GST on Maintenance Fees

Apparently the exemption on GST for maintenance fees is only for low and medium costs apartments. But today's article in the Malaysian Insider says that is not so. Low and medium cost apartment dwellers or their owners will still have to pay GST as a result of the pass on effect from their vendors. Doesn't this bode even worse news for the "normal" and higher end condominiums? Not only will GST be imposed on their maintenance fees but they will also increase their GST as a result of higher costs from their vendors. 

Flat residents have to pay GST for maintenance despite exemption

BY JENNIFER GOMEZ

Published: 11 December 2014

Low- and low-medium-cost apartment residents will still be burdened with higher maintenance costs when the goods and services tax (GST) kicks in, a registered property manager said today.

This is contrary to the tax exempt supply list in which management fees for these apartments is listed.

Association of Valuers, Property Managers, Estate Agents and Property Consultants in the Private Sector, Malaysia (PEPS) advisor Wong Kok Soo said that these residents would still be exposed to GST passed on to them from the services provided by the likes of technicians and repairmen. Only goods and services on the zero-rated supply list can claim from Customs the GST incurred through payments to service providers, known as input tax. 

"So the net effect is (low- and low-medium cost housing) residents will be paying 6% of their maintenance charges to the government as tax," Wong said at a press conference in Petaling Jaya today.

This meant 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 they have relieved those living in low- and low-medium-cost stratified units and therefore they 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 the service providers for maintenance," he said.

National House Buyers Association (HBA) honorary secretary Chang Kim Loong said that the scenario has turned out to be unfortunate for low- and low-medium-cost apartment dwellers.

"There is obviously lack of thought in the planning of GST and some were very ill-advised and didn't understand the entire concept of giving exemptions," he said.

Chang said that HBA, PEPS, the Royal Institution of Surveyors Malaysia (RISM) and the Malaysian Institute of Professional Property Managers (MIPPM) had sent a petition to Prime Minister and Finance Minister Datuk Seri Najib Razak earlier this month pointing out the problems with the low- and low-medium-cost stratified apartments.

These property industry groups want the government to exempt all categories of stratified properties from GST on management fees.

In the petition, they said it was unfair for other categories of stratified developments to be subjected to GST under the standard rated tax supply.

Other than low- and low-medium-cost stratified developments, those living in other categories of strata property would have to pay GST on their maintenance fees.

Under this standard-rated scheme, one can claim refund of GST input tax (imposed by service providers) from Customs.

But Wong said it was unfair to have to pay GST on their maintenance fees as they were contributing their own monies to maintain, upkeep, refurbish, upgrade and safeguard their own common property.

Wong pointed out that the Joint Management Body (JMB) or the Management Corporation (MC) is formed as a voluntary body by owners to maintain and upkeep common property with monies collected from property owners.

He added that the Income Tax Department recognised maintenance collection in strata developments as mutual income and not subject to income tax.

"So why are they subject to GST," he asked.

According to Wong, the GST Act lists JMB and MC as carrying out a business, despite it was not for pecuniary profit.

Wong said the effect of higher maintenance costs would mean that levels of maintenance, especially for the lower category of strata developments, would decline due to lack of funds.

He added that for strata developments, there is always insufficient collection of maintenance fees, giving the example of medium-cost apartments where the collection rate is only 40% to 60%.

However, GST needs to be paid based on 100% billing and not actual collection.

In their petition to the prime minister, the coalition wants all categories of strata properties to be put under the zero-rated list, noting that this would require an amendment to the GST Act, as the law currently states that only essential goods are categorised under zero-rated tax supply. – December 11, 2014.

- See more at: http://www.themalaysianinsider.com/malaysia/article/flat-residents-have-to-pay-gst-for-maintenance-despite-exemption#sthash.TUJNbbsU.dpuf