Service Tax & Sales Tax NewUpdates

Following the announcement made by the Ministry of Finance (MOF), the Royal Malaysian Customs Department (RMCD) has issued amendments to selected Service Tax Policies and introduced a new Sales Tax Policy as follows:

1.    Rental or Leasing Services –Service Tax Policy No. 2/2025 (Amendment No.4)

On February 7, 2026, RMCDissued Service Tax Policy No. 2/2025 (Amendment No.4) clarifying that the ServiceTax rate for rental or leasing services is fixed at 6% effective January 1, 2026.

Although the rate is 6% from January 1, 2026, the formal amendment to the law has not yet been gazetted. In the interim, Customs has granted an administrative exemption of 2%. Service providers may therefore charge 6% instead of 8% with effect from January 1, 2026.

Overpayment arises where aservice provider has already charged 8% and declared or paid the full 8% to Customs for rental or leasing services provided on or after January 1, 2026. In such cases, the excess 2% is refundable.

Service providers who have accounted for and paid 8% may apply for a refund of the excess 2% to their respective Customs controlling stations. The refund will only be allowed where the service provider has first refunded the excess 2% to the tenant or customer. Refund applications must be supported by:

• Rental or leasing agreements covering services provided on or after January 1, 2026
• Invoices showing the 8% Service Tax charged
• Credit notes and proof of repayment of the excess 2% to tenants orcustomers

2.   Construction Works Services – Service Tax Policy No. 3/2025 (Amendment No.3)

On February 2, 2026, RMCDissued Service Tax Policy No. 3/2025 (Amendment No.3), superseding Service Tax Policy No. 3/2025 (Amendment No.2) dated December 31, 2025 on the policy governing construction works services.

Key updates include:

(a) Extension of Exemption for Non-Reviewable Contracts - The Service Tax exemption for non-reviewable construction contracts has been extended from June 30, 2026, to June 30, 2027, providing greater certainty for long-term projects entered into prior to the change in Service Tax treatment.

(b) Clarification on Exemption for Religious Buildings - Service Tax exemption is granted for construction of buildings for religious worship, including related public facilities, subject to specified conditions. The Policy clarifies the limits of the exemption as follows:

• Mixed-use developments involving commercial buildings are not automatically eligible; and
• Where religious buildings are developed together with commercial components, a separate exemption application to the Ministry ofFinance (Tax Division) may be required.

3.    Sales Tax Exemption on RawMaterials for the Manufacture of Animal Feed, Fertilisers or Pesticides – Sales Tax Policy No.1/2026

On February 4, 2026, RMCD introduced Sales Tax PolicyNo. 1/2026 granting Sales Tax exemption on specified raw materials used in the manufacture of animal feed, fertilisers and pesticides The exemption applies to raw materials classified under the prescribed HS tariffcodes listed in the Policy Appendices and is effective January 1, 2026.

Manufacturers who have paid Sales Tax on qualifying raw materials from January 1, 2026, until gazettement of the amended exemption order may apply for a refund under Section 39 of the Sales Tax Act 2018, subject to conditions including:

• Materials must fall within the approved HS classifications
• Sales Tax must have been duly paid
• The manufacturer must hold a valid licence from the relevant regulatory authority (e.g. Department of Veterinary Services or Department of Agriculture)
• Proper documentation must be maintained to support refund claims