DBKL assessment - facts, fallacies and the bottom line

THE EDGE WEEKLY ISSUE#995

THE WEEK OF DECEMBER 30, 2013 – JANUARY 5, 2014

MY Say: TONG KOOI ONG

Ever since Dewan Bandaraya Kuala Lumpur (DBKL) announced higher assessment values, there have been many commentaries on the subject with some appearing to be intentionally deceitful.  I have also written fairly extensively on why the assessment values are not justified.

With DBKL now having announced a reduced assessment RATE but sticking to the higher assessment values previously decided, what is the bottom-line effect on you?  In other words, how much more do you pay in actual assessment TAX?

The recent presentation of DBKL’s budget for 2014 has raised even more questions about the whole exercise.

I hope this article will provide further clarity for you.

DBKL’s total expenditure and revenue

The budgeted revenue of RM1.69 billion for 2013 is more than sufficient to meet operating expenditure of RM1.406 billion.  DBKL does not have to raise tax.  Similarly, for 2014 despite a large budgeted increase of 6.7% in operating expenditure to RM1.499 billion.

With the increase in assessment tax, 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 as to why DBKL’s operating expenditure is increasing at such a rapid pace.  It already has the highest operating cost structure among municipalities in Malaysia.

Indeed, DBKL’s budget is in total contrast to that of the federal government.  The latter is already on an austerity drive, recognising 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 10 times that.  Under salary expenses, DBKL expects emoluments to rise 14% from RM387 million to RM441 million while the federal government projects a 3.2% rise.

But for 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’s budget is noteworthy: development expenditure for the whole country is expected to fall 1.3% to RM44.5 billion in 2014.

Why is DBKL is embarking on a spending spree when the federal government is cutting back and the middle class is reeling from the adverse effects of 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 it?

Total assessment tax collection (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 maths does not quite add up.  DBKL has since reduced the assessment rate it charges on assessed values.  If the average assessment rate reduction is 33.33% -- from 6% to 4% for residential properties, which form the bulk of real estate – then the increase in the average assessment value would be roughly 100% or a doubling of 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 below suggests the estimated revised assessment tax collection 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 is transparent.  It should make a list of all Kuala Lumpur properties and their assessment values available online.  Let the people make comparisons to ensure fairness.

The assessment rate

What is the basis for the different percentage of reduction in the assessment rate for various property types and locations?  If the intention is social inclusion to assist lower-income group, it would have been easier to further discount the assessment rate based on income reported in tax returns.  A billionaire who lives in a designated area with low assessment rate pays a low assessment tax even if he has a palatial home.

How does the new assessment rule affect you?

Whether you pay more or less depends on the relative changes to your assessment value and assessment rate as per the formula on the right.  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?

Conclusion

To address the unhappiness of KL residents, we hope DBKL will provide further clarity and transparency on the following questions:

How much more assessment tax will DBKL actually get after the revised assessment value and rates?  The amount stated by DBKL appears understated relative to the scale of the increases most of us will pay.  It that is the case, are some residents getting far lower assessment taxes than others?

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 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.

Failure to be transparent will likely give the impression of possible bias in the way assessment values are determined, leading some residents to feel they are being penalised for their choices.

How will the additional collection be spent?  Taxpayers have the right to demand accountability and responsibility.  DBKL plans big spending under its 2014 budget, but what is it for and is it justified?

Should DBKL be embarking on a spending spree when the whole country, including the federal government, is tightening its belt?  Why are its spending patterns and budget so different from those of the federal government?  As I have written in previous articles on this issue, DBKL is already spending more per person than other municipalities.

Are KL residents expected to pick up DBKL’s bill for development expenditure via higher assessment taxes?  Development expenditure for KL has always been funded by 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.  E

Tong Kooi Ong is executive chairman of The Edge Media Group.  Feedback is welcomed at www.tongkooiong.com