RISING COST: Property developers want govt to soften impact of new tax on industry
EVEN as property developers struggle to regain traction and cope with the rising cost of construction, they now have to deal with the six per cent Goods and Services Tax (GST).
GST, a multi-stage consumption tax that will come into effect on April 1 next year, will replace the government sales and service taxes (SST) of 10 and six per cent, respectively.
There are 950 items that will be taxed under the GST and more details on this will be realised at the forth-coming 2015 Budget.
The impact on prices is expected to vary, where some items will be cheaper, some goods will maintain their prices, while others will become more expensive.
Among the key challenges that the property market is facing are high land cost, which includes conversion, development charges, premium cost, quit rent and stamp duty, and scarcity of land, especially in urban areas such as Klang Valley and Penang.
Real Estate and Housing Developers’ Association (Rehda) patron Datuk Ng Seing Liong told Property Times that there is an increased cost of doing business due to the high capital contributions and compliance cost that developers can’t run away from.
Other key challenges include highly regulated policies, laws and regulations, he said at Rehda’s GST roundtable discussion entitled “Impact of GST on Property Industry”, here, recently.
Also present were the Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM) chairman of construction, property and infrastructure committee and deputy secretary-general Tan Sri Teo Chiang Kok, Building Materials Distributors Association of Malaysia president Yang Kian Lock, and Master Builders Association Malaysia treasurer-general (MBAM) Eric Lai Wee Meng.
Ng said Rehda and 13 other associations that are directly and indirectly involved in property development and construction have submitted a memorandum to the Ministry of Finance Inc to highlight the impact of GST on the industry.
From April 1 next year, purchasers of commercial properties will have to pay the six per cent GST, while buyers of residential properties are exempted.
Ng said the GST, in its current form, will cause financial hardship by adding to the cost of development and resulting in higher property prices, which will eventually be passed on to house buyers.
He said residential properties are tax-exempted instead of being zero-rated, leaving developers unable to claim back the six per cent as part of input tax contributed to the GST.
“We cannot claim back input tax. A developer has to add the tax to the cost of construction and that will increase the selling price. We have sent signals to the government and they are not responding fast enough. There are only a few months left before the GST is implemented,” Ng said.
Rehda is proposing that residential properties, including affordable houses, be zero-rated and commercial and industrial units to be standard-rated.
Zero-rated means builders can claim back the input tax; hence, they don’t have to pass on the increase to house buyers, while for standard-rated, GST is collected by the businesses and paid to the government. If their input tax is bigger than their output tax, they can recover the difference.
“The reality is that tax-exempt goods are only exempted from GST at the point of sale, that is when houses are sold by the developers. The goods and services that are used by the developers in the making of these tax-exempt goods are not exempted from GST.
“For example, building materials such as cement, steel bars, sand, bricks, wood, ceramic and roofing tiles are not tax-exempt and developers will either have to absorb the cost or raise house prices. The government is also proposing that land owners should start charging developers the GST as construction cost service.
“All these will add to our current construction cost, which is around 55 per cent. With the GST, our margins will be tighter and house prices will continue to rise. We can expect a more than three per cent increase in house prices next year.”
Ng said, with the rise in land prices and higher cost of construction, it would be quite difficult to get affordable homes below RM400,000, especially in prime areas in the Klang Valley, Penang and Johor.
Meanwhile, according to Yang, the impact of GST on cash flow for building material suppliers will be more severe.
“In our business, we provide credit facilities ranging from 30 to 90 days. But under the GST, we have to pay the tax under 21 days, even though we have not collected the money from our buyers. If we don’t pay within 21 days, there will be a penalty of RM50,000, among others. The government has to be realistic and not impose such a ruling,” Yang said.
Lai of MBAM said contractors have estimated a four per cent rise in cost.
“The four per cent increase in construction cost coupled with the six per cent GST on other goods and services would eventually lead to higher overall cost of doing business,” he said.
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