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Strata Management Act / Strata Title Act

6% levy is looming on the horizon

6% levy is looming on the horizon
JMBs and MCs are non-profit driven and exist to act as a body for stratified building owners.

JMBs and MCs are non-profit driven and exist to act as a body for stratified building owners.

THERE have been recent public outcry and protests against the imposition of the goods and services tax (GST) on the maintenance charges and sinking fund for all stratified developments in Malaysia save for low- and medium-cost stratified development areas which were recently “exempted” from GST under the gazetted GST Exempt Supply Order dated Oct 13, 2014.

Do they not know that to grant “exemption status” is a misfortune? Do they not know the repercussion? It literally means 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 it has relieved those living in low- and low-medium cost stratified units and therefore the owners 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 their service providers, contractors, suppliers and utilities, among others, for the maintenance and management of the common property.

They cannot run from GST charges from their service providers, contractors, suppliers and utilities in terms of GST input tax, which is not claimable from the Royal Malaysian Customs Department, whereas under the “zero-rated” supply, the input tax charged by the service providers is claimable. Instead of helping to ease the burden of the lower income group, the Government has unwittingly made them the victims in the implementation of GST.

As there is great confusion on the ground among the public, lawmakers, politicians and the media, we would like to clear up the confusion for the benefit of public, particularly strata parcel owners so that they can have a better understanding of the impact of GST on stratified developments.

Strata concept

Call it by whatever name, Joint Management Body (JMB), Management Corporation (MC), Residents’ Association (RA), they are all basically a community association of property owners looking out for their best interest. In the first two, it is a requirement by law for strata titled properties under the Strata Titles Act, 1985 and the new Building and Common Property (Management and Maintenance) Act, 2007 (BCP) where a body corporate is formed, whereas Residents’ Association is a voluntary organisation registered as a society.

The JMB and MC maintain, upkeep, refurbish, upgrade and safeguard their own common properties including common facilities in a stratified development through the contributions by parcel owners. In essence, it is the parcel owners who through their own monies pay for the upkeep and have a say in how their homes and investments are to be managed and maintained.

Very often, only a small percentage of owners in condominiums or other types of strata titled development (whether vertical or horizontal) are interested in how their properties are managed. Although these are voluntary positions, it has to be taken seriously because it involves people and their investments. Owners’ corporations are headed by volunteers who are fellow owners elected at an AGM to serve the other owners. They take the office bearers designation of chairman, treasurer, secretary and committee members. This is a form of “common-interest governance”. If you own a property with common property, you automatically become a member, like it or not. That’s strata living for you.

JMBs and MCs are not in the business of ‘doing business’

Under Sections 3(1) and 3(2) of the Goods And Services Tax Act 2014 (Act 762), JMBs, MCs and RAs are deemed to be carrying on a business, whether or not it is for pecuniary profit; and are therefore, unwittingly classified by the Royal Malaysian Customs Department as GST standard rated tax supply entities. An excerpt of the said section is as follows:

Meaning of “business”

Sect 3 (1) In this Act, “business” includes any trade, commerce, profession, vocations or any other similar activity, whether or not it is for a pecuniary profit.

(2) Without prejudice to the generality of any other provision in this Act, the following are deemed to be the carrying on of a business: (a) the provision by a club, association, society, management corporation, joint management body or organisation (for a subscription or other consideration) of the facilities or benefits available to its members or parcel proprietors as the case may be.

However, in reality, there is absolutely no “carrying on” of business for pecuniary profit whatsoever by the JMBs and MCs in the maintenance, upkeep, refurbishment and safeguarding of their common properties in a stratified development area.

These entities are non-profit driven and exist to act as a body of owners who “self-manage” their own community. The owners pay maintenance charges and sinking fund not because they want to but they have to. No one is profiteering from the maintenance charges and no one is gaining money from it. How can the imposition of GST be regarded as a consumption tax when it is not even a choice? Do they not know that JMBs, MCs and RAs are exempted from paying income tax? Then, logically no income tax, no GST.

High defaulters’ rate/GST penalties

In any strata property, there will always be defaulters and insufficient collection of maintenance fees will affect the wellbeing, harmony of its people and financial health of the JMB and MC, eg. medium-cost apartments where the collection rate is only 40%-60%.

The issue is that GST needs to be paid on total billing and not actual receipts or collections. How will the JMB and MC be able to make ends meet?

Must the JMB and MC now guise up two sets of billings like some dishonest corporation which has bogus accounting?

Even for the late filing of GST, the penalty is a fine up to RM50,000, and imprisonment of up to three years, or both. That’s a liability to a committee member. If that is the case, who wants to serve in a voluntary position when our Government is trying to inculcate the spirit of volunteerism? Then, you also have penalties, fines and prosecution for delays, incorrect returns, mistakes or negligence in GST filing and records.

Zero engagement, public relations exercise non-existent

There was practically no public engagement, consultation or attempt to seek feedback from the stakeholders who know best on management and maintenance of stratified properties. This simple routine exercise of imposing GST has turned controversial due to lack of apparent justification, given the magnitude of the increase and scarcity of explanation. There is a lack of thought that went through this GST for stratified properties.

If such a simple task of imposing GST cannot be carried out diligently and in a responsible manner, we must continue to be apprehensive whether its collection will be properly handled.

Know the differences between GST Standard Rated Tax Supply entity and GST Exempt Supply entity:

Standard Rated Tax Supply JMB/MC (Net effect: GST = 6% charges)

1) Maintenance charges are mandatorily increased by 6% in the form of GST Output Tax that is allowed to be set off with paid GST Input Tax in the expenditure for the maintenance and management of common property in the stratified development area.

2) Need to register as GST Tax Supply Entity.

3) Additional costs for GST compliance software and hardware.

4) Recurrent additional cost for manpower to file GST with maintenance of proper records.

5) Exposure to penalties, fines and prosecution for delays, mistakes or negligence in GST filing and records.

GST Exempt Tax Supply JMB/MC (Net effect: GST = 6% charges)

1) Maintenance charges need to be increased by 6% in order to meet increase in expenditure due to GST Input Tax in the expenditure for the maintenance and management of common property in the stratified development area.

2) No need to register as GST Tax Supply Entity.

3) Free from liabilities of item (3), (4) & (5) above.

Zero rated-tax supply

The National House Buyers Association (HBA), the Association of Valuers, Property Managers, Estate Agents & Property Consultants in the Private Sector Malaysia (PEPS), the Royal Institution of Surveyors Malaysia (RISM) and the Malaysian Institute of Professional Property Managers (MIPPM), recently organised a press conference on the subject of GST and had on Dec 1, 2014 submitted a petition to our Prime Minister and in his capacity as the Finance Minister titled: “The Petitions by HBA, PEPS, RISM and MIPPM and the Clarifications as to the Levy of GST on Stratified Development Areas”.


We urge the Government to grant the “zero-rated status” to all JMBs and MCs as well as RAs. We then can say that Malaysia builds first-class buildings and also has money to offer first-class maintenance, instead of first-class buildings and third-class maintenance.


Readers may wish to upload more details of HBA, RISM, PEPS & MIPPM – Petition and the 23 slides presentation titled: “Clarification on the Impact of GST on Stratified Development Areas” from any of our websites.

Chang Kim Loong is the honorary secretary-general of the National House Buyers Association (HBA):, a non-profit, non-governmental organisation (NGO) manned by volunteers. This write-up is also contributed by Wong Kok Soo, advisor to PEPS.

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