THE planned rise in the Real Property Gains Tax (RPGT) to curb speculative activities on properties and avoid a property bubble could return investors to the stock market, say analysts.
Under the 2013 Budget, the government has proposed a review of the RPGT. Effective January 1 2013, RPGT will be imposed on profits for the disposal of properties within two years of buying at 15 per cent, and 10 per cent for those sold in the third to fifth year.
The idea of raising the RPGT is to discourage people from buying and selling houses for quick profit. RPGT is also another government's source of revenue.
Properties held longer than five years are not subject to RPGT. Also, disposals of properties between husband and wife, parents and children, grandparents and grandchildren are exempted from RPGT.
"I don't think the move to increase RPGT rate would dampen the market. In absolute terms, it is not large enough to discourage people from speculating in properties," said OSK Investment equity capital market head Gan Kim Khoon.
"However, we believe property investors will put off buying houses for a while and invest in the stock market as the property market has softened," Gan told Business Times.
Mah Sing Group Bhd group managing director Tan Sri Leong Hoy Kum said the rise in RPGT rate was within expectation and it will have less physical impact on developers as the construction period for new projects usually takes two to three years.
Leong also lauded the government's efforts in increasing housing affordability and reducing the cost of property ownership.
"There is strong demand for serviced apartments from 500 square feet and landed properties below RM1 million. The 50 per cent stamp duty exemption for first-time purchase of homes under RM400,000 will help to reduce the cost of purchasing a house by up to RM3,500," he said.
Master Builders Association Malaysia (MBAM) is, however, disappointed with the increase in RPGT rate for properties sold within a period of two years and after three years.
"We feel that the financial measures imposed by Bank Negara Malaysia to curb property market speculation is sufficient as it is," said MBAM president Matthew Tee in a statement
Read more: Investors may shift to stocks with rise in RPGT http://www.btimes.com.my/Current_News/BTIMES/articles/PROP13/Article/index_html#ixzz27pG1BJGP
BUDGET 2013 has been one of the most difficult to design and to present to the people and Parliament. I’ve done this many times before, so I think I know! This budget is crucial for many reasons. First, we are facing global economic decline and considerable uncertainty that can adversely affect our socio-economic outlook.
Second, the 13th general election is imminent. People and voters want and think they can get more from this budget. Third, more so now, there is a major conflict between two perennial budget issues – what people want and what we can afford.
The Government now faces the exacting challenge of both wanting to please the voters and protecting the integrity of the budget and indeed the sustainability of the economy. The budget will thus have to strike a clever balance that will not easily please everyone – the people and the foreign financiers.
On the macroeconomic front, we must take into account the rising concerns of the international rating agencies, the World Bank and the International Monetary Fund (IMF), which will be closely watching how we manage these conflicting demands.
We can all merrily ask for more perks, tax concessions, subsidies and even more spending to make us all feel good and happy. But we have to think of the impact of more “give-aways” on the overall health of the economy. We have to remember our overriding need to control the budget deficit and debt burden that have been rising rapidly and weighing down the confidence in the economy in the longer term.
For instance, the longer-term implications of an unduly populist budget, which can lead to a downgrading of our financial rating by Fitch and/or Standard & Poor’s or even the IMF, can be serious. Just as important, foreign investors would want to be assured that the economy is being managed well with greater prudence and fiscal discipline.
Hence, we have to aim to reduce the budget deficit, the federal budget debt and the national debt in this Budget 2013.
So how would the Government also meet the rising expectations of the rakyat?
An important strategy of the budget should seek to give greater priority to fighting inflation.
Prices are rising for several reasons. When the supply of goods and services decrease, prices increase. So, the budget should break more bottlenecks in the supply chains.
The budget should remove more taxes and administrative constraints on small businesses. The economy should be further liberalised without imposing too many controls on land for cultivation of food, and in granting licences and approvals and quotas for small and medium enterprises that are the backbone of our economy. Budget expenditures should also be more stringently managed to get more value for taxpayers’ money and the borrowings that have to be paid back with interest.
Unemployment and unemployable graduates are becoming major problems. This is largely due to the poor and unsuitable education we provide. Instead of churning out many unemployable graduates from our public schools and universities, more budget allocations for academic education should be diverted to technical education to produce productive technicians who are more employable and who can even operate their own businesses.
The budget strategy should adopt a basic human needs approach. It should provide more funds for housing, transportation, school expenses and reduced utility rates. It could allocate more funds for 1Malaysia clinics, shops for low-priced clothing and a whole range of other basic needs of the poor and low-income groups from the lowest 40% of our population.
It could lessen the subsidies that are now also enjoyed by the high-income groups. Surely, people like professionals, managers and big businessmen do not need petrol and other subsidies as well as scholarships for their children.
Let the budget look after the poor and encourage the rich to look after themselves. After all, big business, particularly foreign investors and multinational corporations, enjoy much more in terms of incentives and tax concessions.
But how do we finance these basic needs of the poor? The budget has to ensure that we get more bang from the taxpayers’ buck. Taxpayers’ money has to be more efficiently spent through more genuine tendering of contracts, a drastic cut in corruption and the removal of inefficient contractors and developers. They short-change the budget and, worse still, the public.
For example, houses can be less expensive if there are fewer “abandoned housing schemes” caused by unscrupulous and unqualified contractors.
Tax evasion and avoidance could be reduced to increase budget savings, to narrow the deficit and debt. The goods and services tax (GST) can be introduced so as to apply mainly to goods and services consumed by the rich and not the poor and low-income groups.
The tax base could thus be widened to get more to pay taxes. Approved permits should be scrapped or auctioned instead, to free the market, raise revenues and increase confidence in fighting wasteful protectionism. Tax reliefs for the lower-income groups can be increased without too much adverse effects on budget revenue. In any case, this is also the role of the budget – to help promote better income distribution by raising the disposable income of the low-income groups.
The income gaps are widening and the Government has to address this problem more carefully, before it causes social problems. Development expenditure could be reduced or slowed down to reduce the budget deficit and debt burden.
This can be done as we did before, through a managed go-slow on some low-priority, non-urgent and even ‘prestige projects’ that can be stretched over a longer period.
Budget 2013 can meet the challenges and conflicts that we face if we give greater priority to meeting the basic needs of the poor and low-income groups, raise our standards of discipline in revenue and expenditure management, and thus go all out to lower the budget deficit and debt burden.
The budget will then make us all feel good and at the same time enable our continued socio-economic stability and prosperity on a more sustainable basis.
l A former senior civil servant, Tan Sri Ramon Navaratnam is chairman of the Asli Centre of Public Policy Studies.
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