Recently, Malaysia’s Budget 2010 has created quite a bit of negative reactions within the public, especially the property people.  What has caused this reaction?

Prior to 1 April 2007, Real Property Gains Tax (RPGT) has been in effect for quite some time already, and during that time, the RPGT rates are as follows:

Duration between Year of disposal and Year of Acquisition RPGT Rates

For Companies

RPGT Rates

For Individuals

2 years and below 30% 30%
3 years 20% 20%
4 years 15% 15%
5 years 5% 5%
Above 5 years 5% 0%

Real Property Gains Tax (RPGT) rates in Malaysia prior to 1st April 2007

In summary, the RPGT during that time was applicable to all companies that disposed their properties, regardless of the duration of ownership.  As for individuals, there will be no RPGT is disposed after owning more than 5 years.

Due to the weak economy in 2006 and 2007, the government announced exemption of RPGT across the board, meaning for companies and individuals, and ignored the ownership period.  Exemption means “ignoring” the RPGT Act, not removing the Act.  All Malaysian citizens and companies lauded this move, and supported this exemption because the simple fact is, they benefit.

Now, in Budget 2010, this exemption is lifted.  RPGT will return effective 1 January 2010.  However, the RPGT rates have generally been lowered as followed:

Duration between Year of disposal and Year of Acquisition RPGT Rates

For all categories of owners

RPGT Rates

For Non-Citizen and Non PR Individuals

5 years and below 5% 30%
Above 5 years 5% 5%

Real Property Gains Tax (RPGT) rates in Malaysia starting January 1st, 2009

Companies and Malaysian individuals will share the same RPGT rates, fixed at 5%.  This is the part that caused dissatisfaction among the Malaysian individuals as it becomes more expensive for owners to sell their properties.

Furthermore, it is even harder for property companies to sell their properties as house buyers have slowed down their buying spree, especially those speculative house buyers who have intention to flip their properties.  Their costing have changed.