GST-exempt status for all residential strata units, but groups pushing for zero rating

All categories of residential strata property will be placed under the exempt supply list of the goods and services tax (GST), which means their joint management boards (JMBs) and management committees (MCs) need not register as GST-paying entities, property groups said today.

This recent decision by the Finance Ministry, however, also means that Putrajaya has rejected an appeal to classify maintenance fees and sinking funds paid by low- and medium-cost apartment residents as zero rated.

The reply from the ministry was revealed today at a press conference by property bodies, which had sent a petition to Prime Minister Datuk Seri Najib Razak, who is also the finance minister.

The ministry replied that it could not consider the appeal to be categorised as zero rated because JMBs and MCs of residential strata properties were regarded as entities engaged in conducting a form of business under the GST Act. The ministry, however, said that all categories of residential strata property would be placed under the exempt supply list.
 

Previously, only low- and medium-cost apartments were placed under the exempt supply list.

Being on the exempt supply list means that while JMBs and MCs did not have to register as GST-paying entities, residents cannot claim back the 6% they pay as GST for the services of their contractors, technicians and repairmen for the upkeep of their flats.

But the extension of the exempt supply list classification to all residential strata properties was a positive step and a "foot in the door" in pushing their case further for all types of strata units to be zero rated, said National House Buyers Association (NHBA) honorary secretary Chang Kim Loong.

Prior to this, all joint management boards and management committees of residential strata properties were placed under the standard rated supply list if their annual billing of maintenance and sinking funds exceeded RM500,000.

Being on the standard rated supply list meant that they had to register as GST-paying entities.

Chang said the property bodies were looking forward to a meeting with the ministry, expected to take place soon, to discuss the issues further.

Among these would be the plight of the low- and medium-cost strata unit dwellers who largely comprise of the working and lower-income class already struggling with the rising cost of living.

They would also be asking for all strata units – whether residential or commercial – to be classified under the zero-rated supply list.

This is because under the exempt supply list, although they do not have to register as a GST-paying entity, residents would not get a refund for the 6% input tax they would have to pay their contractors, technicians and repairmen for the upkeep of their projects.

This in effect, would mean that JMBs and MCs would have to increase maintenance charges in these developments by 6% in order to pay suppliers in the form of input tax. Only goods under the zero-rated supply list can claim from the Customs Department the GST incurred through payments to service providers.

Association of Valuers, Property Managers, Estate Agents and Property Consultants in the Private Sector Malaysia (PEPS) adviser Wong Kok Soo said for the government, there was actually no difference between the GST-exempt supply and GST standard-rated supply because in the end, the government would still get to collect the 6% GST.

The only difference was whether this was though output tax or input tax.

PEPS vice president Foo Gee Jen said that while they were happy that all residential strata properties were under the exempt supply list, they were disappointed that the plight of those who needed assistance the most had been ignored.

"Rising cost of living is already putting pressure on low- and medium-income families, and for them, there is no betterment in terms of what the government has offered," he said.

MIPPM president Ishak Ismail said residents of low- and medium-cost apartments formed the bulk of those living in the 15,000 stratified properties in the peninsula adding that they did so because they could not afford to stay in landed homes.