The Malaysian government announced the following changes to the Sales and Service Tax (SST) framework on 5 January 2026:
BDO Takeaways
The reduction of the service tax rate on rental and leasing services to 6% is expected to result in an annual service tax savings to tenants of around MYR 500 million. This change requires an amendment to the Service Tax (Rate of Tax) Order, which has not yet been gazetted but is anticipated to take effect from the stated date. The increase in the annual sales threshold, along with the exemption for newly established MSME businesses, aims to reduce business costs associated with rental or leasing services acquired by MSMEs. Previously, such tax exemption applied only to businesses with an annual turnover of MYR 500,000 to MYR 1 million. While the Royal Malaysian Customs Department (RMCD) has yet to update the service tax policy, we anticipate such changes to be reflected in due course.
David Lai
Chan Kwan Yee
BDO in Malaysia
Service Tax
- Rental and leasing services: The service tax rate on rental or leasing services for industrial use is reduced from 8% to 6%, effective 1 January 2026. According to the Ministry of Finance, the annual sales threshold for micro, small and medium-sized enterprises (MSMEs) that are exempt from paying service tax on rental or leasing services is increased from MYR 1 million to MYR 1.5 million. This move aims to ease cost pressures on industrial businesses and support MSME growth by reducing compliance burdens and improving cash flow during their initial operating period.
- Construction services: The service tax exemption on construction contracts signed before 1 July 2025 is extended by one year, now valid until 30 June 2027. Eligible agreements without reviewable clauses can enjoy a total of two years of exemption. The construction of religious buildings such as suraus, mosques, temples, churches and shrines remains exempt from service tax, continuing the policy in place since 1 July 2025. This extension offers support for ongoing projects and facilitates continued operations for contractors and developers.
Sales Tax
- The supply of critical raw materials and agricultural inputs used by registered manufacturers is zero-rated and covers animal feed, fertilisers and pesticides.
BDO Takeaways
The reduction of the service tax rate on rental and leasing services to 6% is expected to result in an annual service tax savings to tenants of around MYR 500 million. This change requires an amendment to the Service Tax (Rate of Tax) Order, which has not yet been gazetted but is anticipated to take effect from the stated date. The increase in the annual sales threshold, along with the exemption for newly established MSME businesses, aims to reduce business costs associated with rental or leasing services acquired by MSMEs. Previously, such tax exemption applied only to businesses with an annual turnover of MYR 500,000 to MYR 1 million. While the Royal Malaysian Customs Department (RMCD) has yet to update the service tax policy, we anticipate such changes to be reflected in due course.
David Lai
Chan Kwan Yee
BDO in Malaysia