January 9 2018
TWO days ago on Sunday, Pakatan Harapan announced its manifesto for the upcoming general election. One significant part of the manifesto is on the problem of the cost of living and taxes, pointing a finger at the Federal Government policy.
However, if they are serious about tackling the cost of living and taxes issues, perhaps they should have looked in their own backyard first, in the states where they govern, which are Selangor and Penang.
Two weeks earlier, on Dec 26, the day after Christmas, the Selangor Menteri Besar (MB) Office scrambled to find an answer to respond to my assertion that property-related taxes are the main cause of increase in the cost of living in Selangor.
Selangor MB Datuk Seri Azmin Ali refused to accept my assertion above, and like usual blamed Putrajaya and the Goods and Services Tax (GST) for the increase in cost of living. He posted on Facebook: “Putrajaya has implemented the wrong economic policy.”
In their defensive rebuttal, the MB and his office claimed that property taxes did not increase the cost of living in the state, and that they have recently rolled out initiatives to reduce property taxes by giving exemption from assessment fees to village houses and low-cost houses, while charging a nominal fee of RM1,000 for the ownership of residential land for settlers in the state who cannot afford to pay land premium.
However, the above initiatives were only just rolled out in 2016, whereas the cost of living has increased tremendously in Selangor for the last nine years since Pakatan took over the state government in 2008. Significant increase in cost of living happened between 2008 and 2011, years before the implementation of GST. Moreover, the initiatives rolled out in 2016 by the Selangor government were concentrated on rural folks — the MB office mentioned that several hundred thousand village houses were given exemption on assessment taxes.
But, what about the urban folks in the cities and towns where over 80 per cent of Selangoreans reside? The folks in apartments and urban dwellings who have had to pay higher quit rents and assessment taxes since 2008? These are where most of the increase in cost of living happens. The majority of Selangor folks who live in cities and towns have been significantly impacted by the rapid rise in property prices and rental in Selangor because of the state government policy. In the recent Selangor budget speech, the MB said the state government collects an estimated RM2.25 billion in revenue. About 77 per cent of that revenue comes from land premiums, quit rent and business premises-related charges. During Barisan Nasional’s time, the taxes collected from these sources were less than half of that.
The MB Office recently said property-related taxes haven’t gone up in 14 years. If this is true, then where is all this large tax revenue coming from? After taking over from Barisan Nasional, the Pakatan state governments in Selangor and Penang decided to boost the states’ revenue by increasing property-related taxes, including land premium and rezoning taxes. Since then, there was as much as a 400 per cent increase in local government taxes in these states. While rezoning taxes saw steep hikes by as much as 50 per cent, land premiums were increased by as much as 300 per cent.
The Auditor General’s report shows an almost two-fold increase in total collection of land premiums between 2009 and 2010 in Selangor. This upward trend continued in the following five years. In 2015, the Pakatan government collected RM1.7 billion in land premium and quit rent compared with about RM700 million in 2008. This is an increase of about RM1 billion in property-related tax annual collection in Selangor in less than seven years compared with during Barisan Nasional’s time. In Penang, between 2008 and 2009, the collection of land premium almost tripled from RM19 million to RM54 million just within a year of Pakatan taking over. In 2015, the state government collected RM414 million in land premium, a more than twentyfold increase in less than seven years. While other states also experience an increase in cost of living, it is not as significant as in Selangor and Penang. Both states saw the highest increase in cost of living, which corresponded with the increase in property- and land-related taxes in those states since Pakatan took over the state governments in 2008.
In Barisan Nasional states, property-related taxes collected are much lower than those in Penang and Selangor. In 2016, in large states comparable to Selangor, Kedah collected a total of RM262 million in property-related taxes, Perak collected RM385 million, Johor collected RM720 million and Pahang collected RM297 million. In November 2010, the Pakatan state government in Selangor introduced its Development Charge Rules, which imposes a 20 to 30 per cent charge on all property developments, including for housing and commercial property. This has increased the cost and price of new housing projects. In Kuala Lumpur, property taxes are no doubt high too.
However, Kuala Lumpur is a small area compared with other states like Selangor, and most people who work in Kuala Lumpur do not reside and buy homes in Kuala Lumpur, but live in Selangor. Evidently, during the day time, the population in Kuala Lumpur is around three million people, but drops to about one million after office hours. In Shah Alam and Subang in Selangor, the Pakatan government had increased assessment rates tenfold in the past few years in Kampung Baru Sungai Buloh and Kampung Baru Subang, collected by the Shah Alam City Council. A case in point, a resident who paid an assessment rate of RM1,470 in 2011 was asked to pay RM23,040 in 2013.
In Penang, the development charge, which was previously RM5 per sq ft for residential units and RM7 per sq ft for commercial units prior to 2008, has tripled to RM15 per sq ft and RM21 per sq ft, respectively, after 2008. Drainage contribution fee, which was RM10,000 per acre during Barisan Nasional’s time, was increased to RM50,000 per acre now by the Pakatan government. These charges add up to the price of homes in Penang and passed on to home buyers.
The significant increase in property tax revenue collected by the Selangor and Penang state governments come out of the pockets of people of Selangor and Penang, who are taxed 10 to 20 times higher now compared with during Barisan Nasional’s time.
The rise in property-related taxes has created a domino effect on the cost of living in Selangor and Penang. It has increased the prices of homes and business premises, and in turn increased the prices of goods and services, and reduced the net disposable income of the people of Selangor and Penang.
We need to do something about this.