Selangor, Penang tax hike woes

21 Jan 2018 / 20:39 H.

    ONE part of Pakatan Harapan's manifesto covers cost of living and taxes, and points fingers at federal government policy.
    If they are serious about reducing the cost of living and taxes, they should first look at Selangor and Penang.
    On Dec 26, the Selangor Mentri Besar's Office scrambled to respond to my assertion that property-related taxes are the main cause of increase in cost of living in Selangor.
    Datuk Seri Azmin Ali refused to accept my assertion and blamed Putrajaya and the goods and services tax (GST) for the increase.
    In a Facebook post, he said: "Putrajaya has implemented wrong economic policy."
    The mentri besar and his office claim that property taxes do not increase the cost of living in the state and that they recently rolled out initiatives to reduce property taxes by giving assessment-fee exemptions to owners of kampung houses and low-cost houses while charging settlers, who cannot afford to pay land premiums, a nominal fee of RM1,000 for the ownership of residential land.
    However, the initiatives were only rolled out in 2016, whereas the cost of living has increased tremendously in Selangor since Pakatan took over the state government in 2008.
    There was a significant increase in cost of living between 2008 and 2011, years before the implementation of GST.
    Moreover, the initiatives rolled out in 2016 by the state government were focused on rural residents. The MB's Office said several hundred thousand owners of kampung houses were given exemption on assessments.
    But what about urban residents in the cities and towns where over 80% of Selangoreans reside?
    The residents in apartments and urban dwellings have had to pay higher quit rent and assessment taxes since 2008?
    This is where most of the increase in cost of living happens.
    Most Selangor residents live in cities and towns and have been significantly affected by the rapid rise in property prices and rental because of the state government's policy.
    In the recent Selangor budget speech, the MB said that the state government collects an estimated RM2.25 billion in revenue.
    About 77% 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's Office said that property-related taxes have not 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 premiums and re-zoning taxes.
    Since then, there was as much as 400% increase in local government taxes in these states.
    While re-zoning taxes saw steep hikes by as much as 50%, land premiums were increased by as much as 300%.
    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 to 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 to 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 after Pakatan took over.
    In 2015, the state government collected RM414 million in land premium, an increase by more than 20-fold in less than seven years.
    While other states also experienced an increase in cost of living, it was 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 for 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 imposed a 20%-30% 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 to other states like Selangor, and most people who work in Kuala Lumpur live in Selangor.
    Evidently, during the day, the population in Kuala Lumpur is around 3 million but drops to about 1 million after office hours.
    In Shah Alam and Subang in Selangor, the Pakatan government had increased assessment rates 10-fold over several years for dwellings in Kampung Baru Sungai Buloh and Kampung Baru Subang collected by the Shah Alam Municipal Council.
    A case in point, a resident who paid assessment 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 before 2008, 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 by the Pakatan government. These charges add up to the price of houses in Penang and are passed on to buyers.
    The significant increase in property tax revenues collected by the Selangor and Penang state governments come out of the pockets of the people of Selangor and Penang who are taxed 10 to 20 times higher now compared to 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 cost of houses and business premises, and in turn increased the cost of goods and services, and reduced the net disposable income of the people of Selangor and Penang. We need to do something about this.
    >> Isham's next article appears tomorrow.
    Isham Jalil is a Harvard and Wharton-trained political economist. He served nine years in the private sector and another nine years in the government including the Economic Planning Unit, Prime Minister's Department. Comments:

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