SST 2026 Malaysia: Key Changes, Tax Rates and Employer Compliance Guide

With the implementation of SST 2026, Malaysian employers must stay alert to changes that impact tax compliance and business planning. Announced by the Ministry of Finance and effective from January 2026, these updates aim to improve fairness, support economic growth, and ease the burden on businesses. Understanding how Sales Tax and Service Tax apply is essential for accurate reporting and avoiding penalties.

What Is SST Malaysia?

Sales and Service Tax (SST) is Malaysia’s indirect tax system, reintroduced in 2018 to replace the Goods and Services Tax (GST). SST applies at specific points in the supply chain rather than across all transactions, making it more targeted in scope.

SST consists of two separate components:

Sales Tax: imposed on taxable goods manufactured locally or imported into Malaysia
Service Tax: imposed on specific taxable services provided by registered businesses

For employers and businesses, SST matters because it directly affects:

Operating costs
Pricing strategies
Contract structures
Tax compliance and reporting obligations

Understanding how SST works is essential, especially when policy improvements are introduced.

What Is New in SST 2026?

SST 2026 reflects a series of policy improvements announced under Belanjawan 2026, aimed at strengthening Malaysia’s tax system while supporting businesses and households.

The key goals of SST 2026 are to:

Support sustainable economic growth
Reduce cost pressure on citizen
Improve fairness and targeting in taxation
Strengthen business competitiveness

Rather than introducing a completely new tax structure, SST 2026 focuses on refining existing rules, adjusting rates, and expanding or clarifying exemptions for specific sectors.

Official Announcement by Ministry of Finance (MOF)

The SST 2026 improvements were officially announced by the Ministry of Finance (MOF) on 5 January 2026 as part of the government’s New Year policy updates.

These changes:

Are implemented under the Kerajaan MADANI framework
Apply nationwide, including Sabah and Sarawak
Affect both Sales Tax and Service Tax components

Effective Date of SST 2026

Most SST 2026 improvements took effect from 5 January 2026.

However, certain measures were implemented earlier to provide a transition period. From 1 July 2025, for selected sectors such as construction-related exemptions and religious buildings

Employers should take note of the effective dates, especially for ongoing contracts and service arrangements.

Understanding SST: The Two Main Components

To understand how SST applies to your business, it is important to first know that SST is made up of two separate taxes. Each component applies to different activities and is governed by different rules.

1. Sales Tax (Cukai Jualan)

Sales Tax is charged on taxable goods that are manufactured locally by registered manufacturers or imported into Malaysia.

Common Sales Tax rates include:

The applicable rate depends on the classification of goods under Customs regulations.

2. Service Tax (Cukai Perkhidmatan)

Service Tax is imposed on specific taxable services provided by registered service providers.

The standard rate is 6%. It is charged by the service provider to customers and applies only if the business is registered under SST

Key SST 2026 Improvements Employers Should Know

SST 2026 introduces several targeted improvements that employers should be aware of. These changes affect tax rates, exemptions, and service coverage, and may have direct implications on operating costs and compliance.

Service Tax on Rental and Leasing

Effective 1 January 2026, several improvements were introduced for rental and leasing services:

Service tax rate reduced from 8% to 6%
Annual sales threshold increased from RM1 million to RM1.5 million
New micro, small, and medium enterprises (MSMEs) are exempted from registration for the first 1 year

What this means for employers: Companies renting offices, warehouses, equipment, or vehicles may see lower service tax charges. MSMEs also benefit from a lighter compliance burden during their initial year of operation.

Sales Tax Exemption on Critical Inputs

From 1 January 2026, Sales Tax exemptions were introduced for selected critical inputs, including:

Animal feed
Fertiliser
Pesticides

The purpose of this exemption is to control the cost of essential goods and reduce production costs in the agriculture and farming sectors. Indirectly, this helps stabilise prices across supply chains.

Construction Contract Tax Relief Extension

Service Tax exemption has been extended until 30 June 2027 for construction contracts that:

Were signed before 1 July 2025
Do not contain a reviewable clause

This extension is particularly relevant for:

Construction companies
Property developers
Employers with long-term construction or renovation projects

Religious Building Construction

From 1 July 2025 onwards, construction services for religious buildings are fully exempted from Service Tax, including:

Mosques
Surau
Churches
Temples
Other religious buildings

Service Tax Scope Expanded (2026)

Under SST 2026, Service Tax coverage has expanded to include more services, such as:

Rental or leasing services
Construction services
Financial services
Private healthcare services
Selected education services
Beauty and wellness services

Some services apply only to non-citizens, and employers should review applicability carefully based on their business activities.

Sales Tax Rates Explained

Not all goods are taxed at the same rate under SST. Sales Tax rates vary based on classification and policy intent, particularly to protect essential goods while taxing non-essential items.

Goods at 0% Sales Tax

These items are zero-rated to protect the cost of living:

Basic food items (rice, chicken, meat, vegetables)
Medicines and medical devices
Books and newspapers
Agricultural inputs
Basic construction materials (cement, sand, stones)

Goods at 5% Sales Tax

Examples include:

Selected food products
Imported fruits
Industrial machinery
Smartphones
Cheese, quinoa, essential oils

Goods at 10% Sales Tax

Applied to luxury or non-essential goods, such as:

Alcohol
Cigarettes
Leather goods
Antiques
Racing bicycles
Luxury artwork

SST Registration Threshold

SST registration is not automatic for all businesses. Employers must first assess whether their business activities fall within the scope of taxable goods or services, and whether they meet the registration threshold set by Customs.

Who Must Register for SST

A business is required to register for SST if:

It manufactures taxable goods, and
The total value of taxable sales exceeds RM500,000 within a 12-month period

This threshold applies on a rolling basis, meaning employers must monitor turnover continuously, not only at year-end.

Important Points Employers Should Note

Registration is mandatory once the threshold is exceeded
Failure to register on time may result in backdated tax liability
Registration is done through the MySST Portal
Businesses may also opt for voluntary registration, even if they are below the threshold

For service tax, registration depends on:

Whether the service is listed as taxable, and
Whether the business meets the applicable annual sales threshold for that service

Employer & HR Responsibilities Under SST

While SST is often handled by finance or accounting teams, employers and HR teams still play a supporting role in ensuring compliance, especially where contracts, benefits, or services are involved.

Key Responsibilities for Employers

Employers should ensure that the business:

Understands whether its goods or services are subject to SST
Monitors annual revenue to identify when registration is required
Registers under MySST within the required timeframe
Applies the correct Sales Tax or Service Tax rate
Issues proper tax invoices where required
Submits SST returns according to Customs deadlines
Maintains accurate records for audit and verification purposes

Role of HR Teams

HR teams may be indirectly involved when SST affects:

Rental or leasing of office space
Outsourced services (cleaning, security, training, healthcare)
Employee benefits that involve taxable services
Contractual agreements with vendors or service providers

Close coordination between HR, finance, and procurement teams helps ensure SST is applied correctly across business operations.

Penalties for SST Non-Compliance

SST compliance is enforced under the Customs Act, and non-compliance may result in financial penalties and enforcement action.

Common Non-Compliance Issues

Businesses may face penalties for:

Late or failure to register for SST
Late submission of SST returns
Charging incorrect SST rates
Failure to charge SST when required
Under-reporting taxable sales
Inaccurate or incomplete records

Possible Consequences

Depending on the severity of non-compliance, enforcement actions may include:

Monetary fines
Compound penalties
Backdated tax assessments
Interest on unpaid tax
Legal action by the Royal Malaysian Customs Department

For employers, proactive compliance is always more cost-effective than corrective action after an audit.

Useful Official References

For accurate and updated guidance, employers should refer to:

Ministry of Finance (MOF)
Royal Malaysian Customs Department
MySST Portal: mysst.customs.gov.my/
Official SST Orders and Guidelines

FAQs

Is SST applicable to all companies in Malaysia?

No. SST applies only to businesses supplying taxable goods or services and meeting registration thresholds.

Does SST affect payroll or employee salaries?

No. SST applies to goods and services, not employee wages or payroll.

When must an employer register for SST?

When taxable sales exceed the prescribed threshold within 12 months.

What is the difference between Sales Tax and Service Tax?

Sales Tax applies to goods, while Service Tax applies to specific services.

Are SMEs automatically exempted from SST?

No. SMEs must still assess whether they meet the registration criteria.

Does SST apply to foreign clients or overseas services?

Applicability depends on the nature of services and customer classification.

What happens if SST registration is delayed?

Late registration may result in penalties and backdated tax liabilities.

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