What are rates and property assessments?

The locals call it mui poi soy (door number tax). Rates levied by the local government, such as the Penang City Council (Majlis Perbandaran Pulau Pinang, or MPPP), make up 6o% to 70% of its total revenue. Rates are charged on various types of properties as a percentage of the annual value (the amount of rent the property can fetch in a year) regardless of whether the property is rented out or not. To make an assessment of the annual value, the valuation department of the MPPP undertakes a valuation exercise every five years or so.

What are the current rates?

The following table shows the rates (between 7% and 13.5%) charged by MPPP in 2009. This implies that if you own a shop-lot and rent it out, MPPP wants-10.3% of the rent you receive. You might keep the property vacant or use it for yourself, but based on MPPP'S valuation you still have to pay 10.3% of the annual value even if you do not receive any rent.

Is MPPP'S valuation fair?

On average, MPPP'S valuation of annual values would be considered inaccurate but in favour of property owners. Based on data as of September 2009, the following table shows the average annual value for urban and rural properties of various types. For example, the monthly average of the annual value of urban landed properties is only Rm342 per month (Rm185 in rural areas) and everyone knows it would be difficult to rent a landed property at this rate. The average assessment charged for landed property is only 8.3% x 12 x RM342, or RM341 for the whole year.

Speaking as ratepayers, we sometimes wonder whether MPPP is being kind by undervaluing the properties we own. However, this would be missing the point. The rate percentage charged is based on the amount that MPPP wants to collect in a given year. The results would be the same even if MPPP were to double the annual value and then reduce the rate to half of what it is currently charging. Property owners would end up paying the same amount.


Who are MPPP'S favourite people?

Urban (46%) and rural (54%) properties each contribute about half of the total annual revenue of about Rmi 31.3 mil being collected by the MPPP in 2009. Commercial properties make up half of the urban revenue source. About 18% of the urban revenue comes from strata properties (apartments and condominiums) and about 11%, landed properties. In rural areas, industrial properties and commercial properties contribute to about a quarter each of the total rural revenue each and strata properties add a further 19%. Landed properties contribute another 12%.

How effective are the rates levied by the MPPP?

The decision to charge different rates for different types of properties must have been made following what MPPP considers to be socially fair criteria by making adjustments for urban and rural locations, commercial as opposed to residential properties and between low-cost and landed properties. However, to be effective, rates charge must make an impact on the potential total revenue that can be collected. For example, urban industries are rated a relatively high rate of 13.500 of the annual value but they make up a mere 1.93% of the total revenue source. Hotels also pay the same rates but despite Penang being a tourism centre, hotels also contribute relatively little.

Even though low- and medium-cost housing are charged a relatively low rate, they too are not an important revenue source. If their rates are further reduced to assist small property owners, the impact on revenue lost would be small. On the other hand, commercial properties make up a relatively larger share of the total revenue source, but the rates levied on them are not the highest. A slight upward revision of the commercial property rate will make a larger positive impact on revenue collection.

The 1.7% rate charged on development land is also low and this gives an incentive for land speculation. The owners pay little annual costs while waiting to sell the property years later for property gains. Suppose the state government aims to encourage development land to be utilised, it can elect to increase holding costs by raising the rate substantially. This will force land owners of development land to convert the land to either residential or commercial-industrial properties. When this happens, the appropriate rates will apply and become revenue sources for MPPP.

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