Why Government Keep Changing the Tax Rates

7/29/2019 Why Government Keep Changing the Tax Rates

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WHY GOVERNMENT KEEP CHANGING THE TAXRATES

1.0 INTRODUCTION

Tax rates are rates of levies which are imposed by the state or nationalgovernment on incomes, sales or movement of a particular commodity, house or any

other commercial property, capital gains and on entertainment within the periphery of

the state. Tax is an important fiscal tool to ensure government expenditure is funded.

The Malaysian government generally imposes tax for both individuals and corporate

sectors with the main objective to raise revenue to sustain government expenditures.

The main purpose of taxation is to finance government expenditure contributing

significantly to the Gross Domestic Product of a country. The contribution of tax from

both individual and corporate is known as Tax Revenue. From the Tax revenue

collected both from individual and corporate sector, the government will then fund

expenditures for health, education and social services which contributes directly to the

economic growth of the country. Further more the purpose of tax is to ensure equality in

the redistribution of wealth which means transfer of income, wealth or property from

some individuals or richer persons in order to help poorer person.

Taxes are levied in money in modern taxation systems. Usually, tax collection is

performed by a government agency chosen by government itself. The tax rate is

imposed at a certain percentage to the various income level earned by individual or

companies governed by the respective countrys tax laws determining who should bear

the tax burden or who should pay tax. Besides that, taxation policies play an important

role in the financial and economic development of a country and nation. A global

overview comparison study is done to roughly approximate the individual and company

taxes charged by each respective countries such as China, India, USA and UK.

From table below, it show that Malaysia tax revenue is 12.2 percent when

government impose tax rates zero until 26 percent for individual and 25 percent for

company. Meanwhile, for Singapore country impose 3.5 percent until 20 percent to


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individual and 17 percent to company. Although a Singapore tax rate is lower than

Malaysia, their GDP growth is higher than Malaysia which 15.27 percent while Malaysia

GDP growth is 7.156 percent. Beside than that, Australia charge zero until 45 percent

tax to individual and 30 percent to company which it relatively higher than Malaysia

country. Australia able to obtain higher revenue than Malaysia due to Australia

government imposes higher tax rates to individual and company than Malaysia.

Typically, the rates adopted for property taxation is not constant. In recent years,

the government of Malaysia has changed the rates of property taxation almost yearly.

The changes will be announced during the tabling of the national budget in the last

quarter of the year. Basically,what is the rationale behind this variations? This question

will be explore in this report based on two property taxation which are Stamp Duty and

Real Property Gain Tax(RPGT).


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2.0 REAL PROPERTY GAINS TAX

Real Property gains tax (RPGT) is a type of tax effective from January 1, 1976through the Real Property Gains Tax Act 1976. Property gains tax is imposed on all

profits earned by the seller and the disposer, as a result of the disposal of its property in

accordance with a certain period. Tax charged on the disposal of Real Estate including

flats, condos, apartments, farms, land and other acquired by the seller or disposer.

Beginning on October 21, 1988, the tax extended on gains from the disposal of

shares in a property company. Tax is imposed on the transfer of capital gains involving

Real Estate, shares in property companies and shares in companies controlled. To put

it in a simple term, Real Property Gain Tax is just like another form of Income Tax for

the income you gained through selling of a real estate property. When you make a

certain profit by selling your property, your gain from the sales will be taxable.

2.1 WHY RPGT IS IMPOSED?

There are many reasons why RPGT is imposed. One of the more significant

reasons why the government imposes this tax is to curb property speculation to avoid

property bubbles forming. From time to time, the government may decide to increase or

decrease RPGT to suit their agenda for example they could reduce RPGT to encourage

investments. This actually happened between 1 April 2007 31 December 2009 where

property transactions during this period were exempted from RPGT to spur investments.

The other obvious reason is that RPGT is a source of revenue for the

government to develop the nation. With money collect from the tax, government able to

boost up economy, develop or improving infrastructure and public transport and other

thing that for pleasure citizen.


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2.2 REVIEW OF REAL PROPERTY GAINS TAX

The following are the rates of RPGT:

Gains from the disposal of residential and commercial properties are taxed under

the Real Property Gains Tax Act 1976 to curb speculative activities in the property

market. RPGT rates are progressive between 0% and 30% depending on the holding

period of real properties.

To spur the sluggish property market, RPGT was exempted from 1 April 2007

until 31 December 2009. With the steady recovery in the property market and to

generate revenue for the purpose of development, RPGT at 5% is imposed on gains

from the disposal of residential and commercial properties within 5 years. The rate was

imposed from 1 January 2010.

Latest, with effect from 1 January 2012, a tax rate of 10% have been imposed for

a holding period of up to 2 years, 5% for a holding period exceeding 2 years until 5

years and 0% for a holding period exceeding 5 years.


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2.3 WHY GOVERNMENT KEEP CHANGING THE RPGT RATES2.3.1 To Prevent The Property Price To Increase Even Further

In the 2012 national budget plan, the Malaysian government has announced the

increase of the Real Property Gain Tax. This is among few announcements that

captured the attention of the people.

In comparison to many countries in the world, Malaysia is a country with less

taxation imposed on capital gains from investments, hence is considered on eof the tax

heaven for investors. The intention was to encourage more investors from within and

outside Malaysia to invest in the country. However, due to the significant increase inproperty prices in places like K.L. and Penang, the government tried to impede the

rising trend by imposing the Real Property Gain Tax. Logically, the measure should

have cooling effect to the ever increase property prices. However, effect has not been

very significant. The implementation of the new Real Property Gains Tax is expected to

reduce property speculation in property hotspots like Penang. However, the impact is

yet to be seen.

The general perception is that the impact will not be significant. The reason is

that most investors buy properties directly from the developers. Each project may take

two years or more to complete. By the time the property is ready, only 5% tax will apply.

Hence, there is no different from the condition before the 2012 budget. On the other

hand, the investor may add the imposed tax to the property and let the buyer bear the

cost. This will cause the property price to increase even further. That could be the

reason for an increase of the Real Property Gain Tax in the 2012 budget.

Adjusting taxes can be a tricky balancing act, as the government want to

encourage investment in the country and boost the economy activities, much lenient tax

regulations must be used. However, this could encourage speculations, hence causing

the property prices to rise. That is why we can see the annual adjustment of taxes, in

particular the Real Property Gains Tax.


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2.3.2 To Spur The Real Estate Sector

The Asian financial crises and economic recession have swept and left the

countrys stock, currency markets irreparable and also caused slump in businesses as aresult of consumers became extremely cautious when demanding on goods and

services.

Non-performing loans (NPLs) began to escalate due to distressed borrowers and

high interest rates that weaken the borrowers ability to service loans. As a result, the

financial and property asset values and the value of collateral for many bank loans were

significantly reduced. Majorities of the countrys financial institutions experienced

deterioration in profits. Real estate transaction suffered substantial contraction of 32%

as well as the overall decline in real estate values of about 48%.

In spite of these, the Government initiated temporary waiver on the stamp duties

in real estate transactions and Real Property Gains Tax (RPGT) by way of an

exemption order. The Government impositions helped to stimulate the primary and

secondary property market in the short to medium term and this has resulted in the

promotion of a healthy speculative activity in real estate sector.

Malaysian property market remained optimistic in year 2007 as shown by the

increased in both the transaction volumes and the value of the property market. The

increased in sales performance for the newly launched housing units help to reduced

numbers of property overhangs. As illustrated in Table 1.2, the Valuation and Property

Services Department of Malaysia has registered 269,600 transactions worth RM58.58

billion in 2006. It revealed a market activities contraction of 2.5% if compared to year2005. Nevertheless, the total value increased by 4.9%.

The ups and downs of real estate property are principally influenced by the

Government policies and initiatives. The growth of transactions in terms of volume and

value are essentially boosted by the government-led liberalization incentives, which


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covered provisional exemption of Real Property Gains Tax (RPGT) which was

implanted from 1st June 2003 to 31 May 2004. Hence, Table 1.2 has portrayed the trend

of real estate performance during the period from year 2003 and 2005.

2.3.3 To Curb Property Speculation

Government is concerned with the recent escalation of real estate prices which is

due to increase in income of Malaysians,purchase of real properties by foreigners and

speculation in the property market. So,the rates of RPGT is increase as a measure to

curb speculation in the property market. This increase inRPGT rate will curb speculative

acquisitions of real estate by foreign interests. Government would not hesitate to

tighten fiscal policies to curb property speculation, and ensure reasonable and

affordable property prices. Moreover, the purpose of imposing gains tax under theRPGT Act 1976 on any disposal of real property is to curb speculative activities in the

property sector. Most Malaysians felt property prices were far too high and wanted the

Government to look into this. The government should look at deterring speculators by


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ensuring new houses are sold to Malaysians first at reasonable prices while limiting

foreigners to high-end ones.

The raise RPGT by 5% was a practical approach as the government would not

want to slow down the property and construction market. The increase in RPGT would

also leave little room for speculators to speculate.

Re-imposition of real property gains tax in the midst of the present economic

recession, is not the government policy of encouraging investments. It may in fact

discourage some would-be local and foreign investors from investing in landed

properties in our country. But any disposal after withholding the property for a certain

number of years (say 5 years or so) is certainly no speculation. It can hardly be

described as speculation. It is in reality an investment. In the circumstances, such

disposal ought to be exempt from payment of gains tax. It is far from being reasonable

to impose gains tax on investments.

2.3.4 To Increase Tax Revenue

The Minister has exempted all persons from all provisions of the Real Property Gains

Tax Act 1976 (RPGT Act 1976) in respect of any disposal of chargeable assets between

1 April 2007 to 31 December 2009.

However, the re-introduction of RPGT in the midst of economic crisis imposed from 1

January 2010 has drawn numerous comments. Below are just some of the comments:

There has been no speculation. Why re-impose it now?

If the intention is to curb unhealthyspeculation which is unlikely given the current market

condition, then it should focus on possible speculators and not impose RPGT across the board.

The statutory body governing real estate agents view the RPGT as punitive to owners of

existing housing units who may have bought them decades ago. They may want to sell to

upgrade or to relocate. With the tax, its like buyers are fined for selling their homes.

Its also counter-productive to the ongoing efforts to stimulate the property market. Reinstating


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it after a brief exemption period of less than three years will adversely impact the fragile

confidence of local and foreign investors.

The move also reinforces Malaysias infamous flip-flopping policies. On the one hand, we are

wooing foreign direct investments. On the other hand, we are sending contrasting signals.

the market reacted positively to the RPGT waiver in 2007 with increased sales. Some

negative impact is expected.

The re-imposition seems to be an income-bearing revenue stream for the government instead

of being an anti-speculative tool.

The above statements are gleaned from an article published in the Star dated 25

October 2009.

Secretary of the Finance Ministry (Tax Analysis Division) revealed to the

reporters that the government is expected to collect some RM500 million from the real

property gains tax in 2010, while RM240 million will be lost in individual income tax, due

to the reduction of 1% of income tax, from 27% to 26%. It may be difficult not to come

to the conclusion that, as far as the re-imposition of the real property gains tax is

concerned, it is more a revenue-collecting exercise rather than an attempt to curbspeculation.

2.3.5 To Encourage Property Investment

Governments target of attracting RM20.0 billion worth of investments, by putting

Malaysia on the world map as an international property destination. This effort over the

next 10 years supervised by the National Implementation Taskforce and chaired by

Prime Minister Datuk Seri Abdullah Ahmad Badawi, will certainly create the required

impetus to actively propel the Malaysian real estate sector in particular and through its

associated multiplier effect, the Malaysian economy as a whole.


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In the Malaysias Ninth Plan, along with Malaysia my second home and

Malaysia Visit Year, the Government initiates a couple of impressive provisions,

including elimination of certain restrictions to boost foreign investment in real property

market. As of April 2007, Malaysia's property market became markedly more appealing

to non-resident buyers when the country eliminated capital gains tax on all property

deals. The exemption of Real Property Gains Tax in respect of any disposal of

chargeable assets between 1 April 2007 to 31 December 2009 are one of the approach

from the government to encourage the property investment. The main focus is to attract

the international investor to buy property within Malaysia.

One of the purpose of this exemption is intended to support the Malaysia My

Second Home Programme, a programme promoted by the Government of Malaysia to

allow foreigners who fulfill certain criteria, to stay in Malaysia for as long as possible on

a multiple-entry social visit pass initially for a period of ten (10) years, and is renewable.

The qualification is open to citizens of all countries recognised by Malaysia regardless

of race, religion, gender or age. The Malaysia-My-Second-Home (MM2H) programme

has provenly successful in attracting substantial foreign investor to the State. The

Government initiated a temporary waiver of RPGT in year 2007 undeniably brings

positive affect on the market.

2.3.6 For The Concerns Of The People&First-Time Home Buyers

For other first-time homebuyers, the Government has introduce a tax relief on

interest expenses incurred to buy residential properties. It was introduced during the

2009 economic stimulus package to address the dampening property market then. This

is remarkable by the full examption of the RPGT in the year 2007 until at the end of year

2009.

It have been noted that affordable housing had been the hot pre-budget topic and

the Government has attempted to address the concerns of the people by address the

needs of first-time house buyers by relaxing the conditions for raising finance, and

curbing speculation through the RPGT hike.


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One of the policy of Malaysian government is to encourage home ownership. It

is due to this administration's steadfast holding of this policy that government are

revising the RPGT. There has been some kind of rationalisation and stabilisation of

prices as the government has introduced measures to mitigate the possibility of an

asset bubble. Among the measures are the 1Malaysia Housing Programme (PR1MA)

and the My First Home Scheme to help those in the lower and medium income groups

purchase home. While the government recognises that real estate is a reliable store as

well as creator of value, the state does not encourage real estate to be commoditised as

an instrument of speculation. Hence there is the need to revise the RPGT.

3.0 STAMP DUTY

Stamp duty is one of the methods by which the government earns revenue. The

assessment and collection of stamp duties are governed by the Stamp Act 1949 .

Stamp duty is levied by the government on instruments or documents of transfer. In

property transactions, the imposition of the said duty is in the form of ad valorem which

means tax is levied according to the value of the property.

Stamp duty can be costly at 1% on the first RM100,000 of value, 2% on the next

RM400,000 and 3% on the remainder. Generally, it applies based on the market valueof a property when a gift is made, but the good news is that a remission is available for

certain family dispositions. Transfers between husband and wife qualify for complete

remission of the duty payable and transfers from father and/or mother to a child attract a

50% remission.

3.1 WHY GOVERNMENT KEEP CHANGING THE STAMP DUTY RATES3.1.1 To Spur The Real Estate Sector

In ensuring that there is a sustainable demand for residential and commercial

properties by Malaysians and foreigners over the long term, the government must

develop a cohesive plan in consultation with the people to address the need to manage

the prices of residential properties. In Malaysia, the Government has introduced various
http://www.agc.gov.my/agc/Akta/Vol.%208/Act%20378.pdfhttp://www.agc.gov.my/agc/Akta/Vol.%208/Act%20378.pdfhttp://www.agc.gov.my/agc/Akta/Vol.%208/Act%20378.pdf


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initiatives and incentives. These include the 50 per cent stamp duty exemption on

documents of transfer for the purchase of a house of not more than RM250,000.

3.1.2 To Make It Relevant With The Current Market Property Price

Again,based on Budget 2013,the extension for stamp duty exemption (by 50%)

to Dec 31, 2014 with price limit on residential properties raised to RM400,000 (from

RM350,000 previously) will further spur the growth of the housing and property sector.

increasing the limit of house prices under the My First Home scheme to RM400,000 for

purchases within Klang Valley and Penang may be more relevant in today's scenario.

House prices have moved up substantially over the last three years. The amount of up

to RM220,000 may not be too meaningful especially for residential properties within theKlang Valley areas.

3.1.3 For The Concern Of The People

Apart from that,amendment from the Budget 2012 which given the full exemption

of stamp duty for loan agreements for residential properties valued up to RM300,000

and purchased under PRIMA( Skim Perumahan Rakyat 1 Malaysia) would help to

reduce the costs of home ownership, encourage house purchases and help sustain

home affordability levels.


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4.0 CONCLUSION

Property Tax is a burden to property investment. In good economic conditions,

due to public confidence in the property market, real estate prices will continue to soar.

This fact is caused by speculative activities carried out by local people or foreigners.

This gives the impression that the market is having trouble. From inadequate research

done, it is clear the property tax has helped reduce speculative activities.

The changes of the rates of property would bring different effect to different party.

For the rates to be change,certainly government have seen it from every aspect. What

had been implement are the best choice suit for the well-being of the country. The

person who are effected by it should find another way to prevent them from suffer loss.

To the general consumers, increase in Property Tax will be much welcome. On

the other hand, to the investors, this could cause some problem. However, anything that

is excessive will be bad for the economy. While we want to have cheaper and affordable

home, we still need investors to enter the market to boost our economy. Real Property

Gains Tax is just another tool that government can use to moderate property prices so

that property prices are acceptable to the people. This is something which is easy said

than done.


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5.0 REFERENCES

WEB ARTICLES

1) JP Morgan, Malaysian Property, (July 2007) Review of OperationRetrieved from website:http://announcements.klse.com.my/EDMS/subweb.nsf/7f04516f8098680348256c6f0017a6bf/93532917b4b25f4e48257a6f002162bb/$FILE/E%26OPage%2037%20to%20ProxyForm%20(1.2MB).pdf . 16 April 2013 22.50pm

2) Sherly George, (March 12, 2012) The Effects Of Tax Rates On Tax Revenue And Growth : ACase Study OfMalaysia. 1-3.Retrieved from website:

http://www.internationalconference.com.my/proceeding/3rd_icber2012_proceeding/173_198_3rdICBER2012_Proceeding_PG2499_2528.pdf. 16 April 2013 00.10am

WEBSITE

1) RPGT hike wont have significant impact, say analysts. The Star Online.Retrieved from website:http://thestar.com.my/news/story.asp?file=/2012/9/29/budget/12101379&sec=budget10 April 2013 22.50pm

2) Keeping our property market robust The Star Online.

Retrieved from website:http://thestar.com.my/news/story.asp?sec=budget&file=/2012/9/24/budget/12059349

16 April 2013 21.55pm

3) Real Property Gains Tax in Malaysia.Retrieved from website:http://savemoney.my/real-property-gains-tax-in-malaysia/ 16 April 2013 22.21pm

4) Hike in RPGT a realistic percentage, says minister .Retrieved from website:http://www.malaysianpropertypartners.com/newsfeeds/hike-in-rpgt-a-realistic-percentage-says-minister

17 April 2013 22.30pm

5) Real Property Gains Tax is making a comeback in 2010.Retrieved from website:

http://www.malaysianbar.org.my/publications/real_property_gains_tax_is_making_a_comeb

ack_in_2010.html

17 April 2013 23.56pm
http://announcements.klse.com.my/EDMS/subweb.nsf/7f04516f8098680348256c6f0017a6bf/93532917b4b25f4e48257a6f002162bb/$FILE/E%26OPage%2037%20to%20ProxyForm%20(1.2MB).pdfhttp://announcements.klse.com.my/EDMS/subweb.nsf/7f04516f8098680348256c6f0017a6bf/93532917b4b25f4e48257a6f002162bb/$FILE/E%26OPage%2037%20to%20ProxyForm%20(1.2MB).pdfhttp://announcements.klse.com.my/EDMS/subweb.nsf/7f04516f8098680348256c6f0017a6bf/93532917b4b25f4e48257a6f002162bb/$FILE/E%26OPage%2037%20to%20ProxyForm%20(1.2MB).pdfhttp://announcements.klse.com.my/EDMS/subweb.nsf/7f04516f8098680348256c6f0017a6bf/93532917b4b25f4e48257a6f002162bb/$FILE/E%26OPage%2037%20to%20ProxyForm%20(1.2MB).pdfhttp://www.internationalconference.com.my/proceeding/3rd_icber2012_proceeding/173_198_3rdICBER2012_Proceeding_PG2499_2528.pdfhttp://www.internationalconference.com.my/proceeding/3rd_icber2012_proceeding/173_198_3rdICBER2012_Proceeding_PG2499_2528.pdfhttp://www.internationalconference.com.my/proceeding/3rd_icber2012_proceeding/173_198_3rdICBER2012_Proceeding_PG2499_2528.pdfhttp://thestar.com.my/news/story.asp?file=/2012/9/29/budget/12101379&sec=budgethttp://thestar.com.my/news/story.asp?file=/2012/9/29/budget/12101379&sec=budgethttp://thestar.com.my/news/story.asp?sec=budget&file=/2012/9/24/budget/12059349http://thestar.com.my/news/story.asp?sec=budget&file=/2012/9/24/budget/12059349http://savemoney.my/real-property-gains-tax-in-malaysia/http://www.malaysianpropertypartners.com/newsfeeds/hike-in-rpgt-a-realistic-percentage-says-ministerhttp://www.malaysianpropertypartners.com/newsfeeds/hike-in-rpgt-a-realistic-percentage-says-ministerhttp://www.malaysianpropertypartners.com/newsfeeds/hike-in-rpgt-a-realistic-percentage-says-ministerhttp://www.malaysianbar.org.my/publications/real_property_gains_tax_is_making_a_comeback_in_2010.htmlhttp://www.malaysianbar.org.my/publications/real_property_gains_tax_is_making_a_comeback_in_2010.htmlhttp://www.malaysianbar.org.my/publications/real_property_gains_tax_is_making_a_comeback_in_2010.htmlhttp://www.malaysianbar.org.my/publications/real_property_gains_tax_is_making_a_comeback_in_2010.htmlhttp://www.malaysianbar.org.my/publications/real_property_gains_tax_is_making_a_comeback_in_2010.htmlhttp://www.malaysianpropertypartners.com/newsfeeds/hike-in-rpgt-a-realistic-percentage-says-ministerhttp://www.malaysianpropertypartners.com/newsfeeds/hike-in-rpgt-a-realistic-percentage-says-ministerhttp://savemoney.my/real-property-gains-tax-in-malaysia/http://thestar.com.my/news/story.asp?sec=budget&file=/2012/9/24/budget/12059349http://thestar.com.my/news/story.asp?file=/2012/9/29/budget/12101379&sec=budgethttp://www.internationalconference.com.my/proceeding/3rd_icber2012_proceeding/173_198_3rdICBER2012_Proceeding_PG2499_2528.pdfhttp://www.internationalconference.com.my/proceeding/3rd_icber2012_proceeding/173_198_3rdICBER2012_Proceeding_PG2499_2528.pdfhttp://announcements.klse.com.my/EDMS/subweb.nsf/7f04516f8098680348256c6f0017a6bf/93532917b4b25f4e48257a6f002162bb/$FILE/E%26OPage%2037%20to%20ProxyForm%20(1.2MB).pdfhttp://announcements.klse.com.my/EDMS/subweb.nsf/7f04516f8098680348256c6f0017a6bf/93532917b4b25f4e48257a6f002162bb/$FILE/E%26OPage%2037%20to%20ProxyForm%20(1.2MB).pdfhttp://announcements.klse.com.my/EDMS/subweb.nsf/7f04516f8098680348256c6f0017a6bf/93532917b4b25f4e48257a6f002162bb/$FILE/E%26OPage%2037%20to%20ProxyForm%20(1.2MB).pdf


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6) Real Property Gains Tax.Retrieved from website:

http://www.about-penang-property.com/blog/property-investment/real-property-gains-tax/

17 April 2013 00.06am

7) Malaysia My Second Home Official Website. Retrieved from website:

http://www.mm2h.gov.my/18 April 2013 01.22am
http://www.about-penang-property.com/blog/property-investment/real-property-gains-tax/http://www.about-penang-property.com/blog/property-investment/real-property-gains-tax/http://www.mm2h.gov.my/http://www.mm2h.gov.my/http://www.mm2h.gov.my/http://www.about-penang-property.com/blog/property-investment/real-property-gains-tax/

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Why Government Keep Changing the Tax Rates