Industry professionals have voiced their concerns about a decision by The Royal Malaysian Customs director general to apply the Goods and Services Tax (GST) on the individual supply of commercial property, which they say could slow down the recovery of the property market.
In particular, there is a major query on whether GST is imposed on commercial properties under individual names or not.
The DG’s announcement is being seen as highly controversial because according to the GST Act, only individuals involved in transacting commercial properties for business need to charge/or be charged GST.
“Under its definition, an individual who owns more than three commercial properties and sells one is considered to be conducting business,” said a senior partner at accounting firm YYC & Co.
The observer goes on to say that in the eyes of the income tax department, it is considered an investment, but Customs now defines it as a business. This means individuals have to register for and charge GST for property transactions. In the property context, this represents a very large amount.
Furthermore, individual land owners who sell parcels measuring above one acre will also have to charge GST to the buyer, as the land is considered commercial land. Even individuals who own a single commercial property may be affected by the ruling if the unit is sold above the RM2 million price mark.
Collectively, the points above can have an adverse effect on the health of an already sluggish market because they will further discourage any transactions in the commercial arena, say market players.
Additionally, certain quarters have criticised the ability of the Customs to fully comprehend the complexity of property transactions. In some cases, there is more than one owner for a single plot of land, and there is no provision to accommodate this – that is, do they register for GST under one name or seven?
Also, after an individual has registered for GST and sold a property, what happens next? Many law firms have suggested that an immediate deregistration must be done, or else the individual will have to keep submitting GST returns every month or quarter. Some have complained that this process takes a few months, because Customs itself is unsure about how to deal with it.
One land law expert pointed out that most people are still thoroughly confused about a number of things concerning GST, and this is just the latest in a series of grey areas. He said nobody yet has a clear understanding, and while you can challenge Customs on the application of GST to particular cases, it is “extremely expensive” to do so.
Property agents too have complained that such rulings are often broad and subjective, and will only serve to deter buyers and sellers more as they do not know enough about how the system works and fear the heavy penalties imposed if they conduct a sale improperly.
All these, they say, could not have come at a worse time, when it is hard enough to encourage buying and selling in an industry that is facing a critical shortage of activity.