Hopes for more IBS tax benefits in Budget 2017
> Low adoption of the system due to cheap labour, proprietary system does not help contractor’s costs
PETALING JAYA: The government should provide more tax incentives for contractors who invest in the industrialised building system (IBS) in order to increase the adoption rate, said Construction Industry Development Board Malaysia (CIDB).
“At the moment, if you are doing residential houses and achieving an IBS score of 50, then you are entitled to get a levy exemption from CIDB. But the levy is not much, 0.125% of the contract value. So for every RM1 million project, it’s only RM1,250. It’s quite small and it only covers residential houses,” said CIDB senior general manager of operation sector Megat Kamil Azmi Megat Rus Kamarani.
The IBS score is awarded based on the type of structural systems used (maximum 50 points), types of wall systems used (maximum 20 points) and other simplified construction solutions used (maximum 30 points) in a project, with the higher score denoting a higher use of IBS in the building.
“Hopefully we can have some other tax benefits for those investing in IBS, that will motivate them to invest more in IBS. I think the government is promoting IBS and I think there will be some mention of IBS in this coming Budget speech, especially for housing,” he said.
Megat, who spoke at the 12th Conference on Status and Outlook of the Malaysian Iron and Steel Industry organised by the Malaysian Iron and Steel Industry Federation yesterday, said the main reason for the low adoption of IBS is cheap labour.
He said labour cost in Malaysia is about RM100 per day compared with AU$70 (RM221.90) per hour in Australia.
In 2014, only 24% of public projects worth more than RM10 million achieved an IBS score of 70 despite instruction from the Finance Ministry that all government projects must use IBS. In terms of private projects, only 14% have achieved an IBS score of 50.
“Some government projects are in the rural areas where there is no support for IBS. So there is an exemption (from incorporating it in the project) if you have a problem getting IBS suppliers or if the project is in a remote area,” he said.
Megat added that contractors are also reluctant to adopt IBS because under the proprietary system, most of the profit goes to IBS suppliers, which affects contractor margins.
“The contractors are relying on profits from this sector but if the bulk of the cost goes to IBS suppliers, then there’s not much they are earning. Unless they themselves are involved in IBS, that’s why we are promoting for an open system rather than the proprietary system. Once the open system is in place, anybody can adopt the system,” he said.
Megat said CIDB is also in talks with local authorities to incorporate IBS into their development order approval whereby contractors have to fulfill certain requirements before the project is approved and awarded.
“That will increase productivity, reduce our dependency on foreign workers, reduce wastage and results in good quality of work,” he added.
Meanwhile, CIDB is aiming to increase the ease of doing business in terms of dealing with construction permits.
“Currently for DBKL, it takes 74 days to issue a construction permit. At some local authorities, it takes much longer. We need to reduce that by 5% by 2020,” said Megat.
In comparison, Singapore takes 26 days, South Korea 29 days and Qatar 58 days.
Overall, the construction sector achieved RM83 billion worth of new work as of August this year. Megat said it is on track to achieve the RM131 billion target this year. Last year, the sector reported RM137 billion worth of new works, lower than the RM144 billion projected. The projection for 2017 is RM138 billion.