MBAM urges govt to reconsider move to impose revised SST on construction services
MBAM president Oliver HC Wee said the construction industry is already subject to multiple layers of taxation across various aspects of project execution – including building materials, labour and equipment.
Furthermore, most construction contracts are awarded on a fixed-price and fixed-duration basis.
'Introducing a new tax, especially with the potential for retrospective application, would seriously disrupt existing contractual obligations, budgets and project timelines. This creates an undue burden on both contractors and clients and could lead to delays and cost overruns,' Wee said in a statement.
MBAM, he said, is appealing for such tax to apply only to those contracts executed after Jan 1, 2026.
'Contractors have no way to absorb such extra costs. Such application of additional tax would delay our transformation plan involving ESG and digitalisation. If the implementation of the 6% SST is inevitable, we strongly urge that the rate to be reduced from 6% to 4% as the contract value for each contract can be very huge. It should also not be applied retrospectively,' said Wee.
He remarked that though the law provides an exemption for 12 months from July 1, it will only be applicable to non-reviewable contracts.
'We would like the government to consider relaxing the exemption rules such that it will be applicable to all contracts and also extend the exemption period to 24 months. The timeline of July 1, 2025 provides insufficient lead time for the industry to respond. A reasonable grace period must be granted to allow all stakeholders to make necessary adjustments and financial preparations,' said Wee.
He added that service tax should only be levied on the service portion of the contract value while the non service portion of the contract value including building material and other hardware should not be levied with service tax.
The SST, he said, will significantly strain cash flows within the construction sector. He added that contractors already face substantial financial pressures, including retention sums, high upfront capital requirements and corporate tax obligations.
Requiring the SST to be paid before monthly progress claims are certified and disbursed aggravates the issue, he said.
'We are aware that, as a general rule, even though the service providers have not collected the service tax levied after 12 months from the date of invoice, the said service tax has to be paid to the government,' Wee said, adding that they hope the government can consider taking the date where the progress claims are approved by the customers in determining when service tax has to be remitted to the government.
He emphasised that most contractors are not in a financial position to absorb or pre-finance such tax costs on behalf of clients. 'This situation could lead to broader challenges, affecting the timely execution and delivery of critical infrastructure, property developments, and national construction projects.'
In addition to SST, Wee said, the industry is already contributing through a wide array of charges and levies, including foreign worker Employees Provident Fund contributions, Construction Industry Development Board levies, stamp duties on contracts, and HRD Corp levies.
'We are deeply concerned about the cumulative financial impact and urge the government to avoid introducing further inflationary costs in the future. Given the critical role the construction industry plays in national development and economic stability, MBAM respectfully appeals to the government to reconsider the imposition of SST on construction services. It is essential to maintain a stable, predictable and sustainable operating environment for the industry to continue supporting Malaysia's growth and development,' he said.
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