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Wednesday, June 3, 2009

Builders: Stamp duty change stings

An amendment to the Stamp Duty Act has resulted in construction cost going up by between 1 per cent and 2 per cent, say builders

It was meant to make things easier. But a change in the law resulted in those in the construction sector having to pay more for the necessary paperwork.

"This sweeping change has resulted in construction cost going up by between 1 per cent and 2 per cent," Master Builders Association of Malaysia president Ng Kee Leen told Business Times in an interview recently.

Under Budget 2009, the government said it wanted to simplify stamp duty assessment. Industry players, who said they were not consulted, did not object because they thought it would be positive for the sector.

However, they found out that under the Stamp Duty Act amendment, there is a 0.5 per cent duty on construction services agreements that don't require collateral.

This covers consultancy contracts, operation and maintenance contracts, maintenance contracts and facilities services contracts.

The enforcement of the amendment to the Stamp Duty Act 1949 took effect on January 1 2009 by virtue of the Finance Act 2009.

This resulted in ordinary service agreement being slapped with 0.5 per cent stamp duty of the total contract value. Prior to this, the stamp duty on an ordinary service agreement was fixed at RM10.

"Now, the stamp duty office says the new rate of 0.5 per cent applies to second- and third-tier agreements too. This change of such drastic magnitude is causing serious cashflow constraints on contractors, consultant engineers, quantity surveyors and architects," Ng said.

A lot of construction-related contracts that will be carried out this year were negotiated before the law was changed. This means that the extra costs with the new duty rate were not taken into account.

The accumulative result of stamping all agreements (including sub-contracts and outsourcing) at 0.5 per cent of contract value is exorbitant.

Eventually, these extra but unnecessary costs will be passed on to the government and the public because all construction contracts are either government jobs or packages awarded by property developers in the private sector.

Malaysia's contractors have appealed to the government.

"We've forwarded a memorandum to Finance Ministry in April and the officials promised to look into the matter. So far, there has yet to be any positive action. Our members cannot afford to wait any longer. Time is running out and we face penalties for late completion of projects," Ng said.

Malaysian Institute of Architects president Lee Chor Wah concurred with Ng. "The amendment was supposed to simplify stamp duty assessment but it had increased cost of doing business instead," he said.

Already, more than half of its member architects had to take job cuts and pay cuts due to the tough economic climate.

By Business Times (by Ooi Tee Ching)

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