Tax Trail | Taxing Expectations for Budget 2015
Taxing Expectations
for Budget 2015
The property industry may be facing a
barrage of taxes, but this does not mean that
there are no possible solutions to how their
effects may be lessened. - BY ONG XIN YING
property developers will definitely see their costs rising
especially if they are undertaking residential projects.
Even though residential properties are exempted from
GST which means that the developer cannot charge
GST to the buyers, developers will still incur additional
expenses from the GST applied to their costs which they
cannot recover from the government. Calculations have
shown that price increases throughout the supply chain
will result in a cost increase of approximately 3-4% of
the current prices. This means that developers will either
have to absorb the additional costs and reduce their
profits or pass on the costs to the buyers.
With Budget 2015 around the corner, it is time once
again for all parties to weigh in on what they expect or
hope to see in the new Budget. The one important topic
at hand is undoubtedly taxes especially with the Goods
and Services Tax (GST) looming on the horizon. As such,
iProperty.com sought out the expert views of Fennie
Lim, Tax Executive Director of Crowe Horwath KL Tax
Sdn Bhd on the tax angle of Budget 2015, specifically in
relation to the property industry.
According to the most recent iProperty.com Asia
Property Market Sentiment Report, more than half
of the respondents think that the GST will affect their
purchasing decisions as they believe it will increase
property prices. What are your comments on these
findings?
I agree with these sentiments because moving forward,
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Nevertheless, people still prefer to invest in tangible
assets with property being one of the most popular
choices. While I am quite certain that property prices will
increase gradually despite the softer market sentiment
right now, I also believe that those who are brave
enough to take the leap now shall see the returns on
their investments over the long term. As for the concerns
over the GST’s effect on property prices, my view is
that developers would have taken the extra costs into
account when pricing their newly-launched projects
but older projects are unaffected and hence are worth
buying.
As a tax expert, what are your opinions and/or
suggestions on the aspect of property-related taxes
in the Budget 2015?
There are four taxes which are tied to the property
industry and they are the stamp duty, income tax, Real
Property Gains Tax (RPGT) and of course GST. Stamp
duty is quite adequate at the moment and no changes
are expected. As for income tax, developers often find
this challenging because they have to pay their taxes
based on the project’s estimated profit and stage of
completion. Things become difficult when it comes to
developers’ final accounts because they are required
to give the project’s final account to the tax authorities
upon completion of the project even though the
warranty period is still in effect. Hence, developers are
required to pay all their taxes based on their estimations
instead of a confirmed figure. My recommendation would
be for the Inland Revenue Board to adopt a more lenient
approach by allowing the final account to be submitted
upon the expiration of the project’s warranty period.
Moving on to the RPGT, we noted that there have been
a number of changes to the RPGT rates over the past
six years of assessment. In particular, Budget 2014’s
RPGT rates have been immensely harsh on investors,
so I believe that a return to the old rates of 30% for a
disposal within 2 years, 20% for 3 years, 15% for 4 years,
5% for 5 years and 0% for anything longer will help
encourage investors to invest in Malaysia.
Last but not least, the GST will prove to be a significant
challenge to the property industry for reasons related
to the supply chain issue which I touched on earlier.
As such, I think the government should give GST
concessions for all property sale agreements signed
before GST kicks in on 1st April 2015. Another item on
my Ôwish list’ would be for the government to allow GST
registration for joint venture property projects.
Tax-wise, is the government doing enough to encourage
developers to create more green projects?
Currently, there are not many tax-based benefits for
green developments except for an exemption of income
for owners of buildings who incur additional greenrelated expenditures on their buildings and an exemption
of stamp duty for buyers of green buildings.
Fennie Lim Phaik Hui, Executive Director,
Tax of Crowe Horwath KL Tax Sdn Bhd
This, I believe, is an area that merits improvement. The
government should consider more ways to encourage
green development projects, such as allowing developers
to claim double tax deduction on certain qualifying
expenditures for building green projects.
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