In a move aimed at easing the financial burden on micro, small and medium enterprises (MSMEs), the Malaysian government has announced a reduction in service tax on rentals from 8% to 6%, effective immediately. This announcement was made by Malaysia’s Prime Minister during his New Year’s address.
For MSMEs that lease non-residential premises — including offices, warehouses, and commercial spaces — this tax cut offers much-needed relief. The revised rate marks a rollback from the higher 8% level that was implemented in July 2025, which had drawn concerns from many business owners.
🧾 What’s Changed: Key Updates
Here’s a breakdown of the latest service tax revisions and related incentives for MSMEs:
- Tax Rate Cut: The service tax charged on rental payments has been lowered to 6% from 8%.
- Deferred Tax for Startups: Newly established MSMEs will enjoy a one-year deferment on this tax, giving emerging businesses more runway to grow.
- Higher Exemption Threshold: The tax exemption now covers businesses with annual turnover up to RM1.5 million, up from the previous RM1 million threshold — expanding relief to a broader group of local enterprises.
🏭 Additional Government Support Measures
To further support economic resilience and competitiveness:
- Exemptions on Key Manufacturing Inputs: Registered manufacturers, especially those producing livestock and agricultural goods, will receive sales tax exemptions on essential inputs like animal feed, fertilisers, and pesticides. This aims to help stabilise production costs and curb inflationary pressures on food products.
- Extended Construction Tax Breaks: Service tax exemption for construction contracts signed prior to July 1, 2025 — and without review clauses — has been extended through June 30, 2027.
- Support for Places of Worship: Certain construction services for religious and spiritual facilities are now exempt from service tax, effective from July 1, 2025.
📈 What This Means for MSMEs
This tax adjustment has several practical implications for Malaysian MSMEs:
- Lower operating costs for businesses leasing commercial space.
- Improved cash flow, especially for startups and small firms struggling with high fixed overheads.
- Broader participation, thanks to the higher turnover threshold for exemptions.
According to the government, reducing the service tax rate and expanding exemptions will cost nearly half a billion ringgit in revenue annually — a strategic trade-off to nurture a more conducive climate for small business growth.