THE EDGE WEEKLY ISSUE#989
THE WEEK OF NOVEMBER 18 –
NOVEMBER 24, 2013-12-07
MY Say: By TONG KOOI ONG
The latest angst among
property owners in Kuala Lumpur
The proposed increases –
by between 100% to 250%, according to various reports – are the latest to hit
the property sector and come on the heel of a hike in the Real Property Gain
Tax and other measures announced in Budget 2014.
With the rising cost of
living in KL and an increasingly squeezed middle class, this will only add to
the burden of the public. Those renting
property had better be prepared to pay more as their landlords pass the
additional cost on to them.
The authorities have
attributed the hike in assessment tax to the rise in property prices. But that should not be the reason for such
hefty increases.
Properties in KL are
already expensive and out of the reach of many today. That is why the government is trying to build
more affordable housing under PR1MA and various schemes and has imposed cooling
measures to reduce speculation and prices in the property market.
Raising the
assessment tax will have the opposite effect
My argument is that the
reasons given for raising the assessment tax are flawed.
While the amount of
assessment tax is tied to the value of real estate, I believe the increase in
rates should not be tied to an appreciation in 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 budget and manage its costs. It must generate enough revenue to cover the
cost of providing services to KL residents.
And in doing so, it must
be able to provide essential services efficiently and at the lowest cost
possible. There must be little or no
room for corruption, inefficiency and wastage.
This must be the overriding priority.
In other words, the
impetus for any rate hike should be cost to cover DBKL’s spending rather than
increasing property prices.
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 its annual budget speeches by the mayor, from which we can glean some
financial information.
For 2013, DBKL has
budgeted a 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.
Under management
expenses, the three biggest cost items are emoluments (RM386.7 million),
overtime payments (55.4 million) and supplies and services (908.7 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 the RM1.62 billion,
RM880.8 million or 54% will come from assessment tax, and 8.6% increase from
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 licensing
(RM53.9 million).
With revenue at RM1.62
billion and expenditure at RM2.18 billion, this implies a deficit of RM560
million that DBKL needs to address. But
that is not the case. Revenue already
covers management and 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 surplus, as it has been for a very long time.
For 2013, DBKL expects to
receive RM414.7 million from the federal government. This will be in the form of RM300.5 million
from the federal government’s allocation for the 10th Malaysia Plan
and RM114.2 million from various grants.
Of course, one could
argue that since DBKL operates on a deficit, it should raise the assessment tax
and other forms of revenue to balance the overall budget. But this should not be the case because apart
from assessment and other municipal taxes, KL residents 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 KL residents already pay corporate and personal income taxes.
In conclusion, higher
property prices alone should not be the reason to raise the assessment
tax. I believe as long as DBKL’s
operating costs are adequately covered by revenue, there should be no reason to
increase the assessment tax, certainly not in the quantum that has been
proposed.
Just as the federal
government is reining in 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.
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