It seemed harmless at first sight; the proposal to “broaden the tax base… that tax at a fixed rate of 5% be imposed on gains from the disposal of real property” with a collection mechamism whereby the tax is collected through a withholding mechanism whereby the purchaser withholds 2% of the purchase value and pays to the Inland Revenue Board.
One month thereafter and one month before implementation date, here are some potential migraines to consider…
- All purchasers of real property or real property company (RPC) shares will be required to withhold 2% of the purchase price and remit the same to the IRB when the purchaser is unsure whether the disposer is subject to RPGT on the gain, or whether the disposer has got a gain from the sale, or whether the disposer is gonna or not gonna file their RPGT returns.
- Reread point (1). See any problems yet? RPC shares are shares in companies with at least 75% of their tangible assets being comprised of real property or RPC shares… now, do you see the problem?
- Reread point (1). See another problem? Where the purchaser is unsure, just withhold and remit to IRB. Imagine this scenario… investment dealers, banks, insurance companies, brokerage firms, any freakin’ person deciding to purchase an entire business aka balance sheet etc will now have to be wary of the lock, stock and barrel they’re purchasing or the thousands of shares traded in case there are RPC shares there and whether they may need to withhold 2% of that purchase price and remit to the IRB.
- Worse still, what about properties forclosed by banks for bad loans and mortgages? How would the “withholding” work? Has the bank “purchased” the property? How would the bank then have to get back the money they are trying to recover through an auction of the property on the basis that there was probably no gain to be taxed and that it should not even be taxed under RPGT in the first place?
And I’m sure there will be more. Those are just some I am able to pluck out so far.
