Even if you are familiar with the concepts of a vacancy tax in Malaysia, it is highly possible that you might have heard more about it recently because it is being extensively discussed in the news at the moment. It is associated with the oversupply of properties that have a high cost and are not selling due to their unsuitability.
Property developers and contractors build buildings to make big profits. Now the Malaysian government is proposing the imposition of a vacancy tax on the unsold buildings of these builders.
What is Vacancy Tax?
A vacancy tax is a tax that is imposed in the shape of a penalty on those properties that are left vacant for a certain period of time. The amount of the vacancy tax is calculated on the basis of the percentage of gross selling of such properties.
Importance of Vacancy Tax
The vacancy tax is being formulated by the Housing and Local Government Ministry (KPKT). It is expected to be imposed on developers who fail to sell properties in a few months during the next few years. The purpose of this tax is to minimize the existence of empty residential units in the country.
Moreover, the Ministry is also expecting that the vacancy tax will prompt developers to become more careful and responsible with their projects, especially high-rise and large-scale developments. The introduction of the vacancy tax does not need Parliament’s approval as it can be implemented without amending the Act.
Criticism of Vacancy Tax
The announcement of the vacancy tax has resulted in severe criticism. Some economic experts and leaders of the real estate industry have criticized the authorities because such a tax could discourage investors and developers from developing new structures. In this regard, certain developers have turned to accounting and audit firms in Malaysia to assess the possible taxes they might have to pay if the vacancy tax is successfully imposed on their unsold properties.
The basic demand of the developers is that the owners of these properties should have complete freedom over various matters associated with properties and construction. There are also some serious concerns that the imposition of a vacancy tax will set a precedent of administrative interference in the internal matters of a particular industry like the property industry.
Property and legal experts have also highlighted the fact that the Local Government Act provides tax incentives to vacant properties. On the other hand, a vacancy tax would disturb future projects in Malaysia. It is seen to be an undesirable time for such a move because the country is still recovering from the impacts of COVID-19 on the economy.
Another common criticism of the vacancy tax is that it will negatively impact property markets because they will be forced to reduce the rent in markets where properties are oversupplied. Moreover, it is important to note that monitoring vacant properties all over the country is quite challenging; the implementation of the tax will be difficult.
The Malaysian government has promised to consider all factors before imposing any kind of vacancy. Government authorities will thoroughly study the proposal of imposing a vacancy tax. Moreover, the efficiency of this tax is often defended using the fact that similar taxes are applied in Canada and Australia.
The government has also assured the developers that any such action of imposing a vacancy tax will be taken after discussions with the financial institutions like Finance Ministry, Bank Negara Malaysia and other regulatory authorities. Similarly, Kuala Lumpur City Hall is also considering the demands and complaints of the developers and issuing proper planning approvals for sustainable development in the city.
The proponents of the vacancy tax consider it to be essential because a lot of housing units are taking much more than just a year to fill. As a result, an excess of vacant residential properties is being created.
In a Nutshell
Overall, one could say that the debate about the vacancy tax is far from over. The matter is expected to continually evolve in the next few months as the government has taken up the proposal to study it extensively and assess its feasibility. Depending on the results of such a study, a final decision will be made about whether the vacancy tax is to be imposed on property developers or not. For more information, feel free to get in touch with us.