Thursday, December 25, 2014

6% levy is looming on the horizon

Saturday, 20 December 2014

JMBs and MCs are non-profit driven and exist to act as a body for stratified building owners.
JMBs and MCs are non-profit driven and exist to act as a body for stratified building owners.
 
THERE have been recent public outcry and protests against the imposition of the goods and services tax (GST) on the maintenance charges and sinking fund for all stratified developments in Malaysia save for low- and medium-cost stratified development areas which were recently “exempted” from GST under the gazetted GST Exempt Supply Order dated Oct 13, 2014.
Do they not know that to grant “exemption status” is a misfortune? Do they not know the repercussion? It literally means that there would be no relief to the lower income group, despite their residential developments being listed under the “exempt supply list”. The Government thinks that it has relieved those living in low- and low-medium cost stratified units and therefore the owners should be happy. But the reality is they are now forced to increase their maintenance collection by 6% because they have to pay higher bills to their service providers, contractors, suppliers and utilities, among others, for the maintenance and management of the common property.
They cannot run from GST charges from their service providers, contractors, suppliers and utilities in terms of GST input tax, which is not claimable from the Royal Malaysian Customs Department, whereas under the “zero-rated” supply, the input tax charged by the service providers is claimable. Instead of helping to ease the burden of the lower income group, the Government has unwittingly made them the victims in the implementation of GST.
As there is great confusion on the ground among the public, lawmakers, politicians and the media, we would like to clear up the confusion for the benefit of public, particularly strata parcel owners so that they can have a better understanding of the impact of GST on stratified developments.
Strata concept
Call it by whatever name, Joint Management Body (JMB), Management Corporation (MC), Residents’ Association (RA), they are all basically a community association of property owners looking out for their best interest. In the first two, it is a requirement by law for strata titled properties under the Strata Titles Act, 1985 and the new Building and Common Property (Management and Maintenance) Act, 2007 (BCP) where a body corporate is formed, whereas Residents’ Association is a voluntary organisation registered as a society.
The JMB and MC maintain, upkeep, refurbish, upgrade and safeguard their own common properties including common facilities in a stratified development through the contributions by parcel owners. In essence, it is the parcel owners who through their own monies pay for the upkeep and have a say in how their homes and investments are to be managed and maintained.
Very often, only a small percentage of owners in condominiums or other types of strata titled development (whether vertical or horizontal) are interested in how their properties are managed. Although these are voluntary positions, it has to be taken seriously because it involves people and their investments. Owners’ corporations are headed by volunteers who are fellow owners elected at an AGM to serve the other owners. They take the office bearers designation of chairman, treasurer, secretary and committee members. This is a form of “common-interest governance”. If you own a property with common property, you automatically become a member, like it or not. That’s strata living for you.
JMBs and MCs are not in the business of ‘doing business’
Under Sections 3(1) and 3(2) of the Goods And Services Tax Act 2014 (Act 762), JMBs, MCs and RAs are deemed to be carrying on a business, whether or not it is for pecuniary profit; and are therefore, unwittingly classified by the Royal Malaysian Customs Department as GST standard rated tax supply entities. An excerpt of the said section is as follows:
Meaning of “business”
Sect 3 (1) In this Act, “business” includes any trade, commerce, profession, vocations or any other similar activity, whether or not it is for a pecuniary profit.
(2) Without prejudice to the generality of any other provision in this Act, the following are deemed to be the carrying on of a business: (a) the provision by a club, association, society, management corporation, joint management body or organisation (for a subscription or other consideration) of the facilities or benefits available to its members or parcel proprietors as the case may be.
However, in reality, there is absolutely no “carrying on” of business for pecuniary profit whatsoever by the JMBs and MCs in the maintenance, upkeep, refurbishment and safeguarding of their common properties in a stratified development area.
These entities are non-profit driven and exist to act as a body of owners who “self-manage” their own community. The owners pay maintenance charges and sinking fund not because they want to but they have to. No one is profiteering from the maintenance charges and no one is gaining money from it. How can the imposition of GST be regarded as a consumption tax when it is not even a choice? Do they not know that JMBs, MCs and RAs are exempted from paying income tax? Then, logically no income tax, no GST.
High defaulters’ rate/GST penalties
In any strata property, there will always be defaulters and insufficient collection of maintenance fees will affect the wellbeing, harmony of its people and financial health of the JMB and MC, eg. medium-cost apartments where the collection rate is only 40%-60%.
The issue is that GST needs to be paid on total billing and not actual receipts or collections. How will the JMB and MC be able to make ends meet?
Must the JMB and MC now guise up two sets of billings like some dishonest corporation which has bogus accounting?
Even for the late filing of GST, the penalty is a fine up to RM50,000, and imprisonment of up to three years, or both. That’s a liability to a committee member. If that is the case, who wants to serve in a voluntary position when our Government is trying to inculcate the spirit of volunteerism? Then, you also have penalties, fines and prosecution for delays, incorrect returns, mistakes or negligence in GST filing and records.
Zero engagement, public relations exercise non-existent
There was practically no public engagement, consultation or attempt to seek feedback from the stakeholders who know best on management and maintenance of stratified properties. This simple routine exercise of imposing GST has turned controversial due to lack of apparent justification, given the magnitude of the increase and scarcity of explanation. There is a lack of thought that went through this GST for stratified properties.
If such a simple task of imposing GST cannot be carried out diligently and in a responsible manner, we must continue to be apprehensive whether its collection will be properly handled.
Know the differences between GST Standard Rated Tax Supply entity and GST Exempt Supply entity:
Standard Rated Tax Supply JMB/MC (Net effect: GST = 6% charges)
1) Maintenance charges are mandatorily increased by 6% in the form of GST Output Tax that is allowed to be set off with paid GST Input Tax in the expenditure for the maintenance and management of common property in the stratified development area.
2) Need to register as GST Tax Supply Entity.
3) Additional costs for GST compliance software and hardware.
4) Recurrent additional cost for manpower to file GST with maintenance of proper records.
5) Exposure to penalties, fines and prosecution for delays, mistakes or negligence in GST filing and records.
GST Exempt Tax Supply JMB/MC (Net effect: GST = 6% charges)
1) Maintenance charges need to be increased by 6% in order to meet increase in expenditure due to GST Input Tax in the expenditure for the maintenance and management of common property in the stratified development area.
2) No need to register as GST Tax Supply Entity.
3) Free from liabilities of item (3), (4) & (5) above.
Zero rated-tax supply
The National House Buyers Association (HBA), the Association of Valuers, Property Managers, Estate Agents & Property Consultants in the Private Sector Malaysia (PEPS), the Royal Institution of Surveyors Malaysia (RISM) and the Malaysian Institute of Professional Property Managers (MIPPM), recently organised a press conference on the subject of GST and had on Dec 1, 2014 submitted a petition to our Prime Minister and in his capacity as the Finance Minister titled: “The Petitions by HBA, PEPS, RISM and MIPPM and the Clarifications as to the Levy of GST on Stratified Development Areas”.
Conclusion
We urge the Government to grant the “zero-rated status” to all JMBs and MCs as well as RAs. We then can say that Malaysia builds first-class buildings and also has money to offer first-class maintenance, instead of first-class buildings and third-class maintenance.
Footnote:
Readers may wish to upload more details of HBA, RISM, PEPS & MIPPM – Petition and the 23 slides presentation titled: “Clarification on the Impact of GST on Stratified Development Areas” from any of our websites.
Chang Kim Loong is the honorary secretary-general of the National House Buyers Association (HBA): www.hba.org.my, a non-profit, non-governmental organisation (NGO) manned by volunteers. This write-up is also contributed by Wong Kok Soo, advisor to PEPS.

Is it the developer, the contractor, the local council or the house-owner?

Saturday, 15 November 2014
Who is responsible for slope management? Does the responsibility come with the property bought by the purchaser?
 
THE collapse of a slope deep in the jungle does not concern house-owners, nor do landslides along our highways or roads. They just cause a bit of inconvenience to road users.
The Government deploys men, machinery and money to get the road cleared as quickly as possible so traffic can flow again.
It is different with the slope, which is (usually) at the back of a house. The house-owner did not build it. It came when he bought the house, designed by the developer with the approval of the local council. Because it is in his compound – or because he will be affected by it in the event of a collapse – the house-owner is responsible.
But in reality, is it as simple as that? It is more than a matter of money, it may also involve lives.
The Construction Industry Development Board (CIDB) in collaboration with the Urban Wellbeing, Housing and Local Government Ministry organised a seminar some months ago. Tan Sri Ramon Navaratnam, adviser to SlopeWatch, a community-based organisation, highlighted his personal and distressing experience with the slope in his house compound. He needed to have it repaired and he was driven from pillar to post by government officers, the contractor was dilatory and the cost was high.
But who is responsible?
House-purchaser dilemma
When a house-purchaser takes his house from the developer, the latter does not certify that the slope is safe in terms of design, and “as built”, except that it is understood to have been approved.
Victim: “It had been built at the bottom of a nearly-vertical slope formed by excising the toe of a hill. Though he had no need for it, the developer would not sell the house without a part of the bottom of the slope; not only did it add to the cost of the house, it made him responsible for the upkeep of the slope.
As expected the slope collapsed, not once but twice. You see the rubble-wall collapsed with the soil when the pressure became too strong. This time, a strong wall was built together with weep holes to remove rain water that seeped into the soil so that it did not become too heavy. It held up for us but the same slope running into the neighbour’s side, collapsed.
“Are they lucky compared with the buyers of houses built on top of Bukit Setiawangsa, while they were at the bottom of the slope? The developer had apparently removed the earth from it to form the bed of the highway, the Duta-Ulu Kelang Expressway (Duke). With the entire slope removed, the houses are perched precariously at the top, as the cliché goes, like a disaster waiting to happen.
So who is responsible? Is it the developer? Where will he be after six years or if available, will he argue that the purchaser bought the house fully aware of the risks? What are the rights of a subsequent owner? Does he has any recourse against the first owner? What about the local council and professionals who approved the slope – which to an untrained eye – seems to be an unsafe construction?”
House-owners are not only innocent victims of a developer’s recklessness or the developer’s appointed professionals, be it an architect or engineer.
They may also be liable through no fault of theirs because of the way developers have disturbed the lie of the land and left it in an unsafe state for the house–owner to take care of it.
The most enduring memory is the Highland Towers episode about 20 years ago, of which there is still no satisfactory closure. The disaster should have been a wake-up call on the process of approvals and accountability.
Only a draughtsman was convicted for the design of the drainage which caused water to flow un-channelled into the ground under the condominiums causing it to turn into mud which, of course, flowed against the piles causing them to move and knocking the building off its supports. The Ampang Municipal Council (MPAJ), which approved the diversion of the drainage, was excused because of the statutory immunity it enjoyed under the law.
So, should it be more careful and conscientious? Have we not learned the right lessons from it?
There are many questions for which there are no answers.
Slope management – overcoming challenges
The question with regard to slope management brings to mind a slope management seminar held earlier this year which attracted about 400 participants. The speakers held top posts in the Public Works Department, Urban WellBeing, Housing and Local Government Ministry, SlopeWatch, head of hillslope development in MPAJ and geotechnical engineer Datuk Dr Gue See Sew. Participants attentively asked the panelists pertinent questions.
As we forge ahead, we ask ourselves, have we done enough? If not, what can we do more? What are some of the issues and challenges we are facing as residents, owners, consultants, planners, financiers and enforcers of the guidelines, managers of slopes and public safety?
And whose responsibility is it anyway? There were proposals, suggestions and recommendations for an action plan that will be adopted for its intended implementation. Some were for immediate application, while some were medium and long term in nature. Unanimous resolutions were made at the end of the seminar.
Resolutions
Some of the pertinent resolutions were:
> Improve and simplify the current guidelines on hill-site development with safety enhancement.
> Increase awareness of contractors on good slope construction practices
> Strengthen the enforcement of authorities to penalise errant slope owners
> Review the planning policies and determine the height and density of buildings to blend with the environment
> To immediately do an inventory and to gazette all remaining hill-slopes, including those that are still on state land under the Land Conservation Act, National Land Code and the Town and Country Planning Act.
> Review slope-related designs not only confined within the boundaries of the project, but within the surrounding areas.
> Make it compulsory under the law for a geotechnical accredited checker, as an independent checker, to check and verify that slope design and construction are safe and done to the best engineering practices.
> Major earthworks and slope strengthening need to be done first before construction of any buildings and structures in the development takes place
> Local authorities to collaborate with community monitoring groups (to be the eyes and ears)
> To make it compulsory for slope owners to appoint professional engineers to inspect slopes on a regular basis on high-risk slopes and to rectify any defects for slopes of certain categories
> New engineered slopes to have a maintenance schedule and manual, including drainage systems. Old slopes, in particular, should be under a maintenance programme by the local authorities
> Introduce a fund to cover long-term infrastructure maintenance of certain slopes that require high maintenance and are handed over to local authorities
But the most important of them is to set up a centralised body to support the 154 local authorities on new hillside developments. It should be modelled after the geotechnical engineering office in Hong Kong.
The Government and public will be hearing more of this proposed “centralised body” in due course from the Expert Standing Committee on Slope Safety initiated under CIDB.
Chang Kim Loong is the honorary secretary-general of the National House Buyers Association.