SST expansion to have no impact on contractors in residential segment, says RHB

• “Contractors could factor in the 6% service tax when bidding for new projects."

KUALA LUMPUR (June 10): The upcoming sales and service tax (SST) revision and expansion are unlikely to affect contractors primarily involved in residential housing, such as MGB Bhd (KL:MGB) and Kerjaya Prospek Group Bhd (KL:KERJAYA), according to RHB Investment Bank Bhd.

However, it said contractors involved in constructing commercial, industrial, and infrastructure projects—Sunway Construction Group Bhd (KL:SUNCON), Gamuda Bhd (KL:GAMUDA), and IJM Corporation Bhd (KL:IJM)—will be imposed with the 6% service tax for construction services.

“Contractors could factor in the 6% service tax when bidding for new projects.

“For ongoing projects, contractors could likely readjust or reprice the contract sum for reviewable contracts to take into account the latest expanded service tax,” the house said in a research note on Tuesday.

To recap, the Finance Ministry said the reviewed and expanded SST announced in Budget 2025 will be effective July 1, 2025, with a 5% to 10% sales tax to be imposed on selected non-essential goods.

The service tax will be expanded to include services such as construction services, which would see a 6% service tax applied to providers exceeding RM1.5 million in annual revenue.

Meanwhile, RHB Investment Bank said residential buildings and public housing-related works are exempt from the sales tax. Exemptions also apply to business-to-business transactions to avoid double taxation.

“We also take comfort that under the sales tax revision, the government is maintaining a rate of zero per cent for basic construction materials,” it said.

On the other hand, the investment bank said data centres, the main construction segment theme, are likely to remain intact despite the expanded SST.

"Assuming a hyperscaler hypothetically has three new data centre projects in Malaysia worth RM1 billion each to be awarded to a contractor, the service tax on the contractor’s work would amount to RM60 million per project or RM180 million in total.

“This represents approximately 0.2% of financial year 2024 net income of hyperscalers such as Google and Microsoft,” it said.

The research house maintained its 'overweight' call on the construction sector.

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