The Service Tax Act 2018: How Malaysia Taxes Services Under SST

Every restaurant bill, phone plan and parking receipt in Malaysia carries a line most people never read closely — the service tax. The law behind it is the Service Tax Act 2018 (Act 807), an Act to provide for the charging, levying and collecting of service tax on prescribed taxable services. It came into operation on 1 September 2018 and is administered by the Royal Malaysian Customs Department (RMCD). Firm “SST update” pages snapshot whatever the rate happens to be that year and go stale; this explainer treats Act 807 as living law — its mechanism, and a single dated timeline of every rate and scope change.

What is the Service Tax Act 2018?

Act 807 is the statute that lets Malaysia impose service tax. It is the service-tax half of the Sales and Service Tax (SST) system: service tax and sales tax together replaced the Goods and Services Tax, with the GST Act 2014 repealed effective 1 September 2018.

The mechanism is deliberately simple. Service tax is a single-stage tax charged by a registered person on prescribed taxable services provided in Malaysia in the course of business. “Single-stage” means it is charged once, at the point the service is supplied — there is no input-tax credit as there was under GST, so the tax is not recovered up the chain but flows through to the final customer. The categories of taxable services, the thresholds and the exemptions are all prescribed — set out in subsidiary regulations and orders made under the Act, which is why the scope can be widened by the government without rewriting the statute.

Beyond domestic supplies, the Act reaches across borders. Service tax applies to imported taxable services (effective 1 January 2019), and to imported digital services supplied to consumers in Malaysia from 1 January 2020 — a business-to-consumer regime introduced by the Service Tax (Amendment) Act 2019.

How much is the service tax?

The rate is set by order made under the Act. At launch in 2018 it was 6%. From 1 March 2024 the standard rate rose to 8%, but several everyday categories were deliberately kept at 6%. Credit and charge card services sit outside the percentage system entirely, taxed at a fixed amount per card.

Rate	Applies to
8% (standard)	Most taxable services, since 1 March 2024
6%	Food and beverage, telecommunications, parking, and logistics services
RM25 per card	Credit card and charge card services

Who has to register and charge it?

Registration is triggered by turnover, not by choice. Any person providing taxable services is liable to register once the total value of taxable services provided in a 12-month period exceeds the prescribed threshold. The general threshold is RM500,000 of taxable turnover, but the service groups added in 2025 carry higher thresholds. Once registered, the business must charge service tax on its taxable services and account for it to RMCD.

Service group	Registration threshold
General (most taxable services)	RM500,000
Financial services (fee-based)	RM1,000,000
Rental or leasing	RM1,500,000
Construction	RM1,500,000
Private healthcare	RM1,500,000

The rental or leasing threshold was set at RM1,000,000 when the group became taxable on 1 July 2025, then raised to RM1,500,000 from 1 January 2026. Education services are taxed on a per-student fee threshold rather than a turnover threshold (see below).

Foreign suppliers are not exempt: providers of imported taxable services and of imported digital services fall within the same net and must register and account for tax when they meet the relevant threshold.

How is service tax filed and paid?

A registered person declares and pays service tax using the SST-02 return. The return covers a two-month taxable period and must be submitted no later than the last day of the month following the end of that period — for example, a January–February period is due by 31 March. Payment is due on the same date.

What changed on 1 July 2025?

The biggest shift since 2018 came on 1 July 2025, when the government expanded the scope of service tax to cover services that had previously fallen outside it: leasing or rental, construction, financial services, private healthcare and education. A proposed extension to beauty services — manicure and pedicure, facial services, barbers and hairdressers — was withdrawn before the start date after public feedback, so there is no beauty service group.

The expansion is not a single flat rate. Fee-based financial services are taxed at 8%, while construction, education and private healthcare are taxed at 6%, each with targeted exemptions:

Expanded group (from 1 July 2025)	Rate	Key scope note
Fee-based financial services	8%	Fee- and commission-based services
Construction	6%	Registration threshold RM1,500,000
Rental or leasing	8%, cut to 6% from 1 January 2026	Registration threshold RM1,000,000, raised to RM1,500,000 from 1 January 2026
Private healthcare	6%	Applies only to services provided to non-Malaysian citizens; services to Malaysian citizens are exempt
Education	6%	Applies where fees exceed RM60,000 per student per academic year

Private healthcare (RMCD Service Tax Policy No. 5/2025) applies the 6% rate only to services provided to non-Malaysian citizens, covering private hospitals, traditional and complementary medicine and allied health services; services provided to Malaysian citizens are exempt, as are government and university facilities.

Education (RMCD Service Tax Policy No. 4/2025) subjects private and international schools and private higher education to 6% service tax where fees exceed RM60,000 per student per academic year, with exemptions for special-education schools and for services to Malaysian citizens who hold an OKU (disability) card.

Recognising that thousands of newly-liable businesses needed time to comply, the government set a grace period: no prosecution or penalties would be imposed until 31 December 2025 for businesses taking steps to comply with the expanded requirements.

The 1 January 2026 revision to rental and leasing

Following further industry feedback, the government revised the rental and leasing rules with effect from 1 January 2026: the service tax rate on rental or leasing services was cut from 8% to 6%, and the rental/leasing (MSME) registration threshold was raised from RM1,000,000 to RM1,500,000. The changes were announced on 5 January 2026 and gazetted on 13 March 2026, with RMCD granting an interim 2% exemption from 1 January 2026 pending gazetting. The rates and thresholds for construction (6%), financial services (8%), education (6%) and private healthcare (6%, non-citizens) were unchanged by this revision.

A timeline of Act 807

Because the statute is durable but its rates and scope change with each budget, the clearest way to hold Act 807 in your head is as a sequence of dated events:

Date	Change
1 September 2018	Act 807 comes into operation; service tax + sales tax (SST) replace the repealed GST. Launch rate 6%.
1 January 2019	Service tax extended to imported taxable services.
1 January 2020	Service tax on imported digital services (B2C) begins, via the Service Tax (Amendment) Act 2019.
1 March 2024	Standard rate rises from 6% to 8%; F&B, telecommunications, parking and logistics stay at 6%.
1 July 2025	Scope expanded to leasing/rental (8%), construction (6%), financial services (8%), private healthcare (6%, non-citizens) and education (6%). Proposed beauty-services expansion withdrawn.
Until 31 December 2025	Penalty grace period for businesses complying with the 2025 expansion.
1 January 2026	Rental/leasing rate cut from 8% to 6% and its registration threshold raised from RM1,000,000 to RM1,500,000 (announced 5 January 2026, gazetted 13 March 2026).

What’s next

For the practical mechanics, confirm current rates, thresholds and taxable-service categories against RMCD’s MySST portal and the latest orders made under the Act, and read the primary statute text at the Attorney General’s Chambers. Because rates and scope move with each federal budget, always check whether a later budget has superseded the figures here before acting on them.