Builders Urge Government to Delay and Review 6% SST on Construction Services

Marcus Liew
Jul 23
2 min read

The Master Builders Association Malaysia (MBAM) is calling on the government to delay and revise the upcoming Sales and Service Tax (SST) expansion on construction services, warning that the current implementation plan will strain cash flow, delay projects, and potentially trigger cost overruns across the sector.

The revised SST, announced in Budget 2025, is scheduled to take effect on July 1, 2025, and imposes a 6% service taxon construction companies with annual revenue exceeding RM1.5 million.

Fixed-Price Contracts at Risk

MBAM highlighted that most construction contracts in Malaysia are awarded based on fixed-price, fixed-duration terms. Applying SST retrospectively could:

Disrupt contractual obligations
Lead to unexpected cost escalations
Delay ongoing infrastructure and private projects

“Applying the SST with the potential for retrospective application would seriously disrupt existing contractual obligations,” MBAM warned in its statement.

Industry Already Heavily Taxed

The construction sector is already weighed down by multiple financial commitments, including:

EPF contributions for foreign workers
CIDB levies
Stamp duties
HRD Corp contributions
Indirect taxes on materials, labour, and equipment

“The construction industry plays a critical role in Malaysia’s national development. It should not be further burdened by a poorly timed tax,” said MBAM.

MBAM’s Key Proposals to Mitigate Impact

To avoid widespread disruption, MBAM is recommending the following changes:

1. Apply SST only to new contracts signed after Jan 1, 2026

This gives the industry time to adapt pricing models and ensure fairer implementation.

2. Reduce SST rate from 6% to 4%

To ease the cost burden, especially on smaller contractors and infrastructure projects.

3. Exclude ongoing projects from SST

As contractors have already finalised budgets and are unable to absorb unplanned tax costs.

4. Extend SST exemption for non-reviewable contracts from 12 months to 24 months

Allowing more time for adjustment and tax registration compliance.

5. Charge SST only on the “service” portion, not materials

Preventing double taxation and price escalation on raw construction inputs.

6. Base SST payment on certified progress claims, not invoice dates

This helps contractors match cash flow with actual project billing cycles.

“Most contractors are not in a financial position to pre-finance SST costs. This could lead to insolvency risks and project delays,” MBAM stated.

Call for a Balanced Policy

While supporting the government’s fiscal goals, MBAM stressed that policies must be industry-sensitive and economically sustainable.

“We respectfully appeal to the government to reconsider the imposition of the SST on construction services. We’re not asking for a full exemption, just a fair rollout,” MBAM said.

What’s in the SST Expansion?

Effective date: July 1, 2025
New 6% service tax on construction services for providers earning over RM1.5 million/year
Sales tax of 5% to 10% on selected non-essential goods

The construction industry joins a growing list of stakeholders — including REHDA, MRA, and SME associations — urging review or delay of SST-related tax measures.

Final Thoughts

The SST expansion on construction services risks destabilising a vital economic sector if not properly phased. With projects tied to tight margins and long lead times, MBAM’s proposals present a practical pathway for balancing tax reform with industry sustainability.