Written by Lim Tse Hwei
On 5 January 2026, the Ministry of Finance announced several changes to the Sales Service Tax (SST) regime in a few key areas. Except for the final change (place of worship), which took effect on 1 July 2025, all changes take effect on 1 January 2026.
Reduction and Exemption for Rental and Leasing (Group K)
Item | Before 1 January 2026 | After 1 January 2026 |
Service Tax Rate | 8% | 6% |
Annual sales turnover for small, medium and micro enterprises (MSMEs) exempt from paying service tax | RM1 million | RM1.5 million |
Exemptions for new MSME’s | – | 1 year from the date the MSME is registered
|
Sales Tax exemption on critical raw materials or input
In order to control the price of basis necessities, critical raw materials or input materials used by registered manufacturers are exempted from sales tax.
The following raw materials used in the production of livestock and agricultural-related goods fall under the exemption:
- Animal feed
- Fertilizers
- Pesticides
Extension of Service Tax exemption on non-reviewable construction contracts (Group L)
This concerns the exemption of service tax for non-reviewable construction service contracts.
Previously: Exempted from 1 July 2025 till 30 Jun 2026.
Now: Exempted from 1 July 2025 till 30 June 2027.
As to what qualifies as ‘non-reviewable’ construction service contracts, see our previous article here and Appendix A of Service Tax Policy No. 3/2025 (Amendment No 1).
Exemption of Service Tax on construction of places of worship
Effective 1 July 2025, construction work services for buildings of worship such as ‘surau’, mosques, temples, churches and ‘tokong’ are officially not in scope and are exempted from Service Tax.
Published on 16 January 2026