Some ways of increasing quit rent revenue

I wish to convey my opinion on how the Penang state government can improve its tax revenue collection for the sake of welfare and development projects. One of the sources of tax revenue for state authorities is quit rent, which is a form of tax that is imposed by the municipal councils in Penang on all properties within its areas of jurisdiction, i.e. quit rent = annual percentage rate x annual value of the property.

Based on the Penang Island Municipal Council’s (MPPP) website, the annual value of the property is defined as the estimated annual rent which the owner of a property is expected to derive from it, with the owner bearing the cost of repair, insurance and other necessary expenses. The MPPP determines the annual percentage rates; these may differ based on the type of the property.

I wish to propose the following ways for the state authorities’ consideration for future policies for quit rent in Penang:

a) Identify areas for land reclamation at Bayan Lepas Free Trade Zone
Based on the MPPP’s website, the annual percentage rate for an industrial building is 13.5%. It is the headline annual percentage rate in MPPP’s jurisdiction, so it is logical to focus on this category of property to increase the quantum of quit rent payable to the state authorities. Having more industrial buildings on the island will do the trick. With more companies se ing up industrial buildings in Penang, there should be an economic spill-over effect on the people of Penang Island, Seberang Perai and parts of Kedah and Perak. The state authorities in Penang should identify areas for land reclamation for this purpose.

b) Identify areas for conversion of residential units to commercial units
Based on the MPPP’s website, the annual percentage rates for residential units are seven per cent, 7.5% and 8.3% in respect of low cost, strata and landed units respectively. The annual percentage rate for a commercial unit is 10.3%. Should the state allow resi- dents in MPPP’s jurisdiction to convert their residential units into commercial units, the revenue from quit rent may potentially increase by up to 3.3% (10.3% minus seven per cent) per unit.

However, there may be questions as to whether the residential units can be partially – and not fully – converted into commercial units. For example, residents may wish to maintain 30% to 50% of their residential units for private/accommodation purposes. The state authorities may encourage this by proposing a new annual percentage rate for such partially converted units (residential cum commercial). The proposed annual percentage rate has to be in between the rate for a residential unit (seven per cent, 7.5% and 8.3%) and that for a commercial unit (10.3%), in view of the nature of the partially converted unit. To ease the administrative aspect, the state government may consider imposing a fixed annual percentage rate for such units. This should a ract owners of residential units to apply for the conversion to commercial units, whether partially or in full. The state will see an increase in revenue from quit rent, new jobs and an elevated income/salary to the people.

c) Building more affordable high rise flats and apartments in Penang and Butterworth
High rise flats and apartments can accommodate a large number of residential units which in turn can generate better quit rent revenue. However, property developers in Penang are generally more inclined to build high-end condominiums and landed residential units. Though the annual value of these properties for the purpose of quit rent may be high, the quantum of the quit rent is restricted by the number of residential units in these properties. The state may be able to derive better revenue from quit rent from the residential units (with standard floor area/ unit size) in normal high rise flats and apartments which are usually afforda- ble to the public. The state authorities may encourage or even take part in the construction of such affordable residential units in high rise flats/apartments. Having affordable residential units in Penang will encourage more people from other states to stay and work in Penang, besides getting more Penangites to consider staying instead of moving out.

d) Encourage more participants of Malaysia My Second Home programme (MM2H) to invest in Penang as angel investors
Aside from promoting residential units in Penang for participants of MM2H, they can be briefed about the investment/business opportunities in Penang so as to encourage them to become angel investors to inject funds into companies in Penang. As a company grows in terms of manpower size and manufacturing/storage/service capacity, additional land is required to accommodate expansion plans. Such land is considered industrial/commercial land and would be subject to higher annual percentage rate for quit rent.

Generally, the common thinking when it comes to an increase in quit rent rates is that the state authorities will derive more income while the people will bear more quit rent. While this may be true if the source of revenue from quit rent is mainly from the people of Penang, the state can consider exploring opportunities for foreign investors to contribute quit rent in meaningful ways (e.g. foreign investors making profits from investments in Penang and therea er paying quit rent to the state authorities).



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