SST expansion unlikely to derail construction growth: Analyst

New Straits Times

19 hours ago

KUALA LUMPUR: The expanded Sales and Services Tax (SST) is expected to have a limited impact on the construction sector, with exemptions and transitional relief cushioning the effects for most players, said RHB Investment Bank Bhd.
In a research note today, the firm maintained its 'Overweight' call on the sector, citing continued momentum in data centre construction and targeted tax exemptions under the revised SST regime.
"The Finance Ministry's move to broaden the SST to include construction services, among others, is not entirely unexpected," said analyst Adam Mohamed Rahim.
"While a six per cent service tax will be imposed on contractors with annual revenue exceeding RM1.5 million, exemptions for residential and public housing projects, along with business-to-business transactions, should help mitigate the impact," he said.
RHB Investment said contractors focused on the residential segment such as MGB Bhd and Kerjaya Prospek Group Bhd are unlikely to be affected.
In contrast, those involved in commercial, industrial and infrastructure projects, including Gamuda Bhd, Sunway Construction Group Bhd and IJM Corp Bhd, will fall under the new tax scope.
It added that most contractors are expected to incorporate the tax into new bids or revise project values, provided the contracts allow for such adjustments.
"Non-reviewable contracts, those without provisions to revise the contract sum, will be granted a 12-month exemption from the implementation date," the research firm said.
RHB Investment cited Sunway Construction's RM3.9 billion data centre contract in Johor, 44 per cent of its data centre order book, as potentially exempt if deemed non-reviewable and completed within 12 months.
It also downplayed concerns over rising costs, noting that a hypothetical RM180 million in SST across three RM1 billion projects would amount to just 0.2 per cent of full-year earnings for hyperscalers like Google or Microsoft.
"The sector's data centre theme remains intact. The SST revision is unlikely to derail investment or construction activity in this space," Adam said.
However, RHB Investment warned that any future expansion of the SST to include basic construction materials or residential projects would pose a downside risk.