THERE have been a spate of changes and developments in recent times in the Malaysian tax environment, giving rise to increased responsibility for businesses on the taxation front as well as causing a significant increase in tax compliance costs.
Some of the key changes include the expanded sales and service tax (SST), with the government broadening the scope of both sales tax (on non-essential and luxury goods) and services tax (to more service sectors).
Some items that were previously exempt are now taxed; whilst some sectors (for example leasing/rental, construction, private healthcare, education, beauty services) are now subject to service tax.
Businesses have until Dec 31, 2025 to adapt to the new SST scope without being subject to penalties.
The self-assessment system (SAS) has been expanded to real property gains tax from January 2025, whilst stamp duty is being phased in under the SAS from January 2026.
Under SAS, businesses are responsible and accountable for correctly interpreting the law and applying it accordingly, as well as estimating their tax liabilities accurately and paying the right amount of tax.
To support compliance, the Inland Revenue Board (IRB) has been implementing digital tools such as e-filing, MyTax, automatic verification and data integration.
E-invoicing has been implemented since August 2024 and a large number of e-invoices have been issued to date by the IRB’s MyInvois portal and it is expected to be fully implemented by Jan 1, 2027, once the relaxation period for the last phase of taxpayers that are due to implement e-invoicing from July 1, 2026, expires by Dec 31, 2026.
To further enhance compliance levels, various enforcement steps have been undertaken by the IRB.
This includes using more data-analytics, carrying out risk profiling and conducting strategic audits and investigations.
Certain quarters have estimated that the IRB raised RM16.95bil in additional taxes and penalties between January 2024 and August 2025 via audits and investigations which were driven by risk analysis.
Due to the changes taking place, affected taxpayers need to update or install systems for e-invoicing, record keeping and electronic transactions, as well as re-configure accounting, pricing and invoicing systems.
Small businesses will need to adjust to e-invoice systems, cost of POS (point of sale)/invoicing software integrations and incur costs for staff retraining. The proper tracking of taxable or exempt goods or services needs to be in place.
With any new rules, effort has to be put in to understanding them, for example which goods or services are subject to SST, the thresholds involved, registration obligations and the interpretation of exemptions.
In many cases, hiring or contracting tax professionals becomes inevitable.
Businesses in the sectors that are newly taxed (for example construction, leasing) report significantly increased monthly operating costs from the SST expansion.
The operating cost increases for small enterprises are said to have ranged from about 6% to 11% due to the combined effects of cost-increases (including expanded SST) and other regulatory moves depending on whether they are in retailing or manufacturing et cetera.
For fixed-price contracts (common in construction), absorbing tax increases can squeeze margins.
The government projects additional revenue from the revised SST framework, but this implies businesses have to carry the compliance burden (updating systems, prices, contracts) in order to collect remitted taxes.
Under SAS, errors or omissions are likely to be taxed with penalties.
Taxpayers can expect more audits or investigations to take place.
Data-driven enforcement means less room for negligence and non-compliance, therefore businesses must invest in compliance tools to reduce the risk.
Smaller enterprises often have less capability (both in systems and expertise).
They’re more impacted by needing new registrations, ensuring they meet thresholds and navigating contract transitions.
Other challenges and risks for businesses include transitional ambiguity, for example contracts that are signed before certain dates may get exemptions and therefore companies would have to track contract dates, service delivery dates, et cetera to ascertain the tax exposure.
The interpretation of the law itself can lead to confusion and disputes as some definitions or exemptions may not be clear (for example what counts as “financial services”; or the difference between residential and commercial leasing) giving rise to the risk of misapplication.
Businesses have to evaluate whether the taxes imposed should involve a price pass-through – passing on the increase in cost to consumers which may result in reduced demand and losing competitiveness.
On the other hand, absorbing the tax or the additional compliance cost may hurt margins.
For small and medium enterprises, increased overheads tend to weigh more heavily than revenue and they may struggle to absorb or implement changes smoothly.
It is envisaged by various quarters that for many small businesses, operational costs could increase several percent (5% to 10% or more) of current costs.
For mid-size and larger firms with more complex supply chains or services, cost increases could be in double digits in percentage terms when factoring in tax on previously untaxed inputs and compliance overheads.
Further, depending on the sector, the services that are newly subject to services tax (education, leasing, construction, healthcare/private wellness) will face steeper cost bumps.
To reduce costs and avoid surprises, businesses should consider early adaptation by upgrading accounting and relevant information systems (invoice tracking, e-invoicing, forecasting SST liabilities).
Staff training and consulting should be conducted to understand the changed tax scope, thresholds, exemption conditions and relevant details.
A review of all contracts to see how new tax rules apply (especially for long-term or fixed-price contracts) should be carried out.
It is probably a good idea to seek professional advice to ensure proper classification, to strategise and to plan pricing formulations accordingly.
It is imperative to keep abreast of government guidance and rulings to reduce the risk of misinterpretation.
Harvindar Singh is a Chartered Tax Institute of Malaysia council member and SCS Global Consulting (M) Sdn Bhd tax partner. The views expressed here are the writer’s own.
