Malaysia Budget 2025: Comprehensive Indirect Tax Reforms and Strategic Economic Initiatives
On 18 October, the Malaysia’s Ministry of Finance unveiled the 2025 Budget, outlining transformative fiscal strategies aimed at enhancing tax efficiency, encouraging investment, and addressing key socio-economic challenges. The proposed measures underscore the government’s intent to bolster revenue streams while incentivizing industrial modernization and environmental sustainability.
The rumoured reintroduction of Malaysia GST did not get any mention in the budget.
Expanded Sales and Services Tax Scope
Effective May 1, 2025, the Sales and Services Tax (SST) framework will undergo significant expansion:
- Sales Tax Extension: Non-essential and premium goods, including luxury items like imported salmon and avocados, will be subject to sales tax. This broadening aims to capture a wider tax base and ensure a more equitable fiscal contribution from discretionary spending.
- Service Tax Inclusion: The ambit of service tax will extend to cover business-to-business (B2B) commercial services, incorporating sectors like fee-based financial services. This aligns with global practices of taxing intermediate services and is expected to enhance compliance within Malaysia’s service-driven economy.
How Malaysia fell out of love with GST the first time (2015 to 2018)
SST applies to less than 100,000 companies, but GST covered almost half a million traders, giving a more reliable and larger tax base. However, final sale-only SST was felt to be simpler to administer than mult-stage GST. GST also failed to stop the rising government debt problem – a promise for its introduction. As a result, the new GST become unpopular and was blamed for rising prices following its 2015 introduction. This led to its withdrawal in June 2018 following election commitments by Pakatan Harapan.
