GEORGE TOWN: The Federal Government risks triggering widespread contract disputes and burdening consumers with cascading costs if it proceeds with plans to expand the Sales and Services Tax (SST) from July 1, say two Penang MCA leaders.

Penang MCA secretary Yeoh Chin Kah warned that many construction contracts were signed before the policy was announced, lacking clauses to account for the additional 6% tax.

"Without clear guidelines, disputes are inevitable. Some projects may even stall. The consequences could be disastrous," he said on Friday (June 13).

He said applying SST to the construction sector would further strain an industry already grappling with rising material costs and labour shortages, potentially derailing national recovery efforts.

Yeoh urged the government to reconsider the timeline and proposed that SST only apply to the service portion of construction contracts. Materials and equipment, he said, should be exempted.

"The sector runs on thin margins. Sudden tax changes mid-contract will destabilise the entire ecosystem," he said.

He also criticised the RM1.5mil annual revenue threshold as unfair to small contractors who handle low-value jobs but may cross the mark cumulatively.

"Tax should be based on individual contract value. This is about fairness and survival for SMEs," Yeoh added.

He said non-profit organisations, including schools, hospitals, and temples, should receive the same SST exemptions as residential projects, warning that extra tax burdens would harm public welfare.

Penang MCA Election Preparation & Scrutiny Committee vice-chairman Chan Wooi Jin echoed these concerns, saying the SST expansion will not only impact industries but also raise the cost of daily essentials for ordinary Malaysians.

"Essential items like apples, oranges, and lemons are not luxuries. For many families, they are a daily source of nutrition. Taxing them is unfair," he said.

He noted that unlike the previous GST system, SST lacks an input tax credit mechanism and may result in multiple layers of taxation passed down to consumers.

"Any tax reform must be transparent, people-centric, and able to distinguish between basic needs and luxuries. The rakyat shouldn’t have to pay for fiscal missteps," Chan said.

Both leaders called on the government to engage with stakeholders and ensure policies are grounded in economic realities, not rushed decisions that threaten livelihoods and public trust.