Depending on whether you own just “the roof over your head” or have a nest of property assets, the concern from various quarters largely centres on the fact that a flat rate of 5% will be imposed on all gains from disposal of real property irrespective of the holding period and category of owner.
To ensure the tax will be equitable and acceptable to all, there is a need for further fine-tuning before its implementation. Prior to the exemption of the RPGT in April 2007, tax on gains from property disposal was on a progressive basis from 30% to 0% depending on the holding period of the property.
If one buys a property and disposes it for profit within two years of purchase, the profit will attract 30% tax; within the third year will be 20%; fourth year 15%; and fifth year 5%. A sale in the sixth year and thereafter will not be taxed.
Long-term property investors and owners who have held on to their properties for many years or decades are particularly spooked by the proposed 5% tax rate.
Firstly, their contention is that they should not be the target group of the RPGT when the intention of the tax is to reign in speculation in the property market in the first place.
After all, they are not speculators and have dutifully held on to their property which in a way has contributed to the market’s growth over the years.
They don’t see the logic of having to pay tax for the “gains” they will make if they decide to sell their property one day, especially when there is no explanation on how the “gains” will be calculated.
It will be unfair to just base the calculation on the sale price minus purchase price when the value of the ringgit has not been duly adjusted. The time value of money should be considered and there should be an equitable formula used to calculate the actual value of the “gains” if the tax is to be imposed.
We have to bear in mind that the value of the ringgit when the property was first purchased in the past was many times higher than the value today.
There should also be a cut-off time for the holding period after the fifth year as imposing a flat tax rate of 5% irrespective of number of years of acquisition is punitive to owners who may have bought their properties many years ago.
What if after holding the property over a period of time, the owner decides to move into a better property or to relocate to another place?
Some also voice concern that extending the tax on long-term property owners will be like imposing a capital gains tax on them when there is no tax on gains made from equity trading.
Another concern is the timing of the implementation. Reinstating the tax at this juncture when the local property market is just recovering from the global financial crisis may be untimely.
Although sales have picked up since the middle of the year, this was mainly due to the many housing packages and easy financing facilities offered by developers and financial institutions.
It will be a better gauge to see if sales will continue to hold once those packages expire around year-end.
Perhaps the soonest time to reinstate the RPGT will be the middle of 2010 when there is more certainty on whether the economic recovery is sustainable or that it will head for another dip or a “W” recovery.
And instead of the proposed flat 5% that will also penalise long-term owners, it will be a better alternative to impose a higher tax rate on those who make high profit from disposing of their property within the first two to three years of purchase.
That will be more effective in preventing overheating and bubbles from forming and ensure a more balanced long-term growth.
Deputy news editor Angie Ng believes companies making huge profit margins, especially providers of consumer services including telcos and banks, should contribute towards a corporate responsibility fund for more social-oriented projects for the people.
By The Star (by Angie Ng)
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