No significant drop in house prices despite some SST exemptions

Sim Kiang Chiok

KUCHING: There will not be any significant drop in prices of residential houses
despite the Sales and Services Tax (SST) exemption on some construction materials and labour costs.

Sheda Kuching Branch chairman Sim Kiang Chiok said many other factors such as the price of land and labour, besides the installation cost of utilities and complying with various regulations, would also affect the prices of houses.

“SST exemptions on construction services and some building materials would only reduce a small component of the overall selling price of a residential house,” said Sim.

Sim added a study done by Maybank IB Research concluded that SST would have a minimal impact on the cost of construction as certain components would be taxed 10 per cent while some other building materials would be taxed five per cent.

However, labour cost is not subjected to the SST, he said.

“In comparison, under the Goods and Services Tax (GST), all building materials
were taxed at six per cent, and the suppliers were allowed to claim their input taxes for residential properties (they were exempted from GST).

“As such, given the different tax rates for the different cost components, the overall construction cost for residential properties may only be marginally lower by one to two per cent with the implementation of SST,” he said.

Sim was responding to Finance Minister Lim Guan Eng’s statement
recently that the government hoped to see a reduction in prices of houses as construction services and some building materials are exempted from SST.

On commercial properties, Sim said according to Maybank IB Research the six per cent GST imposed on building materials which suppliers were not allowed to claim as their input tax, the implementation of SST (if at 10 per cent)may cause the prices of commercial properties to rise.

“I agree with the above research for residential houses on the cost saving in SST exemptions in construction services and some materials are not significant enough that the selling prices will drop drastically.

“The price of houses will drop if the price of land is reduced, the number of houses that can be built per acre is increased, supply of suitable land is increased, compliance cost is reduced, supply of utilities cost is reduced and interest rates are reduced,” he said.

However, he said the cancellation of GST and resumption of SST have simplified the statutory requirement of regular reporting of tax credit and debit and would have saved a lot of manhours in managing the previous GST tax regime.

“Apart from that, the government has also announced that the minimum pay is set from RM920 in Sarawak and Sabah, to RM1,050 from next year, will put pressure on the cost of construction from building material factories to workers at construction site.

“Our hope is also that the government will not increase corporate tax so that prices of houses will not be increased due to high income tax,” he said.

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