Malaysia’s Sales and Service Tax Increase: What Industries are Impacted?

The Malaysian government officially increased the sales and services tax (SST) rate from six percent to eight percent, effective from March 1, 2024, across several sectors such as finance and leisure. Finance Minister Datuk Seri Hamzah Azizan stated that this was part of the government’s ongoing tax reforms and was needed to strengthen the country’s fiscal base and prepare a new era of economic growth under the Civil Economy framework, a government initiative promoting domestic consumption and production.

The SST rate increase policy is projected to increase state revenues worth 3 billion ringgit or around US$636 million.

The SST was introduced in 2018 to replace the goods and services tax (GST) to boost Malaysia’s purchasing power. Under the SST regime, different tax rates were incurred depending on the nature of the goods and services. Building materials, petroleum oil, and basic foodstuffs incur a five percent rate while luxury non-essential items incur a 10 percent rate.

How the sales and service tax is implemented

If the taxable services are provided before March 1, the applicable six percent rate will apply. However, if the taxable service is provided on or after March 1, then the eight percent rate will apply.

Which services are exempted from the tax hike?

• Food and beverages (Group B);
• Parking services; (Group I);
• Logistics; (Group J) and
• Telecommunication services (Group I).

 All the other taxable services not mentioned above such as accommodations, legal, accounting, engineering, IT, digital services, etc, will be subject to the new eight percent rate.

Further, the new SST rate also only applies to electricity services above 600kWh. With this provision, almost 85 percent of electricity customers with a capacity of 600kWh and below will not be subject to SST. Apart from that, the government also continues to provide SST exemption facilities for clean water supply services.

What it means for businesses

For businesses, the picture is less clear. While some may be able to absorb the two percent increase, others may struggle, particularly as Malaysia grapples with a weakening ringgit and a slowing China. The ringgit fell to 4.7965 ringgit against the dollar on February 20, 2024, the weakest it’s been since the Asian financial crisis of 1998 when it reached 4.9950 ringgit against the dollar.

Businesses must ensure they have a thorough understanding of the various categories under the SST regime, and whether their products or services fall under Group B, Group I, Group J, or other categories.

Further, businesses should adjust their pricing strategies to accommodate the SST rate increase while also taking advantage of any exemptions provided under the SST regime.

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