Malaysia’s construction industry is bracing for significant financial strain as new tax measures take effect this July. The Finance Ministry’s decision to expand Sales and Service Tax (SST) coverage to include construction services at a 6% rate has drawn sharp criticism from sector leaders, who warn of cascading effects on project viability and housing affordability.
Industry associations highlight multiple concerns with the impending tax changes. The Real Estate and Housing Developers’ Association (Rehda) warns that while residential projects are technically exempt, commercial components in mixed developments will still drive up urban housing costs. Construction firms face particular challenges with cash flow management, as Malaysia’s Building and Management Association (MBAM) notes the tight July 2025 implementation deadline leaves insufficient preparation time for contractual adjustments and financial planning.
Key industry figures are proposing modifications to soften the policy’s impact. Rehda president Datuk Ho Hon Sang emphasizes the need to avoid retrospective application to existing contracts, while MBAM’s Oliver HC Wee advocates reducing the rate to 4% and delaying implementation until 2026. Both leaders stress that taxing only the service portion of contracts—excluding materials—would better reflect the industry’s operational realities and prevent unnecessary cost inflation.
The tax expansion arrives at a delicate moment for Malaysia’s property sector. Developers already contend with rising material costs and complex urban development requirements, including mandatory commercial components in residential projects. Industry representatives urge policymakers to reconsider the timeline and scope of implementation, warning that immediate application could disrupt critical infrastructure projects and undermine Malaysia’s broader economic development goals.