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Contractors affected by new stamp duty on contracts

PETALING JAYA: Members of the Master Builders Association of Malaysia (MBAM) and its affiliates want the government to address the impact of the 0.5% ad valorem stamp duty imposed by the government on construction contracts.

"Before the ruling came into effect on Jan 1, 2009, contractors only needed to pay a flat stamp duty of RM10 per contract. The turnover of the construction industry per annum is RM60 billion and the stamp duty alone will cost the industry an additional RM300 million per annum," said MBAM president Ng Kee Leen after a meeting with MBAM and its affiliates' on Aug 7, 2009.

He cited for example a RM100 million contract will now attract an ad valorem duty of RM500,000 whilst previously the contractor only has to pay a nominal duty of RM10.

Furthermore, the stamp duty has to be paid upfront before any work begins. "This will not only affect the contractors' cashflow but also cause an increase in construction cost. This matter is urgent as it is causing extra financial burden to the industry, making it more difficult for us to conduct business,"said MBAM deputy president Kwan Foh-Kwai.

The amount, he added is four times more than the Construction Industry Development Board's (CIDB) levy. "We were caught by surprise as the government did not consult us prior to the ruling and we are concerned about the possibility of other rulings being imposed in the same manner," he said.

However, the government did take heed of MBAM's earliert appeals and made some changes.

"Initially, every tier of contracts was charged 0.5%. Following our appeals, a revision was made to impose the 0.5% on the main construction contracts and a flat rate of RM50 on sub-contracts.

"Refunds of the stamp duty can also now be claimed should a project get cancelled but this is only applicable for main construction contracts," said Ng.

According to Ng, these revisions are not enough to drive down the cost and ease the burden of the contractors. "It is also counter-productive to the policy and objectives set in the government's stimulus package plan," he added.

After the dialogue meeting, MBAM met with Datuk Aziyah Bahauddin of the Finance Ministry's Tax Analysis Department to voice their concerns.

"It's too soon to expect a decision, but the ministry is listening to us and taking our concerns into serious consideration. We are hopeful we will be able to reach a favorable solution soon."
 
Among organisations supporting MBAM's appeal are the Real Estate and Housing Developers Association (REHDA), the Malaysia International Commerce Community (MICC), Building Industry Presidents' Council (BIPC), Malay Contractors Association of Malaysia, Malaysian Institute of Architects (PAM) and the Construction Industry Development Board (CIDB).
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