CME perplexed about the proposed property vacancy tax

September 2, 2020 Comments Off on CME perplexed about the proposed property vacancy tax Media Statement

Wednesday, 2 September 2020: The Malaysian Minister of Housing and Local Government, YB Hajjah Zuraida binti Kamaruddin, proposed a property vacancy tax to be paid by developers on unsold units priced above RM 500,000.

The Center for Market Education (CME), led by Dr Carmelo Ferlito, expressed concerns and perplexity over the proposal.

Dr Ferlito, CEO of CME, explained the reasons why such a tax should be avoided:

1. It cannot even be defined as a tax, as a tax is always an amount of money paid after a certain benefit has been enjoyed. Income taxes, in example, are paid after an income has been produced. But even taxes that can be defined as “punishments” for the production of negative externalities are imposed after a benefit has been enjoyed: in example, a pollution tax is imposed to polluting firms after they have obtained an output with polluting production methods; a tax on tobacco is paid by someone enjoying the pleasure of smoking, and so on… In the case of a property vacancy tax, therefore, the very reason for a tax is lacking: which benefits are the developers enjoying by not selling their units? In fact, unsold units are already a missed profit for developers. A property vacancy tax would sound like taxing a butcher for being unable to sell out all his stock of meat.
2. The proposed tax can be configurated as a violation of property rights. In fact, built units belong to their legitimate owner, who has to be free to choose to hold the property if the price emerging in the market is not satisfactory for him or her.
3. Such a tax would constitute a dangerous precedent, suggesting that the government can address the way in which individuals dispose of their legitimate properties if such a usage is not in line with government’s ideas.
4. The proposed tax could discourage future initiatives. In fact, while the housing market is now suffering, the cycle will eventually turn and the vacancy tax could discourage the emergence of sound entrepreneurial initiatives for fear of taxation on eventual unsold units.

The Center for Market Education, therefore, invites the government to avoid implementing the proposed tax and remains at disposal for discussing together proposals that could be benefit the housing market and the Malaysian economy.