Government May Rethink Real Property Gains Tax | RPGT
Deputy Minister of International Trade and Industry, Datuk Mukhriz Tun Mahathir say some measures will taken after the Government receives feedback from all parties, including non-government organisations, on the imposition of the real property gains tax (RPGT) under the 2010 Budget.
It is never a surprise as the reintroduction of the RPGT seems to have affected Properties market confidence and sentiment.
THE Government under Budget 2010, the Real Property Gains Tax (RPGT) of Five Per Cent (5%) would be imposed from Jan 1 on gains from the disposal of real property irrespective of the holding period and category of owner.
Prior to the exemption of the RPGT in April 2007, tax on gains from property sales was on a progressive basis from 30% to 0% depending on the holding period of the property.
Read more about real property gains tax (RPGT) at Five Per Cent Real Property Gains Irrespective of Year of Sale | Property Gains Tax Makes Comeback
Government may rethink real property gains tax
KUALA LUMPUR: The imposition of the real property gains tax (RPGT) may be reconsidered once the Government receives feedback from all parties, including non-government organisations, says Deputy International Trade and Industry Minister Datuk Mukhriz Mahathir.
“We will keep monitoring to see if the measures have good effect or not. We will look at the feedback and if there is a need for us to do any adjustments, we will reconsider,” he told reporters yesterday after the seminar on The Fundamentals of Globalisation & Liberalisation – Its Impact to the Real Estate Industry.
Mukhriz also said the Transport Ministry would come up with a road map regarding the Government’s measures under the recently-reviewed National Automotive Policy (NAP) that introduced an annual comprehensive inspection as requirement for road tax renewal for vehicles aged 15 years or older.
“People need not worry about this new policy as it is for their own good and safety.
Peter England … ‘CIMB attracted 10,000 new account holders in the first month of the AirAsia Savers launch
“Plus, it will not start on Jan 1 next year and the timeframe to impose the policy will be up to the Transport Ministry after collecting all the necessary feedback,” he said.
Under the reviewed NAP, he said the ministry was encouraging Proton Holdings Bhd to enhance competitiveness through strategic partnerships and it was up to the national car manufacturer to make the decision. “For this matter, we are encouraging it to find a partner that can give it technical expertise,” he said.
Meanwhile, Raine & Horne International Zaki and Partners managing partner Datuk Zaki Said said the imposition of the RPGT next year would make investors feel uncomfortable with the local property market as the policy was inconsistent.
“Nevertheless, we think this measure is to curb speculative buying and will not give much impact to the overall property market performance,” he said, adding that the RPGT was also one way for the people to participate in building up the economy as it would help the Government gain more revenue.
from:biz.thestar.com.my/services/printerfriendly.asp?file=/2009/11/5/business/5043894.asp&sec=business
Raising revenue via real property gains tax
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WHEN the Finance Minister introduced Budget 2010 in October, he surprised many and disappointed some with his tax measures.
Those who were expecting an announcement on a firm date for the implementation of the goods & services tax (GST) were disappointed that the Government has deferred a decision pending further studies on aspects of the tax.
The reintroduction of the real property gains tax (RPGT) came as a surprise to many as it is barely three years since the exemption from the tax was announced.
This is a relatively short time-frame in the context of a structural change in a country’s tax laws. However, we are not in normal times what with the economy still in recovery mode and the Government seeking new ways to reduce its budgetary deficit position.
Both the GST and RPGT are intended to be revenue-generating measures; particularly the GST, which will be broad-based, affecting a significant segment of the community.
It is this feature which makes the tax efficient as it is expected to raise sizeable tax revenue; the very feature which also makes the decision to impose it difficult.
On the other hand, the re-imposed RPGT at a flat rate of 5% is unlikely to result in much tax being collected and there has been speculation that it will not end there and, before long, we will see the scale rates under the previous regime brought back.
These rates applied at 30% to a sale of a property if held for less than two years with a drop in the tax rate for every year longer the property was held.
A property, which was held by an individual for more than five years, was taxed at zero rate. The tax is now 5% regardless of the holding period.
The RPGT is a capital gains tax and it will be useful to understand the characteristics of this form of tax and what other countries are doing in this area.
The RPGT, like all capital gains tax, differs from almost all other forms of taxation in that it is a voluntary tax.
Since the tax is paid only when the property is sold, one can legally avoid paying the tax by holding on to the property.
This phenomenon is known as the “lock-in-effect”. This effect is likely to come into play if the tax is set at a high rate.
This can represent a deliberate policy measure to dampen excessive property speculation.
In fact, the RPGT – which we have today – had its birth in this country as the Land Speculation Tax Act, introduced at a time when real estate speculation was rampant.
It is interesting to note that in September, Vietnam introduced a capital gains tax on property transactions. Every time a property changes hands, the tax is either at 25% of the gain or 2% of the transaction value.
It has been reported that this new tax has “paralysed” the local property market with transactions being reduced by some 80%.
Coincidentally, Malta in its 2010 budget imposed a 12% tax on the transfer value of immovable property with the option of paying tax on the gain at the applicable income tax rate.
So our 5% RPGT rate is somewhat benign in comparison although it has not stopped those who have held their properties for a very long time from being hot under the collar.
This is due to the inherent unfairness of the tax. Unless the capital gains are indexed for inflation, the seller not only pays tax on the real gain in purchasing power but also on the illusory gain attributable to inflation.
The second large inequity of the RPGT, or capital gains tax in general, derive from how economists view it. Land derives its value from the owner’s productive use of it or to sell it to someone who will.
The value of this type of asset is the discounted value of the future stream of income from the use of the asset.
The “gain” that the seller makes would have been reflected in the asset price paid by the buyer and when the buyer derives income from it, he would be taxed on such income when earned.
This is economic double taxation and why many analysts argue that the most equitable rate of tax on capital gains is zero.
Going forward, it would seem that any attempt to use the RPGT to collect more tax by increasing the applicable rate, or rates, would need to consider the inherent paradox that this would bring about.
A higher rate could deter buyers and sellers from entering into property transactions.
This is fine if the intention is to cool down a hot property market. It would then not serve as an effective tax-generating measure.
·Kang Beng Hoe is executive director of Taxand Malaysia Sdn Bhd
from:biz.thestar.com.my/news/story.asp?file=/2009/12/22/business/5345159&sec=business
Inflationary pressure to dictate rental prices
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Asking rental prices for the local residential market in 2010 is expected to be determined by inflationary pressures from fluctuating oil prices rather than by demand, said Ho Chin Soon Research Sdn Bhd director Ho Chin Soon.
“When inflation comes in, people like you and me will ask for a salary increase. During Pak lah’s (former Prime Minister Tun Abdullah Ahmad Badawi) time, there was a (widespread) salary increase. When that goes up, landlords know they can ask for higher rentals,” he said.
Ho said inflationary pressures were directly related to rising oil prices.
“When oil prices go up, inflationary pressures kick in. Asking (rental) prices will be determined by inflation rather than (by) demand,” Ho said at a press conference on the 3rd Malaysian Property Summit 2010 yesterday.
With the improving economic climate, crude oil price is expected to increase.
He said the Government had already “subtly” increased petrol prices when it introduced the RON 95-grade fuel earlier this year.
RON 95 fuel is priced at RM1.80, five sen higher than that of RON 92 (which has been discontinued) while the price of RON97 went up to RM2.05 from RM1.80.
“The Government already gave a signal that petrol prices is going up by introducing the RON 95 fuel. My fear is that next year, the Goverment may not be able to sustain the rising oil prices (and reduce subsidies),” said Ho.
At press time, crude oil price was at US$73.83 a barrel on the Nymex.
Association of Valuers, Property Managers, Estate Agents and Property Consultants in the Private Sector, Malaysia (PEPS) president James Wong said rental prices for Grade A offices peaked at RM8 per sq ft in the third quarter of 2008 prior to the global downturn.
“Asking prices (for Grade A offices) currently stand at RM7 per sq ft. For upmarket condominiums, it used to be between RM3.50 and RM5 but that has somehow stabilised.
“For new completed condominiums, if they are hungry for tenants, the landlords may reduce rental prices,” he said, adding that rentals of shopping malls were unaffected by the economic slowdown.
“During the crisis, many tenants asked to have their rates reduced but there was no reduction. For malls like KLCC and Pavilion, the landlords were also able to replace their tenants quickly,” he said.
On another note, the Valuation and Property Services Department director-general Datuk Abdullah Thalith Md Thani said the Government’s proposal to reimpose the real property gains tax (RPGT) at 5% effective Jan 1 was unlikely to have a major impact on the local property sector.
“The property sector will be determined by the health of the economy. The RPGT will only have an impact on the seller and not the buyer,” he said, adding that 5% was a small amount.
Wong said the imposition of the RPGT would have a positive effect.
“Without the RPGT, a seller could over and under-declare the real value of his property,” he reckoned.
from:biz.thestar.com.my/news/story.asp?file=/2009/12/23/business/5354261&sec=business
Another major Flip-flop?
Property tax let-off for owners
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The real property gains tax (RPGT) announced during the Budget 2010 will only apply to properties sold within five years of their purchase, announced Datuk Seri Najib Tun Razak.
The Prime Minister said the 5% tax would now only be paid if the property was sold within five years of its purchase instead of the tax being imposed on the sale of property regardless how long its owners hold on to it as initially announced in the Budget.
He said the decision would see the Government forgoing revenue amounting to RM200mil, adding the move was made following requests by the Federation of Chinese Associations of Malaysia (Hua Zong) and the business sector.
“This policy was also decided upon as the Government wants to see stronger growth in the property sector next year. We are even willing to forgo a substantial revenue so that the sector can expand and grow.
“The property sector has shown signs of improvement but we feel that it requires further impetus so that it can continue to grow from strength to strength.
“We have met one of Hua Zong’s requests and we hope they will respond accordingly by working even closer with the Government in the future,” Najib said at the swearing-in ceremony of Hua Zong’s office bearers for the 2009-2011 term on Wednesday night.
Also present were Transport Minister Datuk Seri Ong Tee Keat, Health Minister Datuk Seri Liow Tiong Lai, Deputy Education Minister Datuk Dr Wee Ka Siong, Deputy Youth and Sports Minister Datuk Wee Jeck Seng and Hua Zong president Tan Sri Pheng Yin Huah.
Najib also announced that hotels undertaking additional investments to renovate, refurbish and expand their premises would enjoy a 60% re-investment allowance that has now been extended to 15 years from the previous 10 years.
He said this was an attempt to boost the country’s robust tourism industry, which has tremendous potential for further growth.
Najib also said that he wanted to see a more “active” private sector, which he said had been rather “lethargic” and had been more interested in investing abroad rather than domestically.
from:thestar.com.my/news/story.asp?file=/2009/12/23/nation/20091223231517&sec=nation
Everyone was taken by surprise by the announcement and had expressed worries that it would have sent a message to potential investors especially foreigner that the government has NOT been consistent in its policymaking.
Najib announces RPGT reversal
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Datuk Seri Najib Razak announced tonight a reversal of his government’s decision to reintroduce real property gains tax (RPGT) on January 1 for all transactions, amid concerns that it would hit long-standing homeowners and foreign investors.
Instead, the government has now decided the five per cent RPGT would only apply to property sold within five years of purchase.
The five per cent tax, which was announced under Budget 2010 in October, is normally imposed to curb speculation but due to its flat structure does not differentiate between homeowners who have been holding a property for 20 years or those who are flipping properties within one or two years for a profit.
The property sector was taken by surprise by the announcement and had expressed worries that it would have sent a message to potential investors that the government has not been consistent in its policymaking.
An exemption on the RPGT was given in 2007 by the then-Tun Abdullah Ahmad Badawi administration in order to boost the property development industry.
Its removal two plus years later with little warning could have heightened the feeling of uncertainty among investors.
But speaking at a dinner with the federation of Chinese Associations Malaysia tonight, Najib allayed fears from the business sector, many of whom are from the Chinese community.
He said the decision to backtrack on the implementation of the RPGT will likely cost the government RM200 million in lost revenue.
Apart from this, Najib also announced that the hospitality industry will enjoy a 60 per cent reinvestment allowance from the government, to be handed out to hotels undertaking investments for renovation and refurnishing.
He said that in line with this new policy, the government will extend the investment allowance for 15 years.
The announcements were made following requests made by the Federation of Chinese Associations for the government to help the property sector.
“I hope the Chinese community will respond to the announcements accordingly,” he said.
Najib also said that he hoped to see the Chinese reciprocate his gesture by helping him realise his “1 Malaysia” concept.
from:themalaysianinsider.com/index.php/malaysia/47494-najib-announces-rpgt-reversal-
Revision of property gains tax ‘a perfect Christmas gift”
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The amendment to the real property gains tax (RPGT), which will be reimposed next year at 5% but now applicable only to transactions involving properties sold within five years from their purchase, is “a perfect Christmas gift” which will lift the local property market, analysts said.
Prime Minister Datuk Seri Najib Tun Razak announced the amendment to the RPGT on Wednesday, where the 5% tax would now only be imposed on properties sold within five years of the date of purchase.
The Government had previously wanted to impose the RPGT across the board, irrespective of the number of years of ownership, as announced in Budget 2010.
The premier had said the decision would cause the Government to lose about RM200mil in revenue, but the move was made following appeals from the Federation of Chinese Associations of Malaysia (Hua Zong) and the business sector.
The Government wanted to see stronger growth in the property sector next year in making the amendment, according to Najib.
Kenanga Research said the move to limit the RPGT to the five-year ownership ruling was definitely good news, adding that it would spare non-speculators from being penalised.
It noted that this would allow those holding properties for more than five years to sell their homes and recognise 100% of the capital gains.
“In turn, this spurs genuine property activities, which are supported by the country’s fundamentals, as opposed to speculative activities,” the research house said in a report.
Analyst Mervin Chow of OSK Research agrees that the amendment to the RPGT has ensured a much fairer policy as the 11th hour change in policy will benefit long-term property investors.
“(The amendment to the RPGT) is reflective of the main objective of having the RPGT in the first place, which is to rein in excessive speculation in the property sector,” he said.
ECM Libra Investment Research said the move was a “perfect Christmas gift for the property sector.”
“This will provide a much needed relief for the property sector as it sends an affirmative signal that the Government will adopt an accommodative stance to support growth in the property sector,” it said.
With the relaxation of the RPGT, ECM said buying interest might pick up, especially among those looking to upgrade their property ownship.
Real Estate and Housing Developers’ Association Malaysia (Rehda) president Datuk Ng Seing Liong said the property market would benefit from the amendment, and that it would have “a very significant stimulating effect” on property investments by both foreign and local investors.
“This can be acknowledged by the fact that the market reacted positively to the RPGT waiver in 2007 where increased sales and enquires were recorded,” Bernama quoted Ng as saying.
Propery player Naza TTDI also supported the amendment to the RPGT.
“With this new RPGT measure, we are confident the market will respond positively and this will help propel Malaysia’s property market among the other countries in the region,” Bernard Yong, a senior marketing manager with Naza TTDI, told StarBiz in an email reply.
Deloitte Malaysia country tax leader Ronnie Lim said the Government had done the right thing in imposing the RGPT only on properties sold within five years from the date of purchase.
“Prices of some property development companies’ shares have risen as the market showed its approval,” he noted in a statement.
But not everyone is excited about the RPGT amendment, with Regroup Associates Sdn Bhd executive director Paul Khong saying if there were any impact at all, it would be quite nominal. He noted that the move would basically encourage long-term investments in the sector.
“The RPGT has already served its original purpose of curbing speculation by holding to a five-year period. This is a long time and many short-term investors will continue to shy away from the market accordingly or weigh this into their purchase consideration,” he told StarBiz in an email reply.
The re-imposition of the RPGT has resulted in “the Malaysian property sector becoming slightly less attractive regionally as investors still have much choice locations to invest their money,” Khong said.
He reckoned that investors, especially foreign investors, would like to see a longer term and more consistent property policy, adding that recent policy changes pertaining to the property sector were short term and too sudden.
“Ever since Budget 2010 was announced, some property owners had been working feverishly to dispose of properties before Jan 1, 2010, the date when (the original) RPGT would be re-activated with tax levied on gains on disposals irrespective of the period of ownership,” he said.
A property buyer, who declined to be named, agreed, saying he had reaped the benefit of the RPGT before it was amended, as sellers were willing to sell at lower prices on the assumption that the RPGT would be implemented in full.
“I managed to buy an old aparment for RM160,000 although the market price was RM180,000 because the seller wanted to sell it fast, before the reimposition of the (original) RPGT on Jan 1,” he said.
from:starproperty.my/PropertyScene/TheStarOnlineHighlightBox/1154/0/0
Speculative property buying under control
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Excessive speculative buying of properties due to the availability of various flexible home loan packages is not a major concern in Malaysia, industry players and analysts said.
“Given that many of the buyers were first-time home owners or upgraders, the company was not overly concerned about speculative buying,” SP Setia Bhd chief executive officer Tan Sri Liew Kee Sin told StarBiz.
He was referring to the developer’s Setia 5/95 home loan package which ended in July last year.
“The group believed that there were still buyers out there who were holding back then due to the excessive negativity caused by the financial meltdown in early 2009,” he said.
The 5/95 scheme is where a buyer makes a 5% downpayment and signs the sale and purchase agreement.
Loans need to be secured but the servicing only starts when the property is ready.
The 10/90 property financing scheme is where a buyer pays 10% deposit with the mortgage repayment starting only upon completion of the property.
On top of these two schemes, some developers also offer deferred mortgage payment package for one to two years.
There are concerns that excessive speculative home buying will result in the “supply” coming back to flood the market if house prices start to come down, and affect sales of new houses coming into the market.
A property analyst with a local research house said speculation in properties was not excessive in Malaysia now.
“It is because somehow we do not attract foreign investors that much although our property prices are cheaper than in some other countries in Asia,” she said.
She added that speculative buying was more apparent in Singapore and Hong Kong.
The analyst noted that even when the 5/95 property financing scheme was introduced early last year, the property index only increased by 3% for the first half of 2009.
“Speculative buying in Malaysia depends on the location and market segment.
“Property investments here are usually slanted towards the high-end segment,” she said.
PPC International Sdn Bhd executive director said Thiruselvam Arumugam said the real property gains tax (RPGT) of 5%, implemented on Jan 1, would help to mitigate speculative buying of properties.
“The RPGT forms some sort of control for speculative buyers.
“It promotes healthy increase in property prices compared with ‘artificial’ increase due to speculative factors,” he said.
fr:starproperty.my/PropertyScene/TheStarOnlineHighlightBox/1416/0/0
Poser on whether real property gains tax will be raised
By ANGIE NG
PETALING JAYA: Hot on the heels of the possibility that Bank Negara will propose tightening the mortgage loan market to curb speculative buying in the upper medium to high-end housing market, questions have arisen whether the Government may also be looking at raising the quantum of real property gains tax (RPGT).
Some analysts have addressed this possibility in their recent research notes.
Hwang DBS Vickers Research, in a report on Monday, said the RPGT might be brought back in its entirety (5% to 30% for property disposal within five years of purchase from the present 5%) in Budget 2011.
Aimed at cooling off the rapid rise in housing prices, the full reintroduction of RPGT could further delay the return of foreign buyers that currently accounted for less than 5% of sales, it said.
Prior to the exemption of the RPGT in April 2007, tax on gains from property disposal was on a progressive basis from 30% to 0% depending on the holding period of the property.
If one buys a property and disposes it for profit within two years of purchase, the profit will attract 30% tax; within the third year will be 20%; fourth year 15%; and fifth year 5%. A sale in the sixth year and thereafter will not be taxed.
When contacted, tax consultants and industry leaders expressed reservation that the Government would revert back to the full RPGT quantum so soon after it was re-introduced in January.
The Government had, under Budget 2010 (tabled last October), proposed to reintroduce the RPGT at a fixed 5% rate on all property disposal regardless of status and duration. The blanket 5% RPGT drew a lot of flak from the public who felt it was unfair and punitive on genuine property owners and investors.
In December 2009, the Government amended the policy, exempting all property disposals undertaken after five years from the RPGT.
PricewaterhouseCoopers Taxation Services Sdn Bhd tax leader and senior executive director Khoo Chuan Keat said that although there had always been the possibility of the Government reactivating the RPGT in its entirety, “the current situation does not warrant it as the property market has not gone off the roof unlike in some countries like Singapore.”
“There is no point in using an elephant to kill a rat. There will always be some speculative buying in the market, but as long as prices have not been inflated by artificial demand and there are no big surges in prices, some speculation is actually quite healthy,” Khoo told StarBiz.
He said the RPGT would not be an efficient tool to raise tax revenue for the Government, and pointed out that the Goods and Services Tax would do a better job for tax collection.
“Malaysia’s property market is at a different stage of development to that of Singapore’s. The city state’s economy is undergoing a strong boom and there are many more property buyers there, particularly foreign investors, which led to the sharp jump in property prices.”
Foreign buyers generally are involved in close to 30% of Singapore’s property sales.
Khoo said Singapore’s market had became too expensive and volatile for local Singaporean buyers and the government had to stabilise prices to ensure the locals were not priced out of the market.
Among the measures introduced are the imposition of a 70% mortgage cap for buyers with more than one property and the launch of 36,000 public housing units within one to two years.
Concurring with Khoo, Real Estate and Housing Developers’ Association president Datuk Michael Yam believes a higher RPGT would not be imposed in the upcoming Budget as there is little sign of high speculation or overheating in the local property market.
“Any such move will be counter-productive to the government effort to stimulate the property market, and it will be another flip-flop in its policy decision that will damage the consistency of government policies,” Yam said.
He added that a higher RPGT would dampen the market and result in a loss of revenue for the Government as revenue collected from property-related transactions, such as stamp duty and tax on profit of service providers including lawyers, estate agents and financiers, should be higher than the RPGT revenue.
Tax expert Dr Veerinderjit Singh has always believed that “since the RPGT was not abolished or repealed, it is likely that it may be brought back when the need arises and the timing is appropriate especially to curb excessive speculation and rise in property prices”.
He said a proper study needed to be conducted on whether the market was under control and if there was a need for new measures such as raising the RPGT to curb speculation.
“If the study shows that the market has regained its footing and there is no need for the low RPGT to be maintained as a support measure, there may be a need for the rates to be lifted. After all the whole purpose of the RPGT is to tax speculative gains and rein in speculation in the market,” he added.
fr:biz.thestar.com.my/news/story.asp?file=/2010/9/10/business/7011339&sec=business
Increase in property gains tax unlikely
By IZWAN IDRIS
PETALING JAYA: The property market, especially in the Klang Valley and Penang, are showing signs of getting frothy, so much so that talks about higher tax on property gains are getting louder as Budget 2011 announcement gets nearer.
Re-introduced earlier this year at the rate of 5% after a three-year hiatus, there are those who view that the real property gain tax (RPGT) should be implemented back on a original progressive scale where short-term gains are taxed the heaviest.
But industry players, understandably, are not too thrilled about the prospect on higher taxes.
“Personally, I don’t think the Government will increase it,” Master Builders Association of Malaysia (MBAM) president Kwan Foh Kwai told StarBizWeek in a telephone interview.
“But you’d never know what will happen next week,” he said.
The Government will table its Budget 2011 in Parliament on Oct 15.
From the contractors’ point of view, Kwan said, a healthy property market would benefit the whole economy.
“Prices had gone up in the past few quarters, but can be still considered relatively low because the market was stagnant in 2008,” said Kwan, who is a director at Sunway Holdings Bhd.
OSK Research, in a recent report said one potentially negative news for the sector could come in the form of a cap on loan to value ratio.
Such a move would probably be aimed at second or third home purchases, while first-time house buyers would probably be allowed to continue to borrow up to 90% of the property value.
Meanwhile, Bank Negara had increased interest rate three times so far this year from a record low level.
The Government re-introduced RPGT in the Budget 2010, but at concessional rate of 5% for disposal of properties held less than five years.
fr:biz.thestar.com.my/news/story.asp?file=/2010/10/9/business/7191001&sec=business