RPGT - Good or Bad

The real estate industry has ended the year of 2009 with a greater bang when the government announced its decision to revise the re-imposition of Real Property Gains Tax (RPGT) where the 5% tax will only be imposed on properties disposed within the first five years of purchase, scrapping off the initial idea to tax on all properties disposals regardless of holding period. This sudden announcement rings like a sweet melody to the ears of all who dwell in the land of Malaysia.

According to reliable sources, the government will be presenting a reworked calculation to the industry reportedly by the end of January or perhaps even earlier, grabbing many in the arena in anticipation. Sources too urge the public to avoid speculating on the issue but instead to wait upon the government to finalize the policy into black and white.

Flipping through RPGT’s history, it was first introduced in 1974 under the Land Speculation Tax Act with the main intention to curb speculation activities especially in the hotspots of the sector. The Act was then renamed to RPGT Act with the structure base on a tier system (see chart) where individuals enjoy tax-free status on their profit gained from the disposal of their properties after the five-year time frame while companies and non-residents will need to fork out 5% from their profit to fulfill their obligations as stipulated in the RPGT Act.

To the uninitiated, RPGT has been waived twice since its introduction. The first was short lived starting
from 1 June 2003 and ending on 31 May 2004. The second consumed a longer time, effective from 1 April 2007 till 31 December 2009, under the leadership of the former Prime Minister Tun Abdullah Ahmad Badawi with the purpose to attract more Foreign Direct Investments (FDI) into Malaysia especially through the real estate sector to boost the country’s economic standing.

The re-imposition of RPGT as announced by the current Premier Dato’ Seri Mohd najib Tun Abdul Razak on October 2009 this time is aimed to generate revenue for the government to further recover and develop the country, especially after giving out generous stimulus packages to mitigate the impact from the global financial crash.

There are concerns still nonetheless especially among the industry experts onthe notion of RPGT. James Wong, President of PePS Malaysia voiced his opinions at a press conference held in conjunction with the announcement of the 3rd Malaysian Property Summit which will be held at the tail end of January.

“We hope that the government will look into changing the base year of 1970 to 2000 in the RPGT Act so that it will be relevant with the current market,” shared Wong with many other experts present nodding in agreement.

Zoning on our neighbors in the region, Singapore is aiming to revamp their income tax law in hope to combat speculation activities especially in the property sector. Though this move seem to be a sincere idea to protect the sector, critics remain skeptical claiming the new law will create even more grey areas which they believe will confuse the residents and investors alike and eventually repel international investors away from the Lion City.

Moving further up north, China’s leaders too decided to introduce new property tax laws to curb its fast and widespread speculation activities as well as cooling it real estate market due to worrying record increase of property prices.

Further away in egypt, known for its extremely pleasing and favorable investment climate is also turning cloudy with its government’s decision to overhaul her tax system to reform its economy. new Zealand and Trinidad are not exempted either with hopes and signs to revive and balance their economies by imposing new property tax laws amidst the outcry of its citizens and investors.

With other countries looking to reform or introduce new property tax laws, our government’s latest stand to
re-impose the RPGT now seems much more justified. Further, despite arguments about Malaysia’s property speculation activities are insignificant, the re-imposition however is still perceived as a wise move akin to a cautionary measure to safeguard both the industry and the economy. After all, no one knows what the future will really bring and where future risks will be attacking from - only time will tell. HF