THE Malaysian tax scene has been very active in 2025 with various important measures introduced on direct and indirect tax areas.
On the indirect tax front, the tax base has been widened through the expansion of the service tax into education sector, health sector, financial services, rental/leasing and construction services. Meanwhile, several high value non-essential items have been brought into the 10% sales tax bracket and items subject to sales tax on importation have been widened. Excise duty was increased on alcoholic beverages and cigarettes.
The direct tax arena has also been very active with the introduction of the 2% dividend tax on dividends received above RM100,000 which has now been expanded to include distributions made by limited liability partnerships to their partners from 2026. E-invoicing, which commenced in August 2024, has continued to bring in more sections of the business into the net. With the exemption now provided to businesses earning less than RM1 million, the e-invoicing rollout will be completed by Jan 1 2026 for businesses with turnover of RM1 million to RM5 million.
The shift to digitalisation continued with the introduction of the self-assessment system for Real Property Gains Tax, and to meet the corporate tax compliance requirements, it is now compulsory to submit supporting documentation for your tax returns through the Malaysian Income Tax Reporting System.
Challenges in 2026
The main challenges for taxpayers will be the administrative reforms that is continuously being introduced by the Inland Revenue Board (IRB) and the Royal Malaysian Customs Department (RMCD. There will be intensification of the compliance requirements and the increase in the intensity of the audits with the relentless pursuit towards digitalising within the tax system.
The most notable challenge in 2026 will be the self-assessment of stamp duty.
Taxpayers will have difficulty in categorising the instruments and subjecting it to the correct tax under the First Schedule of the Stamp Act 1949. This is largely due to the outdated language used in the Stamp Act which was enacted more than 50 years ago in 1949. There is an urgent need to revamp this legislation with the aim of simplifying the language and filling the gaps that exists in the current legislation.
Although the Sales and Service Tax (SST) was expanded in July 2025 and numerous guidelines together with policy pronouncements were issued over the past six months, there is still uncertainty among taxpayers on the aspect of interpretation.
This is particularly true in determining the value that should be brought to tax.
An example would be the value that should be included in construction services where it includes both services and materials.
Another issue that leaves taxpayers in uncertain territory is whether a contract is reviewable or not, since non-reviewable contracts will be eligible for a 12-month service tax moratorium. This is a similar problem that has moved from the Goods and Services Tax (GST) era to the SST era without a clear resolution. It looks like the courts will again be the final arbiters on this issue.
With the increased use of artificial intelligence, digitalisation, sharing/mining information within the IRB and the RMCD, and the cross-sharing of information across different government agencies will significantly identify taxpayers who are practicing tax evasion and bring out the non-compliance. The opportunity to hide from the tax authorities will be more difficult starting with the declaration of the payments and benefits/perquisites/allowances provided to employees.
The IRB is cross-checking the information against the tax computations, general ledgers, and other financial sources. Fictitious transactions are a thing of the past as the tax officials are trained to “smoke out” the recalcitrant taxpayers. It is also happening in the indirect tax front through post-registration audits, verification of transaction audits, post-importation audits, and expanded information disclosure for service tax purposes in the form SST-02 where there is now a requirement to show exempted, excluded and non-taxable income.
In 2026, you can also expect more information about Carbon Tax. For larger multinational groups whose turnover exceeds €750 million (about RM4 billion), the global minimum tax has kicked in 2025 and the tax returns will have to be filed by June 30 2027.
This article is contributed by Thannees Tax Consulting Services Sdn Bhd managing director SM Thanneermalai (www.thannees.com).
