Saturday 16 November 2013

DBKL’s 200% assessment hike is not right

The latest angst among property-owners in Kuala Lumpur is Dewan Bandaraya (DBKL)’s proposed sharp increase in property assessment taxes.

The proposed assessment tax increases – by between 100% and 250% according to various reports – is the latest measure to hit the property sector and comes on the heels of higher real property gains tax and other measures announced in the recent Budget.

With the rising cost of living in Kuala Lumpur and an increasingly squeezed middle-class, this adds further to the burden of the public. For those renting properties, be prepared to pay higher rents as landlords pass these additional costs down.

The authorities have justified the hike in assessment rates on the rise in property prices. But that should not be the reason for such a hefty rise.

Property prices in Kuala Lumpur are already high and out of reach for many today. That is why the government is trying to create more affordable housing under PR1MA and various schemes, and had imposed the property cooling measures to reduce speculation and prices.

Raising the assessment tax will have the opposite effect.

Let me argue why the reasons for raising assessment rates are flawed.

While the amount of assessment taxes is tied to the value of real estate, I believe the rate it increases should not be tied to an appreciation of property values. It should, instead, be linked to the costs DBKL incurs in providing its services.

As a municipality, DBKL should aim to balance its own budget and manage its costs. It must generate enough revenue to cover the costs of providing services to Kuala Lumpur residents.

And in doing so, it must be able to provide essential services efficiently and at the lowest costs possible. There must be little or no room for corruption, inefficiency and wastages. This must be the overriding priority.
In other words, the impetus for any rate hike should be the costs to cover DBKL’s spending, rather than just because property prices have increased.  
With this in mind, let us look at DBKL’s finances.

DBKL’s annual reports are not posted on its website. What we do have are the annual budget speeches by the mayor, from which we can glean some financial information.

For 2013, DBKL has budgeted total expenditure of RM2.19 billion, up 15.3% from RM1.9 billion in 2012. Of this amount, RM1.406 billion is for management or operating expenses while the remaining RM782.6 million is for development expenditure.  

For management expenses, the three biggest cost items are emoluments (RM386.7 million), overtime payments (RM55.4 million) and supplies and services (RM908.7 million).

On the revenue side, DBKL expects total revenue of RM1.62 billion in 2013, up 11.1% from RM1.46 billion in 2012. It should be noted that DBKL’s spending growth is outpacing revenue.

Of this amount, RM880.8 million or 54% will come from assessment taxes, an 8.6% increase over the RM810.5 million achieved in 2012. Other major revenue sources include payments of building control (RM270 million), housing rental and service charges (RM71.3 million) and licencing (RM53.9 million).

With revenues at RM1.62 billion and expenditure at RM2.18 billion, does this then imply a deficit of some RM560 million that DBKL needs to address?

This is not the case, as revenue already covers management or operating costs. In fact there is an operating surplus of over RM200 million, which is used to partly fund development expenditure.

Development expenditure, on the other hand, is largely funded by the federal government and leftover operating surpluses, as it has been for a very long time.

For 2013, DBKL expects to receive RM414.7 million in federal government funding. This will be in the form of RM300.5 million under the federal government’s allocation for the 10thMalaysia Plan and RM114.2 million from various government grants.
Of course, one could argue that since DBKL operates with a deficit, it should raise assessment taxes and other forms of revenue to balance the overall budget.
This should not be the case.

This is because apart from assessment and other municipal taxes, residents of Kuala Lumpur also pay hefty corporate and personal income taxes to the federal coffers. These taxes are used by the federal government for development and operating expenditure for the whole country. The federal development expenditure is apportioned to the various states, municipalities and ministries.

In other words, the development budget of DBKL is funded by the development budget of the country for which residents of Kuala Lumpur already pay corporate and personal income taxes.

In conclusion, higher property prices alone should not be the reason to raise assessment taxes. I believe as long as DBKL’s operating costs are adequately covered by revenue, there should be no reason to increase assessment taxes, certainly not in the quantum that has been proposed.

Just as the federal government is reigning in on spending, DBKL and other municipalities should also do the same, and ensure the taxes we pay are spent transparently and responsibly.   

It is not right to keep going back to the people for more money.


  1. Mr. Tong, now u r talking..:) Agreed with u. The ruling federal regime in Malaysia will slaughter the rakyat and take away every single cent from them while they are still in power. Have a good weekend....

  2. Sadly, that's how many end-up creating big crisis on the edge of today's economy. Too much to bare for making people suffer to live in KL.

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  4. On the contrary, I think this is a move that makes a lot of sense. Not only should assessment be increased, they should introduce an additional "vacant property tax" to discourage speculators from hoarding properties that will end up vacant while the property changes hand from one flipper to the other...:)

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  6. Is there anyway to go against the wind on this? Any strategies to protest or not pay (what they are asking for) and actually and practically push back the implementation of such exploitative assessment act?

  7. A increase of less than 30% to over 300% for the lowest to highest end priced properties, seems fairer to me.

  8. The Minister and Mayor thinks KL people are fools. Where is the justification for this unheard of 200%+ spike in property taxes?

  9. Anyone can create a deficit with just the stroke of a pen. It is so easy to spend and spend like there is no tomorrow. But if the ratepayers do not even have the right to know how they are spending , what justification can the spender rely on ? If it is one sided, i spend with no questions asked (allowed) , when will the systems of check and balances be ever implemented....... it is just too irresponsible for them to spend so much that no amount of revenue can cover. They want a bottomless pit scenario ?? If it is fair, rakyat pay so as to afford them to run kl neatly and safe. But if it is not fair ( audited and declared transparently ), WHO is so stupid to agree to pay such exorbitant increases. Has it even occurred to the rakyat that one"s original home of say rm 100k is now priced at rm500k , may be a case of our ringgit GOING DOWN 50 percent. ( not always the other populist approach of mouthing our property has gone up 500 percent )

  10. Linking assessment rates to current market value is akin to real property gains tax ... no, it's worse because rpgt is for actual profit realised ... here it's for unrealised gains in "market value". Think about the folks who only have the house they live in ... have they gained anything from the rise in current market value? Nothing. Only paper gain that one can drool over. I agree with you that assessment rates ought not be raised because market values have risen ... that gain is already well taken care of by RPGT which is on the equitable basis of realised gains.

    For those with investment / rental properties, they'll simply pass on the increase to tenants ... ie inflation