, hand-painted artwork

Implication for SMEs:

• Retailers, importers, and manufacturers may see increased costs on goods that were previously exempted.

Sales Tax Registration Threshold: RM500,000 in annual taxable turnover or upon importation

2️. Service Tax Expansion: More Industries Affected

The service tax rate has been split into 6% and 8% tiers, and new sectors are now included.

Sector	Tax Rate	Threshold
Leasing or rental of all kinds (except residential)	8%	RM1,000,000
Wellness services	8%	RM500,000
Financial and brokerage services	8%	RM1,000,000
Construction works	6%	RM1.5 million
Private healthcare	6%	RM1.5 million
Private education (see next point)	6%	RM500,000

3️. Private Education: 6% Tax for High-Fee Institutions & Foreigners

Private education services are now taxable at 6% if:

1. The school or institution charges more than RM60,000 per student annually, and
2. Services are provided to non-Malaysian citizens

Tax does not apply to:

• Malaysian students if annual fees are RM60,000 or less
• Local private education institutions serving Malaysian citizens with moderate tuition

Service Tax Registration is mandatory if taxable turnover exceeds RM500,000/year.

4️. SST Registration Thresholds: Know Your Numbers

All businesses must monitor their taxable turnover and register for SST once they reach / exceed the threshold below:

Business Type	Registration Threshold
Most taxable services	RM500,000
Leasing or rental services	RM1 million
Financial services	RM1 million
Construction services	RM1.5 million
Private healthcare services	RM1.5 million
F&B	RM1.5 million

Registration Deadline: Within 28 days of exceeding the threshold

Grace Period: From 1 July to 31 December 2025, businesses can register without penalties (subject to RMCD discretion). However, retrospective SST payments are still be required for the unpaid period.

5️. Manufacturing & Trading: No Input Tax Credit = Higher Costs

For manufacturers, importers, and traders, the SST expansion means:

• More raw materials and machinery are now taxable at 5%
• No input tax credit — businesses cannot recover SST paid on purchases
• Tax-on-tax (cascading effect) inflates costs throughout the supply chain

SMEs should:

• Reassess pricing models
• Review supply chain cost structures
• Check eligibility for B2B exemptions, where applicable

6️. SST Exemptions: What Remains Untaxed?

The following items and services remain exempt from SST:

Category	SST Status
Rental of residential properties	Exempt
Construction of residential buildings	Exempt
Healthcare services for Malaysians	Exempt
Private education (< RM60,000 fees)	Exempt
Beauty services	No SST
Exported goods and services	Zero-rated

These exemptions are intended to protect essential sectors and public interest.

7️. What Should SME Owners Do Now?

Immediate Action Checklist:

• Check your goods & services: Are they now taxable?
• Monitor your turnover: Are you above the SST threshold?
• Register for SST if required
• Update systems: Invoicing, accounting, and POS must reflect correct SST charges
• Review pricing: Factor SST into your cost and retail price strategy
• Train your team: Ensure basic understanding of SST handling
• Seek expert advice: Don’t wait for a penalty to happen

How YYC Can Help

YYC’s tax professionals are ready to guide your business through this SST expansion with:

• ✅ SST Registration & Readiness Review
• ✅ SST Classification of Goods & Services, & B2B exemption/ intragroup relief
• ✅ Custom ruling / Sales tax exemption application
• ✅ Internal SST Training for Finance Team
• ✅ Ongoing SST Compliance Consultation

Book a consultation with YYC today and ensure your business is 100% SST-ready before the 1 July 2025 deadline.

Reference

• SST Guides by Customs