By Ernest Cheong
On March 19, 2015, the Rehda Property Industry Survey Second Half 2014 was revealed. According to the survey by the Real Estate and Housing Developers’ Association (Rehda), one of the factors for the cooling of the property market in Malaysia is the impending implementation of the Goods and Services Tax (GST).
This is not the first time a service tax was levied on Malaysians. As far back as 1975, all providers of services including accountants, architects, lawyers, engineers, valuers, surveyors and other professionals were required by the Service Tax Act 1975 to register with the Royal Customs and Excise Malaysia as the Royal Customs’ Registered and Licensed Agent to collect from clients the requisite service tax at the applicable rates then.
The GST to be implemented on April 1 would essentially be based on the same concept and implementation mode as applied to the existing service tax per provisions in the Service Tax Act 1975. The difference is that the GST would also levy tax on goods and services that were not included in the Service Tax Act 1975.
ROYAL CUSTOMS’ DEFINITION OF GST
The Customs describes GST as a multi-stage tax on domestic consumption that is charged on all taxable supplies of goods and services in Malaysia except those specifically exempted. It also states that in relation to real estate, GST will be charged for everything attached to the real estate – on or below the surface of the land including the buildings, the trees and vegetation plus other structures and objects in, over and under the land.
With that definition, which also coincides with the definition of “land” in the National Land Code 1965, GST will affect the entire property and building industry including developers, construction companies and individual property owners or buyers.
i) Sale proceeds of non-commercial land intended for agriculture use, residential development including link and terrace houses, semi-detached and detached houses, apartments and condominiums;
ii) Sale proceeds of land for non-residential purposes including for cemeteries and burial grounds, playgrounds and places of worship;
iii) Sale proceeds of residential properties, whether by property developers or private owners;
iv) Management and service charges paid to the Joint Management Body (JMB) and Management Corporation (MC) for all categories of stratified residential properties that include low- and medium-cost flats, apartments and condominiums.
i) Sale proceeds of land intended for commercial development including shop-houses, shop-offices, office buildings and commercial complexes and malls;
ii) Sale proceeds of commercial properties including shop-houses, shop-offices, office buildings and commercial complexes and malls;
iii) Sale proceeds from the third commercial property onwards for a non-registered person;
iv) Management and service charges paid to the JMB and MC for all categories of stratified commercial properties that include office buildings, commercial complexes and malls.
IMPACT OF GST ON PROPERTY VALUES
From the above information, it appears that the imposition of GST is not expected to affect the level of transactions involving residential properties or commercial properties. Thus, it will have minimal effect on the value of both of these types of properties.
Purchasers and investors of commercial properties are motivated by the potential profits of their investments. If the profits are attractive and sufficient to meet their expectations after paying the GST, they will still invest in and purchase the identified commercial property.
Dr. Ernest Y Y Cheong holds a Doctor of Business Administration (DBA) and an MBA. He is also a Chartered Surveyor, Registered Valuer, Auctioneer, Arbitrator and Principal of Ernest Cheong PTL Chartered Surveyors. Contact him for [email protected] or visit www.ecptl.com and www.propertygandhi.blogspot.com