Real Property Gains Tax and an economist

 Well, if you think that it look like a propaganda, I would not correct  your impression.

For the past few days (even weeks), there have been a flurry of  'news' coming from economist and accountants in support of higher taxes, either through GST or RPGT (Real Property Gains Tax). You can read them and the GST here , here, and the bubble here.

Today the Star produced an article where an economist is seen to be favouring and pushing for higher RPGT. Meaning lets tax the people more. You can read the article here.

1. A visiting lecturer of the Asia-Europe Institute, University Malaya, Dr Jorah Ramlan said the RGPT increase could be one way for the country to increase revenue. 
"There is serious concern regarding the staggering prices of real estate in the country in recent years.

One thing he got right was that RPGT will increase the government's revenue. No brainer there. But as we have discussed earlier, in this context, revenue is not the issue. The issue is can we trust the government with more money?

2. "Increasing the RGPT will not affect the construction sector, since there will always be a need for housing development in a growing population.

RPGT basic - it affects second hand sale of properties, not applicable to new development. Sale of new developments are not affected by RPGT. If the RPGT causes price to increase (because now sellers may want to compensate for the extra tax the government is taking), that will make it worse for new housebuyers.

3. On top of that, have these people ever thought that instead of curbing price increase, RPGT could backfire by feeding into the higher prices for houses.

Those who intend to sell their houses next year could do three things:

• One, sell the house and pay the extra RPGT; 
• two, sell the house at a higher price so that net-net you will get the same with the extra tax (remember, RPGT is taxed on profits, not the sale price); In this case, this would push up the prices of second-hand houses. Exactly the OPPOSITE of what they intend to achieve (curbing price increase).
• and three, wait to sell the year after where the RPGT would be lower for him. In this third case, that will restrict the supply of houses available for sale. Under the laws of supply and demand, it could very well increase the prices of houses in the market.

Therefore, in my view, RPGT is not the way to address possible property bubble. The key is to reign in the speculative demand for houses which is being fueled by the financing banks and at the same time prevent any drastic action that could burst the bubble.