February 2024 President’s Message
At the beginning 2024, the industry was made known of the billions of ringgit to be spent in infrastructural projects namely the Maharani Energy Gateway, The Johor-Singapore Special Economic Zone, Penang Rail Transit, the Rapid Transit System Johor-Singapore project, reinstatement of five LRT stations, power plant project in Miri, Sarawak, and the proposed construction of a new power plant in Labuan which was a positive welcome into the new year.
But recent regulations have been a concern for MBAM namely the following:
- Imposition of 6% service tax on logistics services and the extra 2% percent on those existing services respectively
- Enforcement of the multi-tiered levy system for foreign workers to replace the single levy this year, and
- Reduction of petrol and diesel subsidies
Firstly, MBAM appeals to the Government to defer its implementation over the government’s proposal to expand its tax scope to include logistics services to be taxed at 6% effective 1 March and the extra 2% percent on those existing services respectively. The proposed increase is an added financial burden on consumers and contractors in particular which will inevitably result in an increase in the cost of goods, affecting the affordability and accessibility of construction materials. We feel that such a tax hike could impede economic as the construction sector plays a pivotal role in creating jobs and fostering infrastructure development.
Although a business-to-business (B2B) exemption is being considered, we hope the Government can group logistics services providers, such as shipping lines, freight forwarders, warehouse operators, transport operators and customs agents, to be in the same group to benefit from the exemption. MBAM urges the government to defer the implementation and explore alternative measures to address fiscal concerns without jeopardising the growth of the construction sector. Collaborative dialogue between the government and industry stakeholders could also yield solutions to maintain economic stability without affecting the well-being of the people.
Additionally, contractors are preparing to embrace the Multi-Tier Levy System (MTLS) as a means to reduce the dependence on foreign workers that is designed to encourage them to use more skilled workers. We hope these skilled foreign workers should be accredited by the Construction Industry Development Board (CIDB) in their source countries before coming here. The government should also implement MTLS gradually to ensure the goal of creating improved job opportunities for locals and fostering automation and mechanisation can be achieved.
The MTLS is a component of the 12th Malaysia Plan, aimed at reducing foreign worker dependency to below 15 per cent. Currently, the foreign worker levy is RM640 per person for the plantation and agricultural sectors, while the manufacturing, services, mining, and construction sectors pay a levy of RM1, 850 per foreign worker for skilled workers. The levy for unskilled workers will be raised by RM600 to RM2, 450 per worker.
MBAM feels contractors should be rewarded with incentives when they are able to reduce the use of foreign workers. The levy rate should be adjusted based on the number of foreign workers employed as a percentage of total employment in a company. The levy amount collected should also be channelled back to the industry via the building of more centralised labour quarters.
Furthermore, in the event that petrol and diesel subsidies are to be reduced, our industry especially with earthworks increasing in cost will also see other construction materials increase in price. Against the backdrop where construction contract commitments are from at least 8 months to 3 years, contractors are unable to price in all these price escalations. Contractors are left with a competitive tender price but are taking a high risk to shoulder all the increase in prices within this time frame.
Therefore, the provision of variation of price is necessary in order to safeguard both the contractor and project owner on private projects. This will prevent the possibility of project failure and contract disputes resulting in a win-win situation. The disputed amount from the industry in recent years accumulated to billions in ringgit yearly with hundreds of cases hanging from various courts.
No contractors will want to continue to put in good money after bad projects.
Oliver HC Wee
MBAM President