Goods and Service Tax (GST) is likely to be implemented in Malaysia in April 2015. Implementation of GST in lieu of Sales Tax, will cause the home and property prices to increase invariably.
The only similarity between GST and the present Sales Tax scheme is that, in both the cases a consumer is exempted from paying taxes on purchase of a residential property. Under GST, residential properties fall under the “Exempt Rated” category.
The tax rate levied on services (E.g. engineers, contractors) and building materials used for the construction of the final product differ between GST and Sales Tax schemes. Hence, it’s the developers who will incur additional tax cost during procurement of their goods.
According to the Sales Tax Act of 1972, basic construction materials such as cement, bricks, and floor tiles come under First Schedule Goods, in which all the goods in this list are not be subjected to sales tax.
Whereas, other building materials are categorized as Second Schedule Goods, all the goods in this list are only charged sales tax of 5%.
Sales Tax VS GST for Residential Properties – The Differences
After the new GST implementation, all materials and inputs will be subjected to GST with a standard rate of 6%. This will inevitably raise the production cost for property builders.
Although, developers will not charge home buyers for GST, however, they may recover their surplus expenditure by means of sale price.
Post GST implementation, it’s estimated that there can be an increase of approximately 3.41% for new residential properties. But there is an added bonus to this; residential properties may experience a lower overall tax strain as compared to commercial properties that are Standard-Rated (Sales Price + GST). Due to this there is a hope that builders may try to curb only some and not all of their increased tax expenditure into the final retail price.
The drawback to this may be that the increased value of new commercial properties, would inflate the prices for new residential homes. Consequently, this will have a minor effect on prices of the secondary house market.
This in-depth knowledge will help you decide the right time for the purchase of your dream home.
