The Master Builders Association Malaysia (MBAM) has expressed deep concern and strongly appealed to the government to reconsider the imposition of the Sales and Services Tax (SST) on construction services, which is slated to take effect on July 1, 2025. MBAM warns that the new tax will impose an undue financial burden on an industry already grappling with multiple layers of taxation and fixed-price contracts.
The association highlighted that the construction industry is already subject to various taxes on building materials, labour, and equipment. The introduction of a new tax, particularly with the potential for retrospective application, would severely disrupt existing contractual obligations, budgets, and project timelines, leading to delays and cost overruns for both contractors and clients.
"We appeal that such tax shall only apply to those contracts executed after 1st January 2026 instead of 1 July 2025. Contractors have no way to absorb such extra costs," stated Oliver HC Wee, President of MBAM. He added that such additional tax applications would also impede the industry's transformation plans, including Environmental, Social, and Governance (ESG) initiatives and digitalisation efforts.
Key Appeals from MBAM include:
Delayed Implementation: MBAM urges the government to apply the SST only to contracts executed after January 1, 2026, to provide sufficient lead time for the industry to adjust.
Reduced Rate: If the implementation is inevitable, MBAM proposes reducing the SST rate from 6% to 4%, given the typically large contract values in the construction sector.
Non-Retrospective Application: The association vehemently argues against any retrospective application of the tax.
Relaxed Exemption Rules: While a 12-month exemption is provided for non-reviewable contracts from July 1, 2025, MBAM seeks a relaxation of these rules to cover all contracts and an extension of the exemption period to 24 months.
Service Portion Only: MBAM calls for the service tax to be levied only on the service portion of the contract value, explicitly excluding building materials and other hardware.
Cash Flow Strain: The SST is expected to significantly strain cash flows. MBAM notes that contractors already face financial pressures from retention sums, high upfront capital, and corporate tax. The requirement to pay SST before monthly progress claims are certified and disbursed will exacerbate this issue. MBAM proposes that the service tax remittance to the government should be determined by the date progress claims are approved by clients, rather than the invoice date, as most contractors are not in a financial position to absorb or pre-finance such tax costs.
MBAM warned that this situation could lead to broader challenges, affecting the timely execution and delivery of critical infrastructure, property developments, and national construction projects.
The association further expressed deep concern about the cumulative financial impact, citing existing charges and levies such as foreign worker EPF contributions, CIDB levies, stamp duties, and HRD Corp levies. MBAM urged the government to avoid introducing further inflationary costs in the future.
