KUALA LUMPUR: Budget 2026 is expected to focus on refining or fine-tuning the implementation of the Sales and Service Tax (SST), which came into effect on July 1, rather than introducing further significant changes to the framework.
Ernst & Young Tax Consultants Sdn Bhd partner, indirect tax, Yeoh Cheng Guan, said key areas likely to be addressed include the expansion of the business-to-business (B2B) exemption coverage.
He stated that the B2B exemption currently applies only when a taxable person acquires the same type of taxable service that they provide, which limits the scope of the exemption.
“It is hoped that the exemption will be expanded such that it applies to all categories of services acquired by a taxable person from suppliers or subcontractors, as long as the service is acquired for onward provision of services to the end-customer and not for own consumption.
“Further sector-specific policies and clarifications can also be anticipated as industry players actively engage with the authorities to share their views and seek practical guidance and concessions. Sectors for which policy refinements are expected include construction,” he told SunBiz.
Yeoh said these refinements will help maintain the SST regime as fair, efficient and aligned with Malaysia’s broader economic goals.
He explained that the SST forms the core of Malaysia’s indirect tax system.
Reintroduced in 2018 to replace the Goods and Services Tax (GST), SST consists of a single-stage sales tax on manufacturers and importers and a service tax on specified local and foreign services.
Designed to be simple yet equitable, SST exempts essential goods and services while taxing discretionary items to ensure a fair, progressive burden. It is a single-stage tax, meaning – unlike GST or Value-Added Tax – it becomes a cost to the payer.
To reduce cascading effects, the government provides B2B exemptions and group relief for service tax.
Yeoh said while Budget 2025 introduced significant SST reforms, including review of the sales tax rates and scope expansion of service tax to sectors such as rental or leasing, construction, education, financial services and healthcare, Budget 2026 presents an opportunity for the government to refine and rebalance the framework to serve the business community better.
To that end, Yeoh said, several targeted measures and incentives should be considered.
Budget 2026 could introduce clearer and broader B2B exemptions, particularly for industries with extended value chains such as construction and logistics, to reduce compliance friction, minimise tax cascading and improve cost efficiency.
He said it could also raise the registration thresholds for service tax – as was done for rental and leasing services (from RM500,000 to RM1 million) – in more sectors to ease the entry burden on smaller, growing businesses, allowing them to focus on recovery, reinvestment and expansion.
In addition, transitional rules and sector-specific clarifications should be provided to address ambiguities in service classification, tax treatment, and documentation, especially for mixed-service providers and complex industries, such as construction, where disputes are common.
“The government could further consider targeted SST exemptions or rebates for strategic sectors aligned with national priorities, such as digitalisation, green technology, and export-oriented services, to stimulate investment and competitiveness.
“Finally, it should institutionalise stakeholder engagement mechanisms to ensure SST policies remain adaptive, inclusive, and responsive to evolving business needs,“ Yeoh said.
Policymakers should consider broadening and relaxing the conditions of B2B exemptions to reduce tax-on-tax effects and enhance supply chain efficiency, while also providing clear, consistent, plain-language guidance and sector-specific policies to minimise compliance ambiguity, he added.
They should extend transitional reliefs and penalty waivers through voluntary disclosure programs to support businesses adapting to the expanded scope, and introduce a voluntary Indirect Tax Governance Framework to encourage proactive compliance and risk management.
Yeoh said these measures would not only ease the compliance burden but also reinforce the government’s commitment to a fair and business-friendly tax environment.
“SST remains central to Malaysia’s fiscal strategy, reflecting a global shift toward consumption-based taxes. For businesses, compliance readiness and proactive engagement are key, while Budget 2026 offers a chance to refine B2B exemptions and sector clarity to keep SST a driver of sustainable growth – not a barrier,” Yeoh said.
