GST is Part and Parcel of Our Life

Everything we touch seems to be related to taxation. However, not many are fond of taxation but somehow; we have no choice but to acknowledge its importance because the only things certain in life are death and taxes which no one can escape from.

While most of us work hard to increase our wealth and like to accumulate it via investment in properties when opportunities arise, some may have concerns on whether they are wealthy enough in the eyes of the Malaysia Inland Revenue (IRB) to afford properties which are viewed as “big ticket items”. This is especially for those who are pocket rich but who might not have declared their full taxable income to the IRB.

They are therefore not very sure if the IRB will pay them an unexpected visit when they start investing in properties. Hence, I noticed that if a person has yet to fully declare his true income which he has earned, he may choose to keep himself away from the radar of the IRB by being less active in property investment even though he is rich.

Property as an Ideal Investment

Nevertheless, most people including me agree that owning a roof over our heads is one of the most important personal goals life. In addition, putting our extra money in property investment could possibly bring better returns as compared to keeping our hard earned money in cash or placing it with the banks which can only give us a small return ranging from 0.2%-3% per year. Personally, I feel that at the end of the day, investment in properties is still smarter way to preserve and grow our wealth over the long term.

How GST plays an important role

In addition, with the proposed implementation of the Goods and Services Tax (GST) come April 1, 2015, most goods and services including certain properties will be subjected to 6% GST. This will affect the supply of property which will potentially impact the top and bottom line of property developers due to the expected increase in costs. Thus, with the coming GST, many are interested to know why it will affect the property market.

First of all, it is important for us to know that residential properties have been classified as exempt rated supply which means that property developers will not impose the 6% output GST on the sales of residential properties to their customers.

On the other hand, commercial properties are classified as standard rated supply and will affect the 6% GST on sale. Due to the different GST treatments, some people have commented that GST is good for residential property buyers but not for commercial property buyers. What do you think?

Is GST Good for home Buyers?

We need to be mindful that with effect from April 1, 2015, GST will be charged on all types of supply of goods and services in Malaysia (except for goods and services prescribed as zero rated and exempt rated).

In this case, so long as you are doing business in Malaysia and your business sales is more than RM500,000 a year, it is mandatory for you or your business entity to start charging GST of 6% on the supply of goods and services to your customers. However, the GST taxation mechanism allows you to claim back most of the input tax which you have incurred on your business purchases against the output GST which have charged your customers. Based on the proposed treatment mentioned above, it is notable that a purchaser of residential property will not be subject to GST since the supply of residential property will fall under the category of exempt rated supply. It would therefore appear that GST is good for residential property buyers since the purchase price will not have the 6% GST unlike that for commercial properties.

However, residential property developers are not allowed to claim any input tax incurred on their business purchases for the purpose of developing residential properties. As such, the cost of construction for residential property incurred by residential property developers will increase accordingly. Due to that, I envisage that the prices of residential properties come April 1, 2015 may increase as the developer might adjust its selling price to reflect the extra costs due to the unrecovered input GST. As for commercial properties, it is understandable that the supply of commercial properties will rise due to the GST of 6%.

Given the GST outcomes for supply of residential and commercial properties , we can almost be sure that the chances of property prices coming down in the near future should be close to zero. Hence, it may be worthwhile to invest now rather than later, if opportunities permit.

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