Malaysia’s sales tax expansion to affect key petrochemicals starting July 1

Malaysia will expand the scope of its Sales and Service Tax (SST) starting July 1, 2025, introducing a 5% sales tax on more than 4,800 goods, including a wide range of industrial and consumer products. The move, announced by the Ministry of Finance on June 9, is part of the government’s Budget 2025 initiative to increase fiscal revenue and broaden the national tax base.

The new tax coverage includes a broad range of industrial equipment and raw materials used in sectors such as petrochemicals, manufacturing, and packaging, which were previously exempt. Among the newly taxable goods are key petrochemical polymers such as PE, PP, PS, and PVC.

Other affected items include mechanical appliances, electrical equipment, compressors, boilers, furnaces, and various petrochemical inputs, such as chlorine and industrial minerals. Tools and devices used in chemical and technical operations are also now subject to the 5% rate.

Meanwhile, the Federation of Malaysian Manufacturers (FMM) criticized the tax expansion, warning it would affect nearly all manufactured goods and services. It urged authorities to review the move, calling it "highly damaging to industries" and a risk to inflation and business continuity.

"With Malaysia’s tariff system comprising 11,442 HS (harmonised system) codes, this expansion results in approximately 97% of goods now subject to sales tax, marking a major structural shift from a previously narrower tax base to one where nearly all categories including industrial and commercial inputs are now taxable," said FMM president Tan Sri Soh Thian Lai in a statement.