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Intermediate Taxation
Bachelor in Accountancy
STUDENT ID BAC17090003
Examine its impact toward Malaysia property developer and investor. Discuss the effect
of choosing flat interest rate and reducing balance rate for property financing as an
Answer:
Real property gain tax is defined in Tax Brochure 2017 LHDMN-R/013/17: Real
Property Gains Tax (RPGT) as Real Property Gains Tax (RPGT) is charged on gains arising
from the disposal or sale of real properties or shares in Real Property Companies (RPC).
On the other hand, Real Property Gains Tax (RPGT) Act 1976 Section 2 defined real
property means any land situated in Malaysia and any interest, option or other right in or over
(a) gain other than gain or profit chargeable with or exempted from income tax under
(b) in the case of a unit trust, gain not treated as income under the income tax law;
(a) the surface of the earth and all substances forming that surface;
(d) standing timber, trees, crops and other vegetation growing on land; and
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While tax is further defined as the tax imposed by Real Property Gains Tax (RPGT) Act
1976.
(b) loan stock and debentures issued by a company or any other corporate body,
wherever incorporated;
(c) a member’s interest in a company not limited by shares whether or not it has a
share capital;
(d) any option or other right in, over or relating to shares as defined in paragraphs (a)
to (c)
Real Property Gains Tax (RPGT) is a tax chargeable on the profit gained up from the
disposal of a property in Malaysia and is payable to the Inland Revenue Board. All things
considered, RPGT is only applicable to a seller. It was suspended briefly from year 2008 to
year 2009, and reintroduced in year 2010. In 2014, RPGT has increased for the fifth straight
year since 2009 to 2014 In view of the Real Property Gains Tax Act 1976, RPGT is a tax on
chargeable gains got from disposal of property. A chargeable gain is the difference between
when the purchased price exceeds the disposal cost of the property. RPGT applies to both
residents and non-residents. Certain incidental costs of the acquisition of the property and
disposal of the property are entitled to deduction by the RPGT Act 1976.So you will only be
tax on the disposal cost less the purchased priced less the incidental charges which equal to
positive net capital gains. Example of incidental charges is, stamp duties, legal fees,
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A waiver on the taxable amount is allowed to individuals people but not granted on
organizations. Once in a lifetime exemption are entitled for every disposer or seller.
However, this exemption is only applicable for the disposal of a "private residence". The
RPGT Act 1976 defines a private residence as a building or part of a building in Malaysia
owned by an individual and occupied or certified fit for occupation as a place of residence.
As such, commercial property is not applied to gain exemption. In order to apply for an
exemption, the applicant must show that the private residence is owned and occupied by an
individual and the certificate of fitness for occupation or the Certificate of Completion &
Compliance has been issued for that private residence. It must be noted this exemption only
applies to individuals. It does not apply if a company owned the private residence. A
However, it is a bit different for a seller to disposed or sale a property held under the
estate of the deceased to a purchaser or buyer. In this instance, the date of the deceased is the
date on which the Inland Revenue Board will take into account to determine the acquisition
date. In other words, if the disposal of the property is made within 5 years from the date of
death of the deceased, there is RPGT payable even though the property has been owned for
because RPGT Act 1976 provides for full exemption from having to pay RPGT in the case of
transfer of property between family members by way of love and affection if the transfer
between husband and wife or the transfer between parent and child or transfer between
grandparent and grandchild. Apart from the aforementioned transfers, any forms of transfer
between family members are not entitled to apply for exemption, such as transfer between
siblings. In these instances, the transferor is deemed to have received no gain and suffered no
loss and the transferee is deemed to have acquired the property at an acquisition price equal
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to the acquisition price paid by the transferor together with any permitted expenses incurred
by the transferor.
RPGT is only chargeable if there is a profit picked up from the disposal of the
property, then the RPGT become chargeable. All things considered, there is no profit picked
up if the transfer cost is lower than the obtaining cost, and in this manner, RPGT is not
payable. Moreover, if the acquisition price is equivalent to the disposal cost, there is neither
an allowable loss nor a chargeable gain. In that capacity, no RPGT is payable. As endorsed
by law,3% of the purchased price from the deposit are required to be hold by the purchaser’s
solicitors and transmit the same to the Inland Revenue Board within sixty (60) days from the
date of the deal of sale and purchase agreement to meet the RPGT payable. Any payment
after sixty (60) days will cause penalty payable by the seller. The penalty is 10% of the
amount payable as RPGT. The seller has to pay the RPGT plus the penalty.
In situations where the permission of the State Authority is needed to sell the property
to a buyer as well as charge the property to a financial institution, or a court order for sale is
required to disposed the property, settlement of the 3% of the purchase price might be
deferred until the point when such consent or court order available to sale the property is
acquired.
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The effective RPGT rates are as follows:
The seller may opt to file the necessary forms with the Inland Revenue Board by
seeking assistance from the solicitors at a fee prescribed by the Solicitors Remuneration
Order 2006 or file the necessary form with the Inland Revenue Board individually.
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2. Impact of RPGT on Malaysia Property Investor and Investor
The highest of RPGT rates in Malaysia is since the year 2014, with tax on the first 3
years standing at 30%, the fourth year at 20% and the fifth year at 15%. Prior to that, between
the years 1995 to 1997 is the only other time that the RPGT rates were almost as high, which
was then followed by an abolishment of RPGT between the years 2008 and 2009. The RPGT
was then gradually increased again year-on-year starting from the year 2010 until it reached
Unfortunately for many Malaysia’s property developer, they may have to hold on to
their properties for longer than expected, which will affect those with no holding power.
Those who will be most affected will be those that own more than one investment property
and are not able to settle their monthly mortgage loans. Even as the age group for bankruptcy
cases decrease. This is a time where the number of bankruptcy cases may increase even more
Some sellers or developers may decide to just sold their property at the best price they
can get; even if that means taking a loss in order to avoid bigger losses. After all, it is better
being able to sell at below market price and at the same time reduce your loss than being
labelled as a bankrupt and all the inconveniences that come with it. In a way, there is a
probability that upon more completion of new development the market may all of a sudden
the 'property bubble' that property specialists have been gauging for a very long time now.
The general accord of an addition in RPGT is that it won't hurt genuine purchasers or
investors. This is by large intended to prevent mass purchasing and causing property costs to
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While this situation may not recognizably influence the market, there might be a
deferral in venture launches because of the moderate market sentiments. A case of this can be
seen in Twilight Residences in Section 13 of Petaling Jaya has now been postponed
inconclusively which should have been propelled in the second quarter of 2016.
On the off chance that the property market is to stagnate further after the 2017 budget
announcement, there might have less decisions for property purchasers due to more
Direct proportion to the RPGT charged, as sellers transfer the cost to buyers may
cause price of the subsale rise in guide extent to the RPGT charged. He cost of RPGT may
need to bear by the purchasers who are extremely anticipating owning a home of an
The property developer will be not able sale without assuming a loss when the
development is recently finished because of RPGT if the advancement hasn't crossed the 5-
year mark, consequently they will pass the cost on to the purchaser.
All things considered, extraordinary compared to other parts about a stagnant property
market caused by a rised RPGT are the complimentary gifts and rebates that developers give
out trying to draw in purchasers, investor or buyer. It is amid this period that speculators with
holding power benefit the most, as they can get better deal while bargaining with developers.
Some more extraordinary offerings that designers are putting forth now incorporates
colored themes, for example at The Opus in Kuala Lumpur where the purchaser can pick a
lighter or darker color themes. Different attraction includes semi-furnished units where the
typical unit nowadays come with kitchen cupboards and hood and hob. A portion of the
higher end ones even gloat higher quality sterile product, for example, Roca and Hans Grohe.
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3. Effect Choosing Flat Interest Rate and Reducing Balance Rate for Property
Financing as an Investment.
There are pros and cons in choosing method for property financing for investment.
There are primarily two methods in applying for loan for property financing as an investment.
The methods are flat interest rate method and reducing balance rate.
In the most straightforward of terms, Flat Interest Rate is the kind of interest that will
remain the same on the principal loan amount, all through the loan tenure. This implies
whatever interest rate that you're charged at the time you take out the loan will remain
(Original Loan Amount x Number Of Years x Interest Rate Per Annum) ÷ Number Of
For example, you’re taking out a personal loan of RM50,000 with a flat rate interest of 7%
over 5 years.
Now, do note that this is just the interest per instalment, no matter how much you
have paid down on your principal loan amount. Logically speaking, your monthly instalment
from your loan amount of RM50,000 should be RM834 per month (RM50,000 ÷ 60 months).
Combining both of them (RM833 + RM292), you’ll be paying RM1,125 per month for your
loan repayment over the period of 60 months (5 years). At the end of your loan tenure, you
would end up paying 35% interest, which rounds up your repayment amount to RM67,500.
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Reducing Balance Rate are also known as the Diminishing Balance Rate. Reducing
Balance Rate benefits you as in you pay significantly less as your loan tenure passes by,
following the balance of the loan’s principal amount. As shown in the table, despite the fact
that your loan’s monthly payment may continue as before, the sum paid to both interest and
principal loan is distinctive every month on the grounds that the interest charged on the
principal loan amount gets lower every month as you keep on paying down the principal loan
amount.
The total interest paid at the end of your loan tenure will be RM9,404, with the total
repayment being RM59,404. That’s a difference of RM8,096 when you compare it to the Flat
Although more calculations are needed for this type of interest – as you’ll need to
Interest amount per instalment = Interest rate per instalment x Outstanding loan amount
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As a conclusion, Flat Interest Rate are generally used in personal loans and hire
purchase loans. While Reducing Balance Rate are generally used in financial products
especially for housing or mortgage loans, property loan even overdraft facilities and credit
cards and is the preferred option to many compared to the Flat Interest Rate because it only
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References
http://www.agc.gov.my/agcportal/uploads/files/Publications/LOM/EN/Act%2016
9%20-%20diluluskan%20TPPUU%2029_10_2015.pdf
2. Tax Brochure 2017 LHDMN-R/013/17: Real Property Gains Tax (RPGT) (online)
http://lampiran1.hasil.gov.my/pdf/pdfam/13_2017_2.pdf
3. Jo Yan Lim and Mak Ka Wai: Malaysia: Understanding How Real Property Gains
http://www.mondaq.com/x/469010/Understanding+How+Real+Property+Gains+
Tax+RPGT+Applies+To+You+In+Malaysia
(http://www.starproperty.my/index.php/articles/investment/budget-2017-impact-
on-rpgt-malaysia/
https://www.comparehero.my/blog/how-to-calculate-flat-rate-interest-and-
reducing-balance-rate
6. Choong Kwai Fatt: Malaysian Taxation Principles and Practice 2016 Twenty
Second Edition
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