Industry concerns over expanded SST

The Star

a day ago

PETALING JAYA: Consumers will eventually have to bear the brunt of the expanded Sales and Service Tax (SST) set to start July 1, said Malay Contractors Association of Malaysia president Datuk Mohd Rosdi Ab Aziz.
The SST, he added, will further put a dent in the thin profits of building contractors who are already struggling with higher operating costs, following the increase in prices and removal of subsidies of multiple items over the past two years.
Mohd Rosdi pointed out that the new SST could also affect the smooth flow of projects and cause delays.
He said the higher costs may even lead to contractors opting for cheaper alternatives when carrying out projects, resulting in compromised quality.
Mohd Rosdi said the association had attended a discussion on the expanded SST with the Construction Industry Development Board (CIDB) in April last year, where it expressed concerns over rising costs.
'We had asked the government to think about the move again and do more research on the issue. We are not opposed to the government's plan to impose taxes to strengthen its coffers. All we ask, is for it to be done gradually in phases over a year or two in a more orderly and sensible manner.
'As it is, we are already mired with additional costs from the removal of the diesel subsidy and the compulsory EPF contributions for foreign workers. To impose further taxes on the industry is not only unreasonable but also illogical. This will eat into the minimal profits we make,' he told The Star.
Mohd Rosdi said the future removal of petrol subsidies and the hike in electricity tariffs will also affect contractors when they come into effect.
'Although the man on the street will be exempt from these taxes, additional costs from new taxes, rate hikes and subsidy removals will eventually be passed on to the consumer,' he said.
Master Builders Association Malaysia (MBAM) president Oliver H.C. Wee said with the construction industry currently subjected to multiple layers of taxation across various aspects of project execution, including building materials, labour and equipment, the new tax would seriously disrupt existing contractual obligations, budgets and project timelines.
'This creates undue burden on both contractors and clients and could lead to delays and cost overruns. We appeal that such tax shall only apply to those contracts executed after Jan 1, 2026, instead of next month.
'The SST will also significantly strain cash flows within the construction sector. Contractors already face substantial financial pressures. We are concerned about the cumulative financial impact and urge the government to avoid introducing further inflationary costs,' he said.
Wee said that if the implementation of the 6% SST is inevitable, the association strongly urges the government to lower the rate from 6% to 4%.
He said introducing the new tax in about three weeks denies sufficient lead time for the industry to respond, and a reasonable grace period should be granted to allow all stakeholders to make necessary adjustments and financial preparations.
Malaysia's private education sector is also expected to face some challenges, when a 6% service tax is imposed on private preschool, primary and secondary education providers that charge more than RM60,000 per student in annual tuition fees.
National Association of Private Educational Institutions (NAPEI) deputy president Dr Teh Choon Jin said that while the goal to broaden the government's fiscal base is understandable, a more balanced and phased approach to implementing the tax is essential.
'Private educational institutions are likely to intensify efforts to attract more local students, leading to heightened competition for a relatively limited domestic pool.
'Institutions that rely heavily on foreign student enrolment will face the challenge of diversifying their market base,' he said.
Teh cautioned that price-sensitive international markets, particularly students from developing countries, could be disproportionately impacted by the additional costs.
To address this, he suggested that institutions explore offshore delivery partnerships or targeted scholarships and financial aid.
NAPEI has called on the government to consider a gradual rollout of its tax policy to allow private institutions to adjust their business models without destabilising their operations.
The association also proposed targeted exemptions or rebates for students from developing countries or those enrolling in critical fields such as STEM, artificial intelligence and healthcare.
'Equally important is the creation of a policy dialogue platform that includes the Higher Education Ministry, Finance Ministry and key stakeholders such as NAPEI.
'This will help collaboratively monitor and address the tax implications on enrolment trends, institutional sustainability and Malaysia's long-term education agenda,' he added.
Teh warned that a 6% cost increase could weaken Malaysia's competitive edge in the international education market.
'This could make Malaysia less attractive compared to regional players like Singapore, Thailand and Vietnam,' he said.
He noted that operationally, the tax would also present compliance and administrative challenges for institutions.
'Many will need to review and adjust their fee structures, billing processes and financial forecasts. Smaller institutions, in particular, may struggle more with these adjustments compared to well-resourced education groups,' he said.
As for high-end private and international schools, where many students come from expatriate or affluent local families, Teh said the 6% tax could either be passed on to parents or absorbed by the schools.
'Schools will need to be sensitive to the psychological and financial impact on parents, particularly those with multiple children enrolled. Some institutions may opt to absorb part of the tax, but this will add further strain on school finances,' Teh said.