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MARCH 27, 2015
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> Impact on the secondary housemarket and
solutions to copewith the additional levy
PART3
W
E
are just days before
the Goods and
Services Tax (GST)
kicks in and
excitement, or anxiety, is in the
air. By now, property developers
should be in the know as the
Customs Department has held a
“hand-holding programme” to
brief and address their GST
queries. Our previous two articles
also shared valuable insights and
comments of professionals in the
field on the “consumption tax”,
said to have a bigger impact on
thosewho “consume” more.
Property prices will go up unless
developers arewilling to accept
lower grossmargins tomaintain
competitive prices. The question
is, will the secondary house
market be affected?
OVERVIEW
At a briefing organised by
Malaysian Institute of Estate
Agents (MIEA), tax consultant
and principal of KP Bose Sdn Bhd,
plus former boardmember of the
Financial Planning Association
Malaysia KP Bose Dasan shared
his views. “The impact of the new
GSTwill be felt across the whole
cross-section of society. It is a tax
on sales and services, therefore a
tax on all kinds of consumption.
The final consumer is asked to
pay 6%more for his goods and
services. In fact, the government
has made businesses its tax agent
to collect GST. It expects to
collect more than RM21 billion
from it,” he says. He adds that the
word “consumption” does not
appear in the GSTAct. which
does not include capital goods
like properties, plant and
equipment. “These are not the
common everyday consumption
items. They are fixed assets and
investments.
“The key point inMalaysian
GST is that there are somany
important goods and services that
are exempted fromGST that the
burden of taxation is now clearly
spread between the final
consumer and the business
establishment. Private education,
healthcare, transportation,
financial services and residential
property sales are exempted from
GST but because these
establishments cannot generally
claimany input GST incurred, the
cost of the input GST is borne by the
establishments. There lies the
dilemma for the businessman,
which is to absorb the cost and
lower his profit or to increase his
price and pass on the cost to the
consumer. An increase in price over
6% is tantamount to the same GST
taxing effect,” Bose informs.
By now, themajority of the
rakyat
would already be aware that
there are three categories of
supplied goods and services:
standard-rated (6%), zero-rated
(0%) and exempt. Most food stuff
and basic services fall under the
zero-rated category, therefore no
GSTwill be charged or collected on
these supplies and the business
establishments can recover any
GST input tax incurred on these
items.
Goods and services under the
standard-rated groupwill be
charged 6%GST, whichwill be
added onto the invoice price. The
input GST incurred by the business
establishment will be allowed as a
refund, therefore, the business
establishment is neutral. “It collects
GST on behalf of the government
from its sales and deducts any GST
that it has incurred on its input,”
explains Bose. The problem lies
with the exempt supplies, according
to Bose. “No GST is collected from
exempted supplies and any input
GST incurred by the business is
generally not allowed. So,
businesses will have to decide to
raise or not to raise their prices,”
says Bose and adds that in other
countries, the number of exempt
supplies is limited to financial
services and residential property.
IMPACT ON SECONDARY
HOUSEMARKET
In general parlance, Bose says that
buying properties is not called
consumption but purchasing of
commercial property is, under GST.
“Properties are generally held as
investments or as fixed assets in a
business. Properties already suffer
taxation under the Real Property
Gains Tax (RPGT) Act and its
rental income under the Income
Tax Act. Any transfer and financial
arrangement also incurs Stamp
Duty. To levy 6%more on the buyer
of commercial properties is truly
inflating prices. The developer who
is in the business to buy land and
develop properties is required to
collect an additional 6% from
buyers of commercial properties,”
Bose says. “The removal of sales tax
helps but the GST incurred on
residential property has to be
absorbed by the business enterprise.
Will they … or will they pass on the
GST to consumers in terms of
higher prices?We’ll have towait
and see,” he says.
However, in the secondary
market, the owner of an existing
commercial propertywill be
wondering, if andwhen he sells his
property, if he is required to collect
the 6%GST from the buyer. To
answer this question, Bose directs
attention to the scope of charge of
GST. He asks that we consider
these four elements:
1) Is it a taxable supply? The
answer is yes, if it is a
commercial property.
2) Is it froma taxable person.
Answer: We do not knowbut if
the value of the asset is more
than RM500,000, then it is.
3) Is it a supply in the course and
furtherance of business?
Answer: No, the property is
held as an investment, deriving
investment income. The owner
does not deal in properties.
4) Is the supply inMalaysia … the
answer is yes.
“There are all the elements but
it fails in the ‘in the course or
furtherance of business’ test.
Hence no GST should be
applied,” Bose feels. “Rental of
commercial properties should
also satisfy all the elements. One
would assume that if an owner of
commercial properties derives
more than RM500,000 in rental
income, that would constitute
business. Anyway, a commercial
property inherited andwhich
fetches more than RM500,000 of
rent, cannot be assumed as ‘in the
course and furtherance of
business’. Many in the real estate
industry are wondering if a
person owns a commercial
propertyworthmore than
RM500,000, if they should
account for GSTwhen they sell
their investment property. The
answer is by right, no. But there
can be cases where a person
repeatedly buys and sells
properties. In this case, the
Customs will have a case,
considering themany
transactions by the person,
as an enterprise. Trading and
dealing in properties is business
in nature, the carrying on of
an enterprise, and therefore
meets all the elements which
subject it to GST,” Bose states.
QUESTIONS AND
SOLUTIONS
The implementation of GST
is expected to generate an
additional revenue of RM21
billion towards national income.
While everyMalaysian, as
consumers, will in some way or
other be affected by this
consumer’s tax, Bose poses a
question to the planners and
thinkers in government: “Instead
of looking for this extra RM21
billion, why not cut RM21 billion
from the national budget? If
circumstances demand that you
plan an austerity drive, where
would you cut your
expenditure?” he asks the
government. “Sound fiscal
management is mandatory in that
instance,” says Bose.
Although it is the Year of the
Sheep, we need to take the bull
by the horns as it is the people
whowill have to bear the brunt
and absorb the additional costs.
Still, themixture of zero-rated,
exempt and standard-rated
supply of goods and services will
certainly cause a stir in the
Malaysian stomachs come
April 1, 2015.
Australia’s Saltaopens office inKL
ONE
of Australia’s largest
privately-owned property
developers Salta Properties
recently opened its first
international representative office
and showroom at Solaris Dutamas
in Publika, Kuala Lumpur.
Committed to collaborate and
engage with existing and potential
Asean clients and investors, its
managing director SamTarascio
who was present at the official
opening of the office, mentioned
that the establishment of a set-up
here was part of the company’s
long-term strategy to partner with
foreign investors.
Briefly, Salta Properties
was founded in 1972 by Sam
Tarascio Snr. Today, the firm
is one of Australia’s largest family-
owned enterprises. It is involved
in businesses that span across
property, construction,
investment management and
logistics services.
Under its property portfolio,
the company has delivered iconic
residential projects located in
suburbs like East Melbourne,
Toorak, Richmond, South
Yarra and Abbotsford among
others. These, past and present
projects, worth more than
AUD$4 (RM11.5) billion, include
commercial, retail, industrial,
infrastructure and mixed-use
ventures. For more information,
visit the company website.
(From left): Salta Properties Residential Development GMNicholas
Golusin, MD Tarascio, senior development manager Michael Young,
SEA sales GMRussell Cotton andmarketing and sales manager
Angie Frediani at the opening of Salta Properties’ first international
representative office and showroomhere at Solaris Dutamas, Publika.
People’s views on how to live with GST
1) Sharpen your negotiation skills and re-negotiate your salaries with
your boss.
2) Purchase items that can sit on the shelf for the next 12 to 14 months
before GST is implemented.
3) Relook at your banking, finance, mortgages and investments.
4) In all expenditure, cut back by 6%.
5) Consume when necessary, live simply, no impulse buys.
6) Cut on wastage, recycle or re-create.
7) Save on fuel, think before driving, carpool when possible.
8) Take advantage of discounts, bargains and good deals.
9) Stay home, read more, dine in and exercise in nature.
10) Instead of saving money, think of ways you can make more money.