General Overview On Sales Tax And Service Tax In Malaysia

Sales tax and service tax in Malaysia, colloquially known as “SST”, are consumption-based tax systems that replaced the repealed Goods and Services Tax (GST) in 2018. 

Understanding the fundamentals of SST in Malaysia is essential for businesses to be compliant and make informed financial decisions.  

Sales tax and service tax are governed by the Sales Tax Act 2018 and Service Tax Act 2018 respectively, where sales tax applies primarily to goods while service tax applies to prescribed services. 

Administration and enforcement of SST in Malaysia are under the jurisdiction of the Royal Malaysian Customs Department (RMCD). Unlike GST, there is no input tax recovery for SST in Malaysia. Nonetheless, drawback and refund of SST are available for businesses.

For deeper insights, you can refer to our SST insights and updates.

Sales tax in Malaysia

Sales tax is a single-stage tax, applied to sales of locally manufactured taxable goods as well as to taxable goods imported into Malaysia for domestic consumption.

All taxable goods manufactured in or imported into Malaysia are subject to sales tax, unless they are exempted. 

Sales tax does not apply to goods manufactured in or exported into free zones, licensed warehouses, Joint Development Areas (JDA), and the islands of Labuan, Langkawi, Tioman and Pangkor.

Sales tax is levied at 5%, 10% or a specific rate for petroleum products. Entities manufacturing taxable goods exceeding RM500,000 thresholds for a 12-month period are liable to register for sales tax. 

Voluntary registration is permitted subject to the approval of the RMCD. Sales tax is also levied on the importation of taxable goods upon the clearance of the taxable goods from the customs.  

There is no requirement to register for sales tax in the case of the importation of taxable goods. 

Key highlights include:

• All taxable goods manufactured in or imported into Malaysia are subject to sales tax unless exempted.
• Sales tax does not apply to free zones, licensed warehouses, Joint Development Areas (JDA), and certain islands (Labuan, Langkawi, Tioman, Pangkor).
• Rates: 5%, 10%, or specific rates (e.g., petroleum products).
• Entities manufacturing taxable goods exceeding RM500,000 in a 12-month period must register for sales tax.

Effective from 1 January 2024, 10% sales tax is imposed on certain imported low-value goods (LVG).  In general, certain goods that are imported into Malaysia by land, sea or air and sold at a price not more than RM500 will be subject to sales tax at 10%. 

Any seller with a total sales value of LVG imported into Malaysia that exceeds the RM500,000 threshold in a 12-month period is liable to register with the RMCD as a registered seller for LVG purposes.

Learn more from our Tax Alert on revisions to sales tax rates.

Service tax in Malaysia

Service tax is a single-stage tax levied on selected prescribed taxable services. Service tax is charged on any provision of taxable service in the course or furtherance of business by a taxable person. 

• Rates: 6% or 8% depending on the service.
• Threshold: RM500,000 for most taxable services, with exceptions (NIL, RM1,000,000, or RM1,500,000 depending on the service type).
• Imported services: Since 2019, service tax applies to both registered and non-registered persons receiving taxable imported services. Businesses must self-account and remit tax accordingly. 

The service tax rates are 6% and 8%, and is levied on the value of taxable services rendered in Malaysia. 

The general registration threshold for a 12-month period is RM500,000 for most of the taxable services with the exception of a few taxable services with thresholds of NIL, RM1,000,000 and RM1,500,000. 

Once a person has reached the applicable threshold of the specific services, they are liable to register for service tax to ensure their tax compliance in Malaysia. 

Effective from 1 January 2019, service tax is chargeable on taxable services imported by both service tax registered and non-registered persons. Voluntary registration is permitted subject to the approval of the RMCD. 

The recipient of imported taxable service is required to self-account and pay the service tax at the current rate of either 6% or 8% based on the actual value of the imported taxable services. This is only applicable to businesses. 

Read our full Tax Alert on service tax scope expansion for 2025 updates. [ 312 kb ]

Digital Economy

Effective from 1 January 2020, service tax on digital services (SToDS) at the current rate of 8% shall be charged and levied by a foreign service provider (FSP) who provides digital services to consumers (individuals or businesses) in Malaysia.

The FSP is liable to register for SToDS when the total value of digital services provided to consumers in Malaysia exceeds RM500,000 in a period of 12 months. The total value of the digital services is computed based either on the historical or future method.

Reporting of SST and Tax Filing in Malaysia

Filing of SST returns is a mandatory requirement for all persons registered for SST purposes. The tax filing process typically involves submitting regular declarations and tax filing through tax return forms to the RMCD within the prescribed time frame. 

• SST returns: Every two months.
• SToDS (foreign registered persons): Every three months.

A registered person is required to file SST returns for every two months, while for a foreign registered person, tax filing for SToDS is every three months. 

Efficient tax filing is crucial in mitigating risk of penalties, preserving business’ financial health. Compliant tax filing also ensure uninterrupted business operations supporting continuity. Additionally, businesses can benefit from careful tax planning for Malaysian SST to optimize cash flow and minimize tax liabilities. 

Explore more of our tax insights.

Importance of Tax Compliance in Malaysia

The adherence to the tax compliance requirements of Malaysia is crucial for the smooth operation and sustainability of a business. 

Key compliance requirements include:

• Registering for SST when exceeding thresholds.
• Correctly applying SST on taxable goods and services.
• Timely tax filing and accurate record-keeping.

Any non-compliance could result in penalties, fines, compounds or even legal actions that may prove to be detrimental to a business’s reputation and sustainability.

Companies are required to register for SST in Malaysia if the value of taxable goods or taxable services exceeds the prescribed threshold on a rolling 12-month basis, as outlined in the relevant laws. 

In addition, accurate chargeability of SST for both taxable goods and prescribed services is crucial not only to businesses but also to the customers. Ensuring the correct application of SST supports transparency and strengthens overall tax compliance.

Other than that, it is the SST-registered persons’ responsibility to ensure timeliness of their tax filing as well as the completeness of their records. Proper record-keeping and accurate submissions are key to maintaining tax compliance in Malaysia. 

Case reference: Medical practitioners and service tax compliance. [ 451 kb ]

Key considerations for Businesses 

Consumers and businesses are advised to stay alert to any updates or announcements relating to SST in Malaysia. Consumers and businesses should gain a thorough understanding of the goods that are taxable under sales tax or if the services businesses are providing fall under any of the prescribed scope of services. 

From time to time, there may be changes in the scope in sales tax and service tax, and introductions or updates of available facilities and exemptions that could directly impact consumers and businesses.

Once consumers and businesses gain sufficient knowledge of SST in Malaysia as well as any available facilities and exemptions, they can incorporate these into their tax planning. 

Effective tax planning offers strategic advantages which include better budgeting and financial forecasting, identifying compliance gaps for remediation, and implementing timely and efficient action plans. 

Consulting with tax professionals can help businesses align their operations with SST requirements while maximising efficiency.

Integrating updates into tax planning provides strategic advantages such as:

• Improved financial forecasting and budgeting.
• Identifying compliance risks for corrective action.
• Implementing efficient business strategies aligned with regulations.

See how SMEs and manufacturers are affected by SST.

Conclusion

Sales tax and service tax in Malaysia remain a cornerstone of the country’s tax system, shaping the way both consumers and businesses engage with the economy. 

A solid understanding of SST, together with proper Malaysian tax compliance and diligent tax filing in Malaysia is essential to navigate this system successfully. 

Businesses that invest in strategic tax planning will not only meet regulatory requirements but will also enhance financial sustainability. 

Ultimately, understanding SST is not just about meeting obligations – it’s about leveraging the system to foster transparent and efficient business practices. 

By staying informed, Malaysian businesses can operate confidently while contributing to the nation’s economic growth.

At Grant Thornton Malaysia, our dedicated tax specialists provide tax advisory, tax filing support, and tax planning strategies tailored to business’s needs.