KUALA LUMPUR: Construction services provided to the federal and state governments remain exempt from service tax, says Prime Minister Datuk Seri Anwar Ibrahim.
Anwar, who is also the Finance Minister, said the current policy exempts both federal and state governments from paying service tax on rental or lease, construction work, financial services, private healthcare, and education.
"So, if a contractor provides construction services to the federal or state government, service tax does not need to be imposed on those construction services," Anwar said in a parliamentary written reply to Chong Chieng Jen (PH–Stampin).
Chong had asked whether the government would exempt contractors working on government contracts with the targeted expansion of the service tax scope to the construction sector.
Anwar said the policy is also detailed in Treasury Circular 1.13 on the Implementation of Sales and Service Tax in Government Procurement, for reference by government agencies.
"Accordingly, government agencies must review the list of services subject to service tax before starting the procurement process.
"The Letter of Acceptance (SST) must state the applicability of service tax if the service is taxable and the company is registered with the Customs Department," he said.
Anwar added that the Finance Ministry has worked with the Construction Industry Development Board (CIDB) Malaysia to maintain the existing sales tax rate on a list of basic materials and products used in the construction sector.
"Items on the list include ceramic products, sanitary equipment, flat fibre casting sheets, cement, insulation material, glass, aluminium, iron or non-alloy steel products, and others.
"This exemption is provided under the Sales Tax (Goods Exempted From Sales Tax) (Amendment) Order 2025, gazetted on June 9 and July 1, 2025," Anwar said.
He explained that service tax on the construction sector is imposed only at one level, between the main contractor and the developer.
This is because construction services provided between registered persons within the same group are exempt from service tax under the business-to-business (B2B) exemption facility.
"This means, as long as certain conditions are met, services provided by a registered subcontractor to another registered subcontractor or to a registered main contractor will not be subject to service tax.
"This measure is aimed at avoiding multiple layers of taxation at different stages of a construction project," Anwar explained.
Only contractors whose value of services exceeds RM1.5mil over a 12-month period are required to register for service tax.
"This is intended to ease the tax compliance burden on small and medium-sized contractors," Anwar said.
