Malaysia to impose 5% sales tax on over 4,800 goods from July; including petchem products

Malaysia’s Finance Ministry has confirmed it will proceed with a sweeping expansion of the Sales and Services Tax (SST) framework effective 1 July 2025, bringing more than 4,800 harmonised system (HS) codes under the 5% tax bracket—including key petrochemical products previously exempted.

The policy overhaul, aimed at widening the country’s tax base and enhancing revenue generation, comes amid broader fiscal consolidation efforts. While the government has positioned the move as a revenue-positive measure that spares the general public, industry players have voiced alarm over its ramifications for operational costs and competitiveness.

In a sharply worded statement, the Federation of Malaysian Manufacturers (FMM) condemned the decision as “highly damaging to industries,” warning that the abrupt imposition of the expanded SST could stoke inflationary pressures and trigger significant risks of business disruptions.

“Malaysia’s tariff system comprises 11,442 HS codes. With this expansion, approximately 97% of goods will now fall under sales tax coverage,” FMM President Tan Sri Soh Thian Lai stated. “This marks a major structural shift from a previously narrower tax base to one where nearly all industrial and commercial inputs are now taxable.”

Among the newly taxed items are major petrochemical inputs under HS headings 3901 through 3907, covering polymers such as polyethylene, polypropylene, polystyrene, and other synthetic resins—critical raw materials across the plastics, packaging, automotive, and manufacturing sectors. These materials were previously zero-rated under the SST.

In addition to goods, an 8% service tax will now apply to leasing and rental services related to commercial or business goods and premises, when annual taxable service values exceed RM500,000. This includes the leasing of machinery, fleet vehicles, and industrial buildings, potentially compounding cost burdens for capital-intensive sectors.

FMM has called on the government to postpone the enforcement of the expanded SST pending a full economic impact assessment. It also urged broader exemptions, particularly for capital equipment and essential industrial inputs.

Market participants have echoed similar sentiments, pointing to confusion over implementation details and warning that businesses may face significant compliance challenges on top of financial strain.

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