The Sales and Service Tax (SST) is Malaysia’s principal indirect tax, imposed as a single-stage tax under the Sales Tax Act 2018 and the Service Tax Act 2018 and administered by the Royal Malaysian Customs Department (RMCD). In 2026, sales tax applies at 5% or 10% on taxable goods, while service tax applies at 6% or 8% depending on the service category — and following the major expansion of scope on 1 July 2025, thousands of businesses that were never previously in the tax net now have registration, invoicing and filing obligations.

This guide, prepared by our Tax & Customs practice, explains how SST works in 2026, who must register, what has changed, and where the legal risks lie now that the penalty-free grace period has ended and RMCD enforcement has begun.

What is SST and how does it work?

SST was reintroduced on 1 September 2018, replacing the Goods and Services Tax (GST). Unlike GST, which applied at every stage of the supply chain with input tax credits, SST is a single-stage tax:

• Sales tax is charged once — at the manufacturing stage for goods manufactured in Malaysia, or at the point of importation for imported taxable goods.
• Service tax is charged once — at the point the taxable service is provided by a registered person.

There is no input tax credit mechanism. The tax is embedded in the price, collected by the registered business, and remitted to RMCD through the SST-02 return.

Because SST is a creature of two separate statutes — the Sales Tax Act 2018 and the Service Tax Act 2018 — a single business can have obligations under both. A manufacturer that also leases out machinery, for example, may be a registered manufacturer for sales tax purposes and a registered person for service tax on its rental income.

What are the SST rates in 2026?

Sales tax:

Category	Rate
Most taxable goods	10%
Selected goods (certain construction materials, foodstuffs, petroleum oils)	5%
Selected premium and imported goods (added 1 July 2025 — e.g. premium seafood such as salmon and king crab, certain imported fruits, truffles)	5%
Low-value goods imported and sold online (RM500 and below)	10%
Essential goods (rice, chicken, beef, vegetables, eggs, local fish, medicines, books)	Exempt

Following public feedback, apples, oranges, mandarin oranges and dates were removed from the imported-fruit tax and remain exempt.

Service tax:

Category	Rate
Food & beverage, telecommunications, parking, logistics	6%
Rental or leasing services (rate reduced from 8% effective 1 January 2026)	6%
Private healthcare (non-Malaysian citizens), private education (qualifying fees)	6%
Most other taxable services, including professional services, construction works services, financial services and wellness services	8%

What changed in the 1 July 2025 SST expansion?

The July 2025 expansion was the most significant widening of the indirect tax base since SST’s reintroduction. Over 4,800 goods and services entered the tax net. The key new taxable service categories were:

1. Rental or leasing services — commercial rental and leasing of tangible assets, initially at 8%, reduced to 6% from 1 January 2026.
2. Construction works services — including residential components of mixed development projects, at a RM1.5 million registration threshold.
3. Financial services — fee- and commission-based financial services at 8%, including fund management and re-insurance previously exempt.
4. Private healthcare services — at 6%, but only where provided to non-Malaysian citizens.
5. Private education services — at 6% where fees exceed RM60,000 per student per academic year, and for tertiary and language-centre services to non-citizen students regardless of fee level.
6. Wellness services — treatments provided at wellness centres at 8% (beauty services such as manicures and hairdressing were subsequently excluded after public feedback).

Who must register for SST in 2026?

Registration is mandatory once the total value of taxable goods or services exceeds the applicable threshold in any rolling 12-month period. The general threshold is RM500,000, but the 2025 expansion introduced sector-specific thresholds: RM1 million for rental/leasing and financial services, and RM1.5 million for construction works, private healthcare, and food & beverage. Certain services — credit and charge card services, and customs clearance services by approved customs agents — carry no threshold at all.

Once the threshold is exceeded, the business must apply for registration within 30 days. Critically, the registration takes effect from the date the threshold was exceeded — not the date of application — meaning late registrants face backdated tax assessments. Our detailed article on SST registration thresholds walks through the calculation rules, including when revenues across branches and service groups must be combined.

Is the grace period over? What is RMCD enforcing now?

Yes. Businesses affected by the July 2025 expansion enjoyed a penalty-free compliance period until 31 December 2025. From 1 January 2026, RMCD enforcement began in earnest, and 2026 is expected to be a year of active Customs audits targeting the newly-taxed sectors — particularly rental and leasing, construction, financial services and healthcare.

RMCD identifies non-registrants by cross-referencing income tax data from LHDN, banking transaction information and company registration records. The common enforcement exposures we see in practice are:

• Non-registration despite crossing the threshold, leading to backdated assessments plus penalties;
• Incorrect rate application — charging 8% where 6% applies (or vice versa), particularly on rental and leasing invoices issued after the 1 January 2026 rate reduction;
• Missed self-accounting obligations on imported taxable services;
• B2B exemption errors — claiming exemptions between registered persons without satisfying the conditions.

Failure to file returns or pay tax due carries a fine of up to RM50,000, imprisonment of up to three years, or both, in addition to late-payment penalties on the unpaid tax itself.

What exemptions are available?

The exemption architecture under SST is layered, and this is where most disputes with Customs arise. Broadly:

• Exempt goods — essential items (rice, poultry, vegetables, eggs, local fish, medicines, books) remain outside sales tax.
• B2B exemptions — a registered person acquiring certain taxable services from another registered person in the same group of services may be exempt, preventing cascading tax.
• MSME tenant relief — small businesses below the relevant threshold are exempted from paying service tax on rental or leasing costs.
• Sector-specific policies — RMCD issues Service Tax Policies and Sales Tax Policies granting targeted exemptions (for example, the exemption for construction of places of worship, and the sales tax exemption on manufacturing inputs for animal feed, fertiliser and insecticide effective 1 January 2026).

Exemptions are conditional. If Customs later takes the position that a condition was not met, it can issue a bill of demand for the full tax plus penalties — which is why exemption positions should be documented contemporaneously and, where the law is unclear, supported by a written ruling application.

What should businesses do now?

First, map every revenue stream against the taxable service groups and current thresholds — including revenue that is itself exempt, because exempt revenue can still count toward the threshold calculation. Second, verify that invoicing systems apply the correct rate, particularly for rental and leasing after the January 2026 reduction. Third, keep the documentary trail: SST is enforced through audit, and in an audit the burden falls on the taxpayer to substantiate its positions. Finally, if you discover historical non-compliance, take advice before Customs finds it — voluntary disclosure almost always produces a better outcome than a bill of demand.

Frequently Asked Questions

Is SST the same as GST? No. GST was a multi-stage tax with input tax credits, abolished in 2018. SST is a single-stage tax charged once, either at manufacture/import (sales tax) or at the point of service (service tax).

What is the SST registration threshold in Malaysia? The general threshold is RM500,000 of taxable turnover in 12 months, but rental/leasing and financial services carry a RM1 million threshold, while construction, private healthcare and F&B carry RM1.5 million. Some services have no threshold.

What is the service tax rate on rental in 2026? 6%, effective 1 January 2026 — reduced from the 8% rate that applied when rental and leasing services first became taxable on 1 July 2025.

Can Customs backdate an SST assessment? Yes. If you registered late, your registration is effective from the date you exceeded the threshold, and Customs can assess tax from that date, together with penalties.

Who administers SST in Malaysia? The Royal Malaysian Customs Department (RMCD), through the MySST portal, with returns filed on Form SST-02 and payment due by the last day of the month following each taxable period.