October 24, 2011

Real Property Gain Tax in 2012

The 2012 Malaysia Budget was announced a few weeks ago and one of the thing that was announced was the change in the Real Property Gain Tax in 2012. In order to understand the tax that was levied before, let us go a bit further. Pre-2009, the time before the Real Property Gain Tax was tweaked to inject some excitement into the property players in Malaysia. 

The Real Property Gain Tax was not what it was today. It was a charge of a whooping 30% for any property disposed 2 years from the date it was bought (the date on the Sale & Purchase Agreement or whatever form of transfer which allow a person to own land in Malaysia). It goes down as the year goes up. 20% for the third year disposal; 15% for fourth year disposal and 5% for fifth year disposal. And after the 6th year, no tax is levied. Here's a little secret, this Rates of Tax was NEVER repealed. It was just suspended by a decree in Parliament and it was passed through debate. And it was done in 2009 for the Budget 2010.

The change in 2009 was as a measure to excite the market and the market was excited that it got confused when the rate was 5% for only some of the years and not across the board. Under pressure, an announcement was made at the end 2009 so that any sale done by anyone after January 2010 was taxed at 5% whatever the year it was disposed. That is much, much lower than the 30% right? However, the government does want you to pay the 5% regardless whether you will be taxed or not. As long as you sell your property and make a chargeable gains or simply said, a profit, you need to pay that 5%. Only after looking through all the documents filed by your lawyer or yourself, and if you profit is not taxable according to the rates of tax, only then will the money be refunded.

Then, a change is now at hand which will be in force in 2012. For any property sold after it was purchase for 2 years, a 10% tax is levied. That is not so bad right? Just hold the property you have invested in to make money for 2 years and then sell the property. If you don't have the time to wait, factor in your Real Property Gain Tax cost into your profit. And there are other factors you can add into the selling price of the property. All your cost to buy, maintain and even sell the property can be factor in. Such as your legal fees, your renovation cost and your advertisement cost (even your real estate agent cost). When you send your Real Property Gain Tax form, send the Inland Revenue Department the receipts for all the said item. And please remember, you can get once-in-lifetime exemption for the property you have lived in all your life which you consider as your private residence.

Although the change in the tax regime for property acquisition is good, it will not help speculators to stop speculating. Government seems to forget a few things when they formulate their strategy. They still have not make property ownership easier for those who are under the Malaysia My Second Home campaign. For now, the participants of the scheme need only to put in some money and show proof of the deposit. They should just tweak it so that they are allowed to buy properties in certain areas and put in a caveat about when and how it can be transferred. That can create ripple effect for that area and maybe a new set of tax rate can also be levied on them. Please remember that Malaysia still has one of the cheapest property prices in the region (in contrast with Singapore and Hong Kong)

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