2025 Tax Trinity: US Tariffs, SST Expansion and E-invoicing
By Niam Seet Wei
KUALA LUMPUR, Dec 11 (Bernama) -- 2025 will be remembered as the “tariff year”, no thanks to the unexpected United States (US) tariffs that shook markets worldwide, with Malaysia not spared.
Back home, Malaysia advanced its tax agenda by expanding the sales and service tax (SST) and bringing more companies into the e-invoicing system to boost revenue and broaden the tax base.
For this year, tax revenue is expected to remain the major contributor to the total revenue in 2025, accounting for 75.8 per cent of total revenue, or 12.6 per cent of the gross domestic product (GDP), according to the Ministry of Finance (MoF)’s Fiscal Outlook and Federal Government Revenue Estimates 2026 report.
Direct tax collections are anticipated to expand to RM177.1 billion, driven primarily by individual and company income taxes, while indirect tax collections, buoyed by SST, are expected to reach RM76.3 billion in 2025.
US Tariffs Impact on Malaysia
On April 2, US President Donald Trump signed Executive Order 14257, known as the “Liberation Day Tariffs,” during his second term, imposing a 10-per-cent baseline tariff on most imports, including Malaysian goods.
As US authorities claimed Malaysia imposed a 47-per-cent tariff on US imports, this prompted a reciprocal 24-per-cent tariff on most Malaysian exports to the US from April 9, with some exemptions.
While Malaysia was not alone, other countries like Japan and Brunei faced the same 24-per-cent tariff, with some encountering higher rates — China at 34 per cent, Vietnam at 46 per cent, Cambodia at 49 per cent and Indonesia at 32 per cent.
Before the tariff took effect, most countries, including Malaysia, were granted a 90-day pause from April 9, during which only the 10-per-cent baseline tariff applied.
On May 6, Malaysia, through the Ministry of Investment, Trade and Industry (MITI), formally began negotiations with the US to avert or reduce the high tariff impact.
Despite these efforts, on July 7, Trump announced on Truth Social a 25-per-cent tariff on all Malaysian exports, higher than the paused 24-per-cent rate, without explanation.
After several rounds of negotiations, the talks officially concluded on July 31, with the US agreeing to reduce the reciprocal tariff on Malaysian exports, subject to finalisation of the agreement.
On Aug 1, the US lowered its reciprocal tariff on Malaysian exports to 19 per cent from 25 per cent, with semiconductor and pharmaceutical exports exempted.
On Oct 26, Malaysia and the US signed the landmark Agreement on Reciprocal Trade (ART) during the 47th ASEAN Summit in Kuala Lumpur, exempting 1,711 Malaysian exports from the 19-per-cent tariff.
According to MITI, the exemption covers US$5.2 billion (US$1= RM4.1275) worth of goods, or about 12 per cent of Malaysia’s 2024 exports to the US, including key items such as palm oil and related products, rubber goods, cocoa, aircraft components and pharmaceuticals.
MITI Minister Tengku Datuk Seri Zafrul Abdul Aziz emphasised that the agreement does not compromise national sovereignty or Bumiputera rights.
He added that if the ART agreement is not signed promptly, Malaysia risks the US government raising the tariff rate back to the original 24 per cent or higher.
SST Expansion
To strengthen its fiscal position, Malaysia expanded the sales and service tax (SST) from July 1, imposing rates of five per cent or 10 per cent on non-essential goods, while essential items such as rice, chicken, beef, vegetables, and eggs remained exempt.
Selected discretionary items such as king crab, salmon, cod, imported fruits, essential oils, and silk fabrics are imposed with a five-per-cent sales tax, while premium items like racing bicycles and antique hand-painted artworks are subject to a 10-per-cent rate.
Regarding the high-value goods tax (HVGT), the government announced on July 30 that it has been cancelled, but its principles were incorporated into the revised sales tax structure, under which luxury and discretionary items will be taxed at five or 10 per cent.
Initially introduced in Budget 2023 as a luxury goods tax on premium items such as jewellery, watches, and high-end fashion products, the HVGT was originally slated for implementation in May 2024 and was expected to generate about RM700 million annually.
For service tax, the government has extended it to services like rental or leasing (eight per cent), construction (six per cent), financial services (eight per cent), private healthcare (six per cent) and education (six per cent).
To reduce the impact on small businesses, the government announced on June 27 that it had raised the service tax registration threshold for rental or leasing and financial services to RM1 million from RM500,000.
That means only businesses with annual sales above RM1 million will be required to pay the tax, providing relief to more micro, small, and medium enterprises (MSMEs).
Beauty services such as manicure and pedicure, facial treatments, barber services and hairdressing, initially proposed to be subjected to an eight-per-cent service tax for providers earning RM500,000 or more annually, are also exempted.
Deputy Finance Minister Lim Hui Ying told the parliament on Nov 24, 2025, that the government has no plans to further expand the SST scope, as the expanded SST framework already incorporates targeted, progressive, and industry-tested mitigation measures.
E-invoicing
Since Malaysia began the phased roll-out of e-invoicing on Aug 1, 2024 — initially covering companies with annual sales above RM100 million — the Inland Revenue Board (IRB) has recorded over 106,000 registered taxpayers and more than RM675 million in transactions as of Nov 4, 2025.
The second phase commenced on Jan 1, 2025, for companies with annual sales above RM25 million up to RM100 million, followed by the third phase on July 1, 2025, for taxpayers with annual revenue of more than RM5 million and up to RM25 million.
The fourth phase will begin on Jan 1, 2026, for taxpayers with annual turnover exceeding RM1 million and up to RM5 million.
Initially, the government planned to enforce the fifth phase from July 1, 2026, for businesses with an annual turnover of up to RM1 million, with those earning below RM500,000 annually exempted.
However, on Dec 6, 2025, Prime Minister and Finance Minister Datuk Seri Anwar Ibrahim announced that the exemption threshold would be raised to RM1 million from RM500,000, meaning firms with annual revenue below RM1 million will not be required to comply with e-invoicing beginning 2026.
Meanwhile, from Jan 1, 2026, businesses with transactions exceeding RM10,000, as well as electricity and telecommunications service providers, will be required to issue individual e-invoices instead of consolidated ones.
Currently, seven industries are required to issue individual e-invoices: automotive (sale of motor vehicles), aviation (flight tickets and private charters), gold products and luxury goods, construction, wholesale and retail of construction materials, licensed betting and gaming activities, and payments to agents or distributors.
Looking ahead, tax collections in 2026 are projected to increase, with direct taxes estimated at RM187.4 billion and indirect taxes at RM83 billion, supported by targeted measures and sustained domestic demand.
-- BERNAMA
