With DBKL having just announced a reduced assessment RATE, and sticking to higher assessment VALUE previously decided, what is the bottomline effect for you? In other words, how much more do you pay in actual assessment TAX?
The presentation of the DBKL Budget for 2014 earlier this week has raised even more questions than answers about the whole exercise. I hope this article will help provide further clarity for you.
A. DBKL's total expenditure and revenue
The 2013 budgeted revenue of RM1.69 billion is already more
than sufficient to meet operating expenditure of RM1.406 billion. DBKL does not
have to raise tax. Similarly for 2014, even with the large budgeted increase of
6.7% to RM1.499 billion for operating expenditure. With the assessment tax increase, DBKL hopes to raise total
revenue for 2014 by 26% from RM1.69 billion to RM2.13 billion. The surplus of
revenue over operating expenditure will widen from RM284 million to RM631
million.
This begs the question: why is DBKL’s operating expenditure increasing at such a rapid rate? It already has the highest operating cost structure among municipalities in Malaysia.
This begs the question: why is DBKL’s operating expenditure increasing at such a rapid rate? It already has the highest operating cost structure among municipalities in Malaysia.
Indeed, DBKL’s Budget is in total contrast with the
Federal Government’s Budget. The Federal government is already on an austerity
drive, recognizing the need to rein in costs to reduce the budget deficit. For
2014, the Federal government is expecting a mere 0.7% increase in total
operating expenditure, while DBKL’s projected growth in spending is nearly ten
times that rate. For salary expenses, DBKL expects emoluments to rise 14% from
RM387 million to RM441 million, while the Federal Government projects a 3.2%
rise.
But far more shocking is the growth in DBKL’s budgeted development expenditure of 65% from RM783 million to RM1.29 billion. What is DBKL planning to spend on? Again the comparison with the Federal Government budget is noteworthy: development expenditure for the whole country is expected to fall 1.3% to RM44.5 billion in 2014. Why is DBKL embarking on a major spending spree while the federal government is on an austerity drive, and the middle classes are reeling from rising costs?
Development expenditure for Kuala Lumpur has always been funded by the Federal Government’s development budget, for which we pay high personal income and corporate taxes. These are used to build roads, schools and infrastructure throughout the country. Kuala Lumpur, despite being the nation’s capital, currently receives less than 1% of the federal budget. Do we now have to pay even more taxes to fund this?
But far more shocking is the growth in DBKL’s budgeted development expenditure of 65% from RM783 million to RM1.29 billion. What is DBKL planning to spend on? Again the comparison with the Federal Government budget is noteworthy: development expenditure for the whole country is expected to fall 1.3% to RM44.5 billion in 2014. Why is DBKL embarking on a major spending spree while the federal government is on an austerity drive, and the middle classes are reeling from rising costs?
Development expenditure for Kuala Lumpur has always been funded by the Federal Government’s development budget, for which we pay high personal income and corporate taxes. These are used to build roads, schools and infrastructure throughout the country. Kuala Lumpur, despite being the nation’s capital, currently receives less than 1% of the federal budget. Do we now have to pay even more taxes to fund this?
B. Total Assessment Tax Collections (Before and After Revision)
DBKL expects the new assessment rates to increase assessment taxes from RM880 million to RM1.193 billion, an increase of RM313 million or 35%.
However, the math does not quite add up. DBKL has since
reduced the assessment rate it charges on assessed values. If the average
assessment rate reduction is 33% -- from 6% to 4% for residential properties which
forms the bulk of real estate – then the average assessment value increase
would be roughly 100%, or a doubling in value.
Yet, many property owners appear to have been assessed by much more,
some by over 300%.
What does this mean? Either the budgeted assessment tax
to be collected is too low, or some properties are assessed with small
increases.
Our rough calculation in the table above suggests estimated
revised assessment tax collections could amount to around RM1,430 million,
based on an average 150% increase in assessed value, or RM237 million more than
what the government expects.
Thus, it is important that DBKL be transparent. It should
make the entire list of Kuala Lumpur properties and their assessed values available
online. Let the people then make comparisons to ensure fairness.
C. The Assessment Rate
Revised Assessment Rate
| |||
Property Type
|
Within 36 miles radius
|
% of reduction
| |
2013
|
2014
| ||
Commercial
|
12%
|
10%
|
16.7
|
Service Apartment
|
10%
|
7%
|
30.0
|
Residential
|
6%
|
4%
|
33.3
|
Low cost flat
|
6%
|
2%
|
67.7
|
Vacant commercial land
|
10%
|
7%
|
30.0
|
Vacant residential land
|
7%
|
5%
|
28.6
|
Kampung Baru, Kampung
|
2%
|
1%
|
50.0
|
Sungai Penchala & Kampung
| |||
Melayu Segambut Dalam
|
What
is the basis for the different percentage of reduction of the
assessment rate for the various property types and locations?
If the intention is social inclusion to assist the lower income group, it would have been easier to give a further discount to the assessment rate base on income reported on tax returns. A billionaire who lives in a designated area with low assessment rate pays low assessment tax even if he has a palatial home.
If the intention is social inclusion to assist the lower income group, it would have been easier to give a further discount to the assessment rate base on income reported on tax returns. A billionaire who lives in a designated area with low assessment rate pays low assessment tax even if he has a palatial home.
D. How does the new assessment rules affect you?
Whether you pay more or less depends on the relative changes to your assessment value and your assessment rate, as per the formula above. In general, most people will pay a higher assessment tax as the rise in assessment value is greater than the fall in assessment rate.
With DBKL getting more, who pays?
Is this pain fairly spread out?
E. Illustrations of the above and its effect based on 3 scenarios on a residential property
F. Conclusion
To address the unhappiness
of Kuala Lumpur residents, we hope DBKL will provide further clarity and
transparency on the following questions :-
a)
How much more assessment tax revenue will
DBKL actually get after the revised assessment value and rates? The amount
stated by DBKL appears understated relative to the scale of increases most of
us will pay. If that is the case, are some residents getting far lower assessment
tax than others?
b)
What is the basis of computing assessment
value? I know it is rental income (implied or actual) but what are the reliable
sources of information or database used? DBKL should make the entire list of
assessment values for all properties in KL available on the Internet. This will
allow every resident the ability to check their assessment value against all
others, in the interest of fairness and transparency.
c) A failure to be transparent would likely give
the impression of possible biases in the way assessment values are determined,
leading some residents to feel they are being penalized for choices they
previously made.
d)
How will the additional collections be spent?
Tax payers have the right to demand accountability and responsibility. DBKL
plans big spending under its 2014 Budget, but what are they for, and are they
justified? Should DBKL be embarking on a spending spree when the whole country
– including the Federal Government -- is tightening the belt? Why are its
spending patterns and budgets so different from the Federal Government’s? As I
have written in previous articles on this issue, DBKL is already spending more
than other municipalities per person.
e) Are Kuala Lumpur residents also now expected
to pick up DBKL’s bill for development expenditure, via the higher assessment
taxes? Development expenditure for Kuala Lumpur has always been funded from the
Federal government’s Development Budget, for which residents are already paying
high personal income and corporate taxes. If so, then it amounts to new
taxation.
The resident of KL shld protest the increase and get lawyers to sue dbkl. This may open up dbkl accounting for scrutiny. For a genuine owner occupied home, the owner does not earn any rental income. Secondly rental income is barely sufficient to cover interest of the bank loan. A more proper way to do valuation is to also factor in the inflation and also the interest rate paid for the bank loan and also the stamp duty that needs to be paid by seller of property, also there is cost incurred in maintaining an old house throughout the period . After factoring this , perhaps the so call gains will be evaporated . Even a small children will know that reducing the rate does not reduce the tax. The crux of the matter is the valuation and how the valuation was done. By simply "revaluing" the property each year , the tax will be more and more , with the first impact of revaluing ages ago prices felt immediately. Also not all property and property type value increases . If its a leasehold in fact the property may be actually decreases. How is this then factored into the valuation of the property? on the point of KL not getting more than 1% of the budget from federal gov , this is obvious due to punishment to voters . At federal level we already paying many taxes on income , etc and this is another duplication . it's like we paying road tax and also toll . It's obvious Msia is in its trouble due to the many fail policies and corruption , wastage of the present administration . While the rakyat is getting squeeze , can I suggest we also reduce the allowances and cost whether it's transport claim or subsidy of the minister and the law makers . Let them also feel the pinch instead of a one sided tax all on the ppl. the ministers shld also have their pay cut or reviewed based on performance , not base on cronyism or their political alignments .
ReplyDeleteHello Ong, thank you for writing this article, I found it eye-opening and answered some of my questions on DBKL assessmentrate hikes. Could I post your article link on my FB? I am sure many more KL-ians would be interested. I will wait for your permission first.
ReplyDeleteYes, you may forward or link this article and all future articles to your FB and etc, whenever you decide to do so. I write to share my views, analysis and opinions which I hope will contribute positively. Thank you.
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