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Article contributed by Chee Kong Chi, Malacca Bar

On 1st of April 2007 – no prank intended - the former Prime Minister Abdullah Badawi announced the full exemption of the sliding 30% to 5% RPGT. The headlines trumpeted  “No RPGT” rule and builders, property agents, property owners and foreign investors celebrated. To quote the former Prime Minister, “this is an incentive to drive the property market …” 

Fast forward to Oct 2009, a mere 18 months later, our Prime Minister cum Finance Minister in his Budget 2010 speech proposed a fixed rate of 5% on gains from the disposal of real property irrespective of the holding period. Looks like those who relied on the representation of the former Prime Minister and purchased properties after 1st April 2007 were fooled.

In fact there was a big dose of skepticism amongst foreign investors when the “No RPGT” rule was announced in 2007. This tweak from 0% to 5% - while it may be small in absolute term - in psychological term is like a chill down the spine of the skittish property investors in the Malaysian market. They just don’t get it, do they? In the investment world, the investors hate changes because it engenders uncertainty. They are prepared if they don't earn a return on their investment but they want to have a safe and enjoyable ride, not to be taken for a ride.

The budget planners seem to have lost their way too. The RPGT Act 1976 was introduced as an anti-speculation and not a revenue-raising legislation. If the intention is to curb speculation, then it begs the question: where is the speculation in the abyss of a recession. A recent launch of a condominium project a stone's throw away from the Twin Towers in KL, at an average price of RM1,100 per square feet, only received lukewarm response. I was there to snoop around but made a mistake of leaving my name and mobile number. The annoying follow-up calls kept coming. This is hardly a property market frothing in speculation. On the other hand, if the intention of this 5% RPGT proposal is to raise revenue, then it’s rather dumb because statistics have shown that more revenue can be collected through stamp duty, registration fee and etc on transfers in a buoyant property market. Furthermore to impose a flat rate of 5% is dumber because to the rich the value of a RM50,000 gain is less but to the poor the value is more. This is the philosophy underpinning the progressive taxation of Income Tax - tax the rich more than the poor.

So, what’s the truth here? Is it revenue raising or anti-speculation? It seems the Treasury boys are attempting to defy the 2nd Law of Logic - The law of Non-Contradiction, that is:  No statement can be both true and false at the same time. I am scratching my head. Maybe you guys can figure out what they were thinking.

At the ground zero, a retiree bemoaned, “I purchased my house 36 years ago and am now thinking of disposing it because my ailing wife, who is need of medical care, wants to downsize to a 2-bedroom apartment. Many years ago I had already claimed the once-in-a-lifetime exemption of a gain from the disposal of my first house. I have only bought two houses in my lifetime. Based on the new proposal of 5% RPGT I have to pay an estimated sum of RM15,000. In my twilight years, with no income, through no fault of mine, I now have to pay this extortionate sum in RPGT regardless of the fact that I have owned this house for the last 36 years. Dear Prime Minister, this is: Unfair. Unethical. Unconscionable.”  

It’s unfortunate that the high priests in the Treasury have forgotten the maxims of taxation expounded by one of the greatest classical economists of all times – Adam Smith. In his magnum opus “ The Wealth of Nations” the entire philosophy of taxation hangs on this holy trinity: EQUITY, CERTAINTY AND SIMPLICITY.