PETALING JAYA: The construction and real estate sector has voiced concern that the expansion of Sales and Service Tax (SST) on construction work services will pose challenges ranging from increased operating cost to disruptions in existing contractual obligations, budgets and project timelines, adding to the burden of developers and contractors. 

The expanded SST, at the rate of 6% of the actual value of the construction services provided including the value of goods or raw materials used, will begin on July 1, the Finance Ministry announced earlier this month. 

Real Estate and Housing Developers’ Association Malaysia (Rehda) expects the move will lead to a slowdown in the market while  Association Malaysia (MBAM) said it will significantly strain cash flows within the construction sector.

“The industry is already bearing indirect taxes on construction-related items such as building materials and labour. The addition of SST will only add to our burden,” said Rehda president Datuk Ho Hon Sang, adding that the association hopes that the SST will not be applied retrospectively. 

“Any price hike adjusted to contracts signed prior to the effective date could result in cost overruns which left developers with no choice but to absorb the additional cost,” he said.

MBAM president Oliver HC Wee asked for the rate to be reduced from 6% to 4% and that it should be applied to contracts executed after Jan 1, 2026. 

“We strongly urge that the rate be reduced from 6% to 4% as the contract value for each contract can be very huge. It should also not be applied retrospectively. 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,” Wee said.  

“We appeal that such tax shall only apply to those contracts executed after January 1, 2026 instead of July 1, 2025. Further, service tax should only be levied on the service portion of the contract value whilst a non-service portion of the contract value including building material and other hardware shall not be levied with service tax,” he added. 

Rehda noted that while residential developments are exempted from SST, it will still result in an increase in housing prices in urban areas where developments tend to be on commercial land such as serviced apartments in mixed developments due to land scarcity, as well as local authorities’ mandate on the inclusion of shop lots within strata residential developments. 

“We respectfully request the government to consider postponing the implementation date. Many of our SME members have yet to register with the Inland Revenue Board and a grace period until 2026 would provide sufficient time for them to make the necessary preparations,” Ho appealed.

MBAM said the implementation of SST should also take into account the readiness of the industry from the standpoint of its billing cycle. 

“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. We hope the government can consider taking the date when the progress claims are approved by the customers in determining when service tax has to be remitted to the government. 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,” Wee said.

Ho appealed to the government to postpone implementing SST as many industry stakeholders are not ready for it.

MBAM asked for a lower rate of 4% instead of 6% and for contracts executed after Jan 1, 2026, Wee said.

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