Builders urge govt to delay and review expansion of SST on construction services

• The Master Builders Association Malaysia said the construction sector is already burdened by multiple layers of taxation on materials, labour, and equipment, with most contracts awarded on a fixed-price and fixed-duration basis.
• Applying the SST—with the potential for retrospective application—would seriously disrupt existing contractual obligations, potentially leading to delays and cost overruns, the association added in a statement on Tuesday.

KUALA LUMPUR (June 10): The Master Builders Association Malaysia (MBAM) has urged the government to reconsider the impending revision and expansion of the sales and service tax (SST) on construction services, citing concerns that the move will strain the industry’s cash flow.

The MBAM said the construction sector is already burdened by multiple layers of taxation on materials, labour, and equipment, with most contracts awarded on a fixed-price and fixed-duration basis.

Applying the SST—with the potential for retrospective application—would seriously disrupt existing contractual obligations, potentially leading to delays and cost overruns, the association added in a statement on Tuesday.

Beyond the SST, the MBAM noted that the construction sector already shoulders various financial obligations, including Employees Provident Fund contributions for foreign workers, Construction Industry Development Board levies, stamp duties, and HRD Corp contributions.

“Given the construction industry's critical role in national development, we respectfully appeal to the government to reconsider the imposition of the SST on construction services,” the association said.

To mitigate the impact, the MBAM is urging the government to apply the SST only to contracts executed after Jan 1, 2026. The group also proposed reducing the tax rate from 6% to 4%, and stressed that the tax should not apply to ongoing projects, as contractors have no means to absorb unexpected costs once budgets are finalised.

While current regulations provide a 12-month exemption for non-reviewable contracts, the MBAM is calling for this grace period to be extended to 24 months and applied to all projects, giving stakeholders more time to adjust.

The MBAM also urged authorities to levy the SST only on the service portion of construction contracts, excluding materials and hardware. In addition, it proposed that SST payments be tied to certified progress claims rather than invoice dates.

“Most contractors are not in a financial position to absorb or pre-finance such tax costs on behalf of clients,” the MBAM said, adding that this could jeopardise project timelines and even lead to insolvencies.

The Finance Ministry on Monday announced that the revised and expanded SST, as introduced in Budget 2025, will take effect on July 1.

A 5% to 10% sales tax will be imposed on selected non-essential goods, while the service tax will be expanded to include construction services, with a 6% rate applied to providers with annual revenue exceeding RM1.5 million.

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