Justifying the proposed assessment rate hike
THE media has reported that two former mayors – Tan Sri Ahmad Fuad Ismail and Tan Sri Elyas Omar – have questioned the Kuala Lumpur City Hall (DBKL) on its proposed assessment rate hike.
Ahmad Fuad, predecessor to the current mayor Datuk Seri Ahmad Phesal Talib, pointed out that he had raised reserves amounting to RM3bil prior to retiring last year.
This means Ahmad Phesal inherited RM3bil when he took over.
Ahmad Fuad reportedly said that DBKL must provide a detailed budget for 2014, with a breakdown of how much money was needed and how it would be spent.
Elyas, meanwhile, noted that DBKL had “bigger revenue compared to what it had 30 years ago”, adding that there was no need to increase rates “even by 10%”.
DBKL must be selective and make a distinction between residential and commercial properties. Perhaps that should be done first before it imposes new rates on new commercial, residential and mixed development projects. After all, pricing is reflective of current valuations and there are so many new developments: stratified and landed, high-end residential condo, commercial retail blocks, office blocks, shopping complexes, SoFo, SoHo, condotel, hotels, serviced apartments and boutique buildings.
The issue of not having enough money should not arise. As plot ratios and density have been increased for developers in KL, more revenue in terms of development charges levied and assessment revenue would be collected. DBKL has also been collecting Caruman ISF or the Infrastructure Service Fund in the millions from developers for the development of infrastructure in KL and millions in lieu of the non-availability of car park bays. The host of projects under way driven by the Economic Transformation Programme, namely, the Tun Razak Exchange, Menara Warisan Merdeka (a 100-storey building next to Stadium Negara), the Kuala Lumpur Metropolis, KL Eco City, the Bukit Bintang Commercial Centre and Bandar Malaysia, the MRT and all the other abbreviations that I cannot remember are, therefore, a boon to it.
The excuse by DBKL that “the last increase was more than 20 years ago” does not hold water because some “newly” completed properties delivered four to five years ago had suffered the fate of a revision with an increase of 100%-200%, as though the properties had doubled in value within that short span of time. Some owners in Cheras have received notices of revision that translate into a 200% hike in rates. Did DBKL take into consideration that the leasehold land upon which the property is erected expires in 60 years? The property value on resale would obviously fetch a lower price based on the diminishing lease period.
A rebate should instead be offered to those living in stratified properties like flats, apartments and condominiums, as they are already paying maintenance fees to their joint management bodies (JMBs) and management committees (MCs) for the upkeep of their infrastructure and playgrounds, maintenance of trees and grass-cutting, sweeping, cleaning (internal roads and drains) and rubbish disposal within their perimeters. The JMBs and MCs maintain the building, playground, parking lots and other facilities, while DBKL’s role is limited to cleaning the drains and maintaining roads outside the perimeters.
Previously, DBKL’s duties covered sewerage services, but today taxpayers have to make separate payments to Indah Water Konsortium. Shouldn’t this issue be taken into consideration for a reduction? While writing this article, my fellow National House Buyers Association (HBA) volunteers are scrutinising the past Auditor-General’s Report on the alleged excesses and wastages of DBKL.
DBKL’s sources of non-rate revenue
DBKL does not depend on assessment collection alone for revenue. There are other major sources of revenue, which we term as non-rate revenue which inter-alia are:
1. Licensing and permits from:
- Engineering Department
- Department of Buildings
- Licensing Department
- Department of Health
- Department of Environment
- Department of Enforcement
2. Sales proceeds from DBKL properties;
3. Interest on fixed deposits;
4. Rent proceeds from council homes;
5. Dividends from investments;
6. Returns on investments;
7. Compound and fine collection;
8. Infrastructure contributions;
9. Remittance from federal agencies;
10. Privatisation of buildings;
11. Parking collections;
12. Sales of plans;
13. Billboard erection fees and rent proceeds;
14. Joint-venture (JV) housing projects, and many more.
It seems that there is more than RM300mil of “collectables” that DBKL has not collected from defaulting taxpayers. This, in turn, brings us to the questions: Why not?
DBKL must only venture into value-for-money projects. There were even a few JVs with private developers for housing and commercial developments that were abandoned, with buyers being left in the lurch for years. Does DBKL practise an open tender policy for all its projects and procurements?
DBKL has ventured into various projects with private developers to generate income in Wangsa Maju. The roads, drainage system, sewerage system, water pipe lines and electric and telephones cables in the area were all done without DBKL spending a single sen. Therefore, there are other ways to obtain funds rather than placing the burden on KLites with this assessment rate hike.
Development expenditure is largely funded by the Federal Government. For 2013, from what I understand, DBKL expects to receive RM414.7mil worth of Federal Government funding, RM300.5mil of Federal Government allocation under the 10th Malaysia Plan and RM114.2mil from government grants.
Declaration by DBKL
DBKL’s upper management must come clean to declare that they have not been selective and biased in their choice of property location revaluations. The upper management, the Federal Territories (FT) Minister, mayor and the entire City Hall advisory board members must declare that their annual rent rates too have been revalued in the current exercise. They must declare their respective quantums of increase based on two premises:
(i) the last increase was more than 20 years ago; and
(ii) property prices have increased in value.
What was the methodology used to compute the new rates? Show us how DBKL’s current revenue is insufficient to meet its expenses, when the mayor had stated in his budget speech in December 2012 that “DBKL is already operating on an estimated surplus of RM217.7mil”. Among the aspects of success is the increase in total revenue of RM241mil to RM1.69bil from the previous year. It should also show why its non-rate revenue is insufficient and why its reserves are insufficient. If DBKL cannot do that, then it simply cannot increase the rates revenue by a revaluation of annual rental. If the revaluation exercise is adopted, it is irrational to impose the same percentage of levy, ie, 6% for residential, 10% for land and 12% for commercial premises. It cannot apply the same percentage across the board.
There must be a policy change by reducing the chargeable rates to, say, 2% for residential, 3% for land and 4% for commercial.
This does not mean that DBKL need not revisit their valuation exercise that has been found wanting by taxpayers.
The astronomical valuation based on valued rent, amount and quantum are simply preposterous.
In fact, the FT Minister’s statement “that the assessment is based on property value” is wrong. Property assessment is based on rental value. A hypothetical rental value is placed on the property and this is “multiplied by 12” to obtain the annual value. What if there is no rent? What if the yearly rental collected is not what DBKL had estimated? Has a concise survey on annual rent collected by the taxpayer been matched with a declaration of income collected from rent in the taxpayer’s declaration to Lembaga Hasil Dalam Negeri vide the stamping duty on tenancy agreements? What if there is no contract of tenancy and the premises are rented out on a weekly basis? Perhaps, there should only be a revaluation of properties that are converted from housing to commercial and those which have undergone major renovation from single-storey to double-storey units or the like, thus increasing their build-up and useable areas.
By the way, isn’t the Federal Territory of Putrajaya due to undergo a revaluation?
The proposed assessment rate hike by DBKL has understandably irked the city’s dwellers, as the list of complaints against the standard of service being delivered by it is rather long. Among the grievances are roads riddled with potholes, untrimmed trees, unkempt and unsightly public parks, undergrowth on road reserves, inconsistent rubbish collection, broken drains, poor upkeep of playgrounds, flooding, parking woes, uneven roads, a spike in dengue fever, illegal dump sites, infestation of rats, illegals and beggarsillegal buntings and billboards, poor or lack of enforcement, failure to collect rent from Council Home defaulters, lack of maintenance of public lightings … and the list goes on and on.
By the way, has the KL Draft Local Structure Plan that was flooded with voluminous objections from land proprietors, occupiers and vested parties been finalised and gazetted?
Taking the legal option
“Sue them” is what the lawyers would advise. As a last resort, that seems to be the proper thing to do.
Perhaps, we should galvanise a group of ‘pro bono’ lawyers (lawyers doing public good without fees) to commence a Public Interest Litigation in the Courts against the Mayor, DBKL and the entire City Council Board: http://www.dbkl.gov.my/index.php?option=com_content&view=article&id=41&Itemid=724&lang=en for the sake of transparency and accountability. Let’s also organise a group of experts to conduct a forensic audit on DBKL with regards to its operating expenditures and efficiency, emoluments and overtime expenses. Lets’ unearth how DBKL, assisted by its Board of Advisors, has spent taxpayers’ money for the past 10 years and its vision (how they intend to use our money) for the next 10 years. DBKL should open up its budget to public scrutiny to justify how additional money derived from the rates will be used to provide better services to KLites. Don’t tell me that the very people who pay taxes to DBKL are not able to scrutunise DBKL’s spending?
I would like to highlight the following:
“Councils spend public money. The money comes from national and local taxes – as well as charges to users of services. Councils have a special responsibility to tell local residents and taxpayers how they spend your money. They do that by publishing yearly accounts and details of their spending.
“Council accounts are the financial statements that most organisations have to produce at the end of the year – a balance sheet and summary of income and expenditure. But the term also covers all related documents used to make up the council’s accounts and any report by the external auditor about how the council organises itself to conduct its business.
“As a local resident, or interested party, you have legal rights which let you inspect your council’s accounts and related documents, ask questions about the accounts, and object to them.”
– Preamble in Council accounts: A guide to your rights published by the UK Audit Commission
Chang Kim Loong, AMN, is the honorary secretary-general of the National House Buyers Association (HBA): www.hba.org.my.
Advice to Taxpayers
P/S: For those who have not lodged their ‘Notice Bantahan’ pursuant to Section 142 of the Local Government Act, 1976, please do so, not later than Dec 17, as otherwise, you may be deemed as having accepted the revaluation ‘by default’.
You may choose to adopt any of the three templates as a guide for objections against the DBKL hike, which can be uploaded from our website at: www.hba.org.my.