The first half of 2026 was marked by targeted changes to Malaysia’s Sales and Service Tax (SST) regime and continued implementation of the mandatory MyInvois e-invoicing system. The Government introduced relief measures affecting rental and leasing services, construction, agricultural inputs and SMEs, while Phase 4 of the e-invoicing rollout commenced on 1 January 2026. During the period, the Ministry of Finance also reaffirmed that Malaysia will continue operating the SST system and has no plans to reintroduce the Goods and Services Tax (GST).
January 2026 SST Measures
On 5 January 2026, the Government announced a package of SST measures which were subsequently implemented through updated Royal Malaysian Customs Department (RMCD) policies.
Rental and leasing services
The effective service tax rate on rental and leasing services for industrial use was reduced from 8% to 6% from 1 January 2026. Pending formal legislative amendments, the RMCD implemented the reduction through a 2% exemption mechanism, with registered persons required to reflect the exemption in invoices and SST returns. A refund mechanism was also introduced for tax accounted for at the previous 8% rate.
MSME relief
The annual turnover threshold for SMEs qualifying for the rental and leasing exemption increased from MYR 1 million to MYR 1.5 million. Newly established SMEs also became eligible for a one-year exemption from service tax on qualifying rental and leasing services, subject to the prescribed conditions.
Construction
The exemption for qualifying construction contracts signed before 9 June 2025 without review clauses was extended until 30 June 2027. Existing exemptions for the construction of religious buildings remain unchanged.
Agricultural inputs
Sales tax relief was expanded for specified raw materials used in manufacturing animal feed, fertilisers and pesticides. Manufacturers that paid sales tax on qualifying inputs from 1 January 2026 may apply for refunds under the RMCD procedures.
Other SST Developments
Other SST developments during H1 2026 included:
updated RMCD guidance on healthcare services provided to non-Malaysians;
new rules governing exchange rates for foreign currency SST invoices;
revised guidance for brokerage and underwriting services;
restrictions on vehicle tax exemptions in Langkawi and Labuan to vehicles priced below MYR 300,000; and
confirmation of a sales tax exemption for vessels under HS headings 8901–8908 from 1 July 2026.
MyInvois E-Invoicing
Malaysia’s mandatory MyInvois e-invoicing programme continued its phased implementation.
Phase 4 commenced on 1 January 2026, covering businesses with annual turnover between MYR 1 million and MYR 5 million. A transitional relaxation period applies until 31 December 2026, with full compliance beginning on 1 January 2027.
The Cabinet also confirmed that businesses with annual turnover below MYR 1 million are excluded from the mandatory rollout following the cancellation of the previously planned Phase 5.
During the transition period:
consolidated e-invoices remain permitted for most transactions;
individual e-invoices are required for transactions exceeding MYR 10,000;
updated IRBM e-Invoice Guidelines (Versions 4.6 and 4.7) introduced additional implementation guidance; and
businesses remain eligible for tax deductions, accelerated capital allowances and digitalisation grants supporting implementation.
GST Policy
The possible reintroduction of the Goods and Services Tax remained the subject of public debate during H1 2026.
In a written parliamentary reply issued on 23 January 2026, the Ministry of Finance confirmed that the Government has no plans to reintroduce GST, stating that the existing SST framework remains the preferred indirect tax system.
Although economists and professional advisers continued to discuss the potential long-term benefits of a VAT-type system, no legislative proposals to replace SST were introduced during the reporting period.
SST Framework
Malaysia continues to operate separate Sales Tax and Service Tax regimes.
Sales Tax generally applies at 5% or 10%, depending on the goods concerned, while Service Tax generally applies at 6% or 8%, depending on the category of taxable service.
Unlike a value-added tax, Service Tax is imposed on specified taxable services without an input tax credit mechanism.
The ongoing rollout of MyInvois continues to expand Malaysia’s digital tax administration infrastructure ahead of full implementation for businesses with annual turnover between MYR 1 million and MYR 5 million from 1 January 2027.
