Malaysia to expand services tax from July 1 to trim deficit

[KUALA LUMPUR] Malaysia is expanding its sales and service tax to include the construction and financial services sectors effective Jul 1, according to the Finance Ministry.

The move is one of the key measures for Malaysia to narrow its fiscal deficit target to 3.8 per cent of gross domestic product, from 4.1 per cent the previous year. The widening of the tax base will also apply to non-essential items, including premium imported goods, in addition to commercial services.

“The addition to this sales tax helps in the improvement of the public sector especially in increasing cash aid, reinforcing public amenities as well as services,” Second Finance Minister Amir Hamzah Azizan said in a statement on Monday (Jun 9). “The additional revenue can benefit the whole country without burdening the majority of the people.”

Financial and construction services will face service tax of 8 per cent and 6 per cent, respectively, according to the Finance Ministry, though capital markets, foreign exchange and residential construction will be exempted. There will also be new service taxes on private education and private healthcare.

The ministry is also increasing its sales tax to 5 per cent on premium items such as king crab, salmon, truffle, imported strawberries and silk, as well as industrial machinery. Items such as racing bicycles and tungsten scraps will be taxed at 10 per cent.

The government in April postponed the planned widening of the tax base from May 1 after manufacturers urged policymakers to refrain from adding to their financial burden. The manufacturing sector, a major contributor to Malaysia’s tax revenue, faces severe cost pressures from a looming US tariff rate of 24 per cent.

The trade-reliant nation is seeking to negotiate a deal with Washington within the 90-day pause of the higher tariffs mandated by US President Donald Trump, who has in the meantime imposed a 10 per cent levy on goods from Malaysia and many other trading partners. BLOOMBERG