Profit of RM100,000 and paying RM5,000 tax, really that bad?

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The attendees laughed when I asked them this question just a few days ago. I was invited to share my property thoughts in my hometown, Ipoh. Th question, “Assuming you know of an investment opportunity which will allow you to gain RM100,000 profit but you have to give RM5,000 away, will you invest or will you forego the investment altogether?” Of course all of them answered that they will prefer to invest and get RM95,000 net profit instead.

Even if you ask me, I will answer the same. Why would I give up RM95,000 just because I needed to pay RM5,000 out of my RM100,000 profit? The context was about our Real Property Gains Tax (RPGT). These days, even if we sell the property we bought after the end of 5 years, we will still be taxed 5% on the profits from the sale of the property. And this has affected the sentiment tremendously, especially for the first-time buyers. I do not think they really understand the RPGT. Perhaps most of them think that even before they buy, the lose 5%? Hmmm… Anyway, more thoughts on RPGT below.

Article in loanstreet.com.my Some suggestions on how best to tweak the RPGT to make it better. Impose higher RPGT on the third and subsequent property instead. HBA says that majority of Malaysians will only be buying up to 2 properties anyway. One for own stay and another for investment. Thus, HBA humbly urges the Government to reconsider imposing RPGT on individuals and companies disposing properties held for more than 5 years.

Alternatively, increase the RPGT tier rate in the 2nd to 4th years instead. For example, maybe instead of 30% first to 3rd year, how about 35% first to the third year instead? RPGT for foreigners can be increase correspondingly too. Plus, the holding for these buyers tend to be shorter, thus the profits may not be that substantial compared to those who has held their property for decades. Please do read the full article with more details yeah. Article in loanstreet.com.my

Whether I agree to what HBA has suggested is secondary. What everyone should understand and share to all these first-time home buyer is this. RPGT is calculated only based on net gains. If there are no gains, there are no taxes. However, if they are buying for own stay and not for speculative purpose, the chances they sell within 5 years will not be high. Plus when they want to sell on the 6th year and they happened to earn a profit of RM100,000 for example, then the RPGT applicable is just RM5,000.

We can choose to evaluate objectively and buy a good property and perhaps gain a potential RM95,000 and pay RM5,000. Or we could choose to ignore everything and forget about buying. The ‘loss’ in opportunity? That’s a staggering RM95,000. All calculations are just estimations and I have no idea if property prices are on the way up or on the way down on the 6th year from today. What’s certain is that if we stretch the property prices in Malaysia into a historical chart since 1990 for example, it’s on an uptrend. Image attached. Happy understanding.

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