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Friday, December 5, 2014

Don’t impose GST on management fees for flats, Penang tells Putrajaya

Penang Chief Minister Lim Guan Eng said that people living in flats because they could not afford landed properties ‘should not be punished for buying flats’. – The Malaysian Insider file pic, December 5, 2014.Penang Chief Minister Lim Guan Eng said that people living in flats because they could not afford landed properties ‘should not be punished for buying flats’. – The Malaysian Insider file pic, December 5, 2014.
The Penang government has urged Putrajaya not to impose the Goods and Services Tax (GST) on management fees for flats nationwide, saying it would burden residents.
Chief Minister Lim Guan Eng said when the 6% GST is implemented on April 1 next year, all those who live in flats will be paying tax on the management fees as well.
He said the tax would be imposed on the fees for all stratified units, regardless of whether they were commercial or residential.
Of these, 45,239 are low-cost flats while 37,540 are low-medium cost.
"We are looking at one million people affected by this, if you estimate there are four to five people in one household. That is about 60% of the population in the state.
"So we are asking for management fees to be exempted from GST," he told a press conference today, adding that the state executive council had met and decided to make this appeal to Putrajaya.
Lim said many people were already living in flats because they could not afford landed properties and they "should not be punished for buying flats".
Penang Real Estate, Housing and Developers Association (Rehda) chairman Datuk Jerry Chan said management fees were for the buildings' upkeep and maintenance services, and no profit or dividend was generated from the funds collected from residents.
"Assuming that there is no 100% collection, GST will still have to be paid in full every month end. If you have 100 units but you only collected fees from 50, you still must pay GST for the 100 units.
"People who pay the fees will not just pay 6%. They will have to pay more than that to cover the GST for those who don't pay the fees. It becomes a very unfair situation.
"Management funds will be depleted. Whatever reserves the management corporation has will be depleted because of this tax. It is a very serious thing," he said, adding that GST should not be charged since it was not a business.
State housing exco Jagdeep Singh Deo cited a November 28 letter sent to Prime Minister and Finance Minister Datuk Seri Najib Razak to appeal for all stratified development areas to be classified as the GST Zero-rated Tax Supply instead of the GST Standard Rated Tax Supply.
The letter was signed by the National House Buyers Association Malaysia, the Royal Institution of Surveyors Malaysia and Association of Valuers, Property Managers, Estate Agents and Property Consultants in the Private Sector Malaysia.
The groups argued that management corporations and joint management bodies were not carrying out business for profit but were deemed as doing so under the GST Act 2014, and were therefore unwittingly classified by the Customs Department as GST Standard Rated Tax Supply Entities except for low-cost and low-medium cost stratified development areas that are GST-exempted.
The groups said it was unfair because parcel owners were ultimately the victims of GST when they contributed their own money to maintain, upkeep, refurbish, upgrade and safeguard their common property, although management corporations and joint management bodies were entitled to claim refunds for GST.
"...the lower income group will inadvertently be made to bear and suffer the effect of increased costs of maintenance and management of the common property due to the implementation of the GST," the groups said in the letter.
Jagdeep said based on what they understood of the law, GST would be imposed even on management fees for low-cost and low-medium cost flats.
"In the whole of West Malaysia, there are 6,000,000 parcel owners and dwellers in 15,000 stratified development areas who will be affected. We feel this is very unfair," he said.
Meanwhile, on developers in Penang experiencing delays in getting approvals for developers' licences and advertising permits (DLAP), Lim said he would personally write to Najib on the matter if Penang Rehda needed assistance in resolving the issue.
"It does not make sense to punish the private sector (by delaying the DLAP issuance) when the government looks to the sector as a economic growth engine," he said.
Chan said Penang Rehda members as well as committee members had complained about the delays and were told by the ministry to wait but were not informed when the licences and permits would be released.
What used to take just two weeks, now takes two to three months, he said.
"We hope this will be resolved because delays will affect not only developers but also 140 types of businesses related to the development industry.
"Nobody would want to see economic activities affected negatively," he said.
On Wednesday, Chan told a media briefing that there had been an "unusual" delay since August in the approval of DLAPs by the Urban Wellbeing, Housing and Local Government Ministry. The delay has affected over 30 developers who have not been able to promote and sell their projects.
- TMI

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