Beyond Fuel: 2025 SST & Electricity Tariff Changes
What They Mean for Your Renovation Cost

This guide is for general budgeting information only. Tariff and tax rules change — always confirm with your contractor and a tax adviser before signing a contract. Get a no-obligation quote on WhatsApp.

Two changes, one date

On 1 July 2025, two separate government policy changes came into effect simultaneously, each affecting renovation costs through a different channel:

1. Electricity tariff restructuring — the new average base tariff rose to 45.40 sen/kWh, a +13.64% increase from the previous 39.95 sen/kWh, as part of the RP4 (2025–2027) subsidy rationalisation cycle. (Source: TNB; Energy Commission/SERC.)
2. SST expanded to construction and renovation services — a 6% service tax now applies to construction and renovation work, but residential home renovation is explicitly exempt. (Source: Royal Malaysian Customs.)

Understanding both changes — and which one actually hits your wallet — is essential for accurate 2025–2026 budgeting. Read the full breakdown in our fuel subsidy cost impact guide for the broader picture of what is driving renovation cost increases.

Electricity tariff +13.64% explained

Malaysia’s electricity tariff was restructured on 1 July 2025 under Tenaga Nasional Berhad’s fourth regulatory period. The new structure moves away from a single blended rate to a transparent component-based tariff with five separately stated charges:

• Energy charge — the base cost of generating electricity
• Automatic Fuel Adjustment (AFA) — replaces the old ICPT surcharge, adjusted monthly to reflect fuel cost movements
• Capacity charge — recovery of power plant capital and availability costs
• Network charge — transmission and distribution infrastructure
• Retail charge — billing, metering, customer service

The combined effect raised the average base tariff from 39.95 sen/kWh to 45.40 sen/kWh — an increase of 5.45 sen/kWh or 13.64%. (Source: TNB; Energy Commission/SERC.) Residential consumers on the domestic tariff block (below 600 kWh/month) saw a smaller absolute increase because of the progressive structure; the full increase is most visible on industrial and commercial consumers who use large volumes of electricity continuously.

RP4 subsidy rationalisation: the policy context

RP4 refers to the fourth regulatory period (2025–2027) under Malaysia’s incentive-based regulation framework for electricity. The Energy Commission/SERC sets the allowed revenue for TNB each regulatory period, and when fuel and generation costs rise, tariff adjustments follow.

The government has framed RP4 explicitly as part of the same subsidy rationalisation agenda as the diesel subsidy removal (June 2024) and the planned RON95 targeted subsidy (September 2025) — a staged programme of reducing blanket subsidies in favour of targeted cash transfers. For renovation contractors, this means energy-cost increases are a policy direction, not a one-off event. Further AFA adjustments within RP4 remain possible if global fuel prices shift significantly.

How higher electricity tariffs reach your renovation cost

The 13.64% tariff rise does not appear as a line item on your renovation invoice — but it works its way into costs through two upstream channels:

1. Energy-intensive material manufacturing. Cement, ceramic tiles, glass, and steel are all manufactured in energy-intensive processes. Cement kilns, tile furnaces and electric arc furnaces are large electricity consumers. When the tariff charged to industrial users rises, production costs increase, and over time those costs are passed on in material prices. The DOSM Building Materials Cost Index already showed cement prices up 2.0–6.1% year-on-year in December 2025, partly attributable to higher energy input costs. (Source: Dept of Statistics Malaysia; CIDB BMCI.)

2. Contractor workshop and site power. Renovation contractors run workshops (for custom carpentry, metal fabrication, etc.) and temporary site power connections. Higher tariffs increase their monthly operating costs, which feed into overhead and — over time — into quoted rates. The effect is gradual rather than immediate, but it is real.

For more on how upstream cost increases translate to renovation budgets, see our guide to which renovation materials are most exposed to energy and fuel price changes.

SST 6% on construction services: what the rules say

Effective 1 July 2025, Malaysia’s Sales and Service Tax (SST) was expanded to cover construction and renovation services at a rate of 6%. The rules are administered by the Royal Malaysian Customs Department (RMCD). Key points:

• The service tax applies to taxable contractors — those with annual turnover exceeding the RM1.5 million registration threshold (measured over any 12-month period).
• A grace period with no enforcement penalties applied until 31 December 2025, giving contractors time to register and update billing systems. (Source: Royal Malaysian Customs; YYC; WTS Tratax.)
• The 6% is charged on the service component of taxable contracts, not on materials directly (which are subject to sales tax separately at the manufacturing/import stage).

For a plain-language explanation of how this affects your contract, see our renovation contract guide.

Residential renovation: the exemption

This is the most important point for homeowners: residential building construction and renovation is explicitly exempt from the 6% SST.

If you are renovating your house, terrace home, condominium, apartment or any other residential property, your contractor does not charge you 6% SST on the service component of the work. This is not a grey area — the exemption is stated in the SST regulations and has been confirmed by tax advisers and professional bodies. (Source: Royal Malaysian Customs; KPMG; WTS Tratax.)

What this means practically:

• A RM100,000 residential renovation invoice should not include a RM6,000 SST line item.
• If a contractor adds 6% SST to a residential job, query it immediately — they may be incorrectly applying the tax.
• Homeowners are not required to check whether their contractor is SST-registered for residential work; the contractor manages their own registration obligations.

Planning your next renovation? Our Malaysia renovation cost guide has 2026 price ranges across all property types.

Commercial & office fit-outs: what changes

The 6% SST does apply to commercial, office, retail and industrial renovation and fit-out work. If you are a business owner fitting out an office, retail outlet, F&B premises or any non-residential space, expect taxable contractors to charge 6% on the service component from 1 July 2025 onward (enforcement from January 2026).

For business owners undertaking commercial fit-outs:

• Registered businesses can generally claim the input SST as a credit against their own SST output, so the net cost depends on your SST registration status.
• Unregistered businesses (below the SST threshold or in exempt sectors) bear the 6% as a final cost.
• Ensure your contractor’s invoice clearly states their SST registration number and separates the taxable service from materials for accurate record-keeping.

Indirect effects homeowners still feel

Even though residential renovation is exempt from the 6% SST, homeowners are not completely insulated from the policy change. The indirect effects come through two routes:

Supplier and materials costs. Many renovation material suppliers — tile showrooms, hardware distributors, plumbing suppliers — are registered businesses that both buy and sell goods subject to various stages of SST and sales tax. The expanded SST framework changes the cost structure for some of these businesses, and over time those changes can filter through to the prices they charge contractors, who in turn pass them on to homeowners. The effect is diffuse and gradual rather than a clean percentage to add to your quote.

Contractor overhead. Renovation contractors with commercial or mixed portfolios (doing both residential and commercial work) now carry SST compliance overhead: registration, invoicing systems, filing, and cash-flow timing differences between charging and remitting SST. For larger contractors, this is a manageable cost absorbed into overheads. For smaller operators, it is an additional administrative burden that can nudge their pricing upward across all work types.

The bottom line: do not panic. The indirect effect for a typical residential homeowner is modest — far smaller than the direct 6% that commercial clients face. The material price inflation tracked by DOSM and the energy-cost increases from the electricity tariff rise are more meaningful contributors to 2025–2026 renovation cost increases. See our renovate now or wait guide for a balanced cost outlook.

2025 government-change timeline

The following table summarises the key government policy changes affecting renovation costs in Malaysia from 2024 through 2025–2026:

For the full story on how diesel price changes flow through to renovation costs, see our diesel subsidy & renovation cost pillar guide. For detailed material price data, see our construction material price trends guide.

Residential vs commercial: who pays SST

The following comparison table captures the key differences in how the 1 July 2025 SST expansion affects residential homeowners versus commercial property owners and business occupiers:

(Source: Royal Malaysian Customs; KPMG Malaysia SST advisory; WTS Tratax; YYC tax advisory.)

What this means for your renovation budget

Putting it all together: if you are a homeowner planning a residential renovation in 2025 or 2026, here is a realistic picture of the government-policy impact on your budget:

• SST: no direct charge. Your contractor should not be adding 6% SST to your invoice for residential work. The exemption is clear and confirmed by multiple tax authorities.
• Electricity tariff: modest upstream effect. The 13.64% tariff increase raises the energy cost of manufacturing materials like cement, tiles and glass. Over time this feeds into material prices, but the effect is spread across many inputs and is not a direct percentage uplift on your quote. The DOSM BMCI showed cement up 2.0–6.1% YoY in late 2025 — material inflation is real but gradual.
• Diesel: still the bigger logistics driver. The June 2024 diesel price jump (RM2.15 → RM3.35/litre, +56%) remains the most significant single input-cost event affecting delivery surcharges and on-site machinery. (Source: data.gov.my; Ministry of Finance.)
• Combined effect: budget a 10–15% contingency on your quoted price to cover cost-of-work surprises, material price movements, and the general upward drift in renovation costs since 2024. Lock in a fixed-price contract where possible.

For a full breakdown of how to protect your renovation budget from rising costs, see our Klang Valley 2026 renovation cost report. Use our free renovation cost calculator for a quick budget estimate.