Malaysia: Know Your Rights As A Ratepayer

Last Updated: 7 November 2018
Article by Vijay Raj

Vijay Raj explains the law pertaining to rates imposed by local authorities.

INTRODUCTION

Rates are a type of tax imposed by local authorities in Malaysia. It is commonly referred to by its Malay name, cukai taksiran. In Peninsular Malaysia, the power to impose rates is found in Part XV of the Local Government Act 1976 ("Act"), specifically Section 127.

Section 2 of the Act defines a "local authority" to be, inter alia, any City Council, Municipal Council or District Council, as the case may be. Section 39(a) of the Act recognises rates to be one of the sources of revenue for local authorities, and as can be imagined, local authorities would need adequate funds to discharge their wide-ranging duties and responsibilities such as carrying out sanitary services, managing markets, maintaining lavatories, preventing the spread of diseases and providing suitable burial grounds and crematoria.

Generally speaking, the amount of rates payable by a person to a local authority would depend on the value of the lands and buildings, if any, held by the person within the administrative area of the local authority concerned. The term used in the Act to refer to a rateable land and its buildings is "holding". Every land held under a separate document of title and all buildings thereon is regarded as a separate holding. In the case of subdivided buildings, the holding comprises every parcel and the common property. The Federal Court had recently, that is on 26 April 2018, held that a local authority does not have the power to impose rates upon a mere occupier of lands who did not own or hold the lands under a document of title. The occupation in the said case arose by virtue of the occupier's underground pipelines that crossed, inter alia, State land or lands whose owners could not be traced.

Certain holdings or parts thereof may be exempted from the payment of rates or may be charged rates that are reduced, as may be the case in respect of holdings that are used for religious worship, public schools, charitable or recreational purposes and not for pecuniary profit: Sections 134-135 of the Act.

BASIS OF ASSESSING RATES

Section 130 of the Act provides the basis for computing rates. Rates may be assessed either upon the "annual value" or "improved value" of a holding. Broadly speaking, Section 2 of the Act defines "annual value" to be the estimated gross annual rent at which the holding might reasonably be expected to let from year to year, with the landlord paying the expenses of repair, insurance, maintenance or upkeep and all public rates and taxes. On the other hand, "improved value" refers to the market value of the holding in question. In Majlis Perbandaran Seberang Perai v Tenaga Nasional Berhad [2005] 1 MLJ 1, the Federal Court held that power generation units within a power station, including the generating plant and machinery, should not be taken into account when determining the annual value of the relevant holding. It would therefore be important to understand the nature of the holding that is subject to rates, so as to exclude from its value items that should not be taken into account under the law. Although this task may seem straightforward, it can be demanding for holdings such as large factories and production or processing plants.

Section 130(2) of the Act provides that if rates are assessed upon the annual value of holdings, such rates shall not exceed 35% of the annual value of those holdings. In contrast, if rates are assessed upon the improved value of holdings, Section 130(3) of the Act provides that such rates shall not exceed 5% of the said value. The rates imposed by a local authority may only endure for a period not exceeding twelve months and it is required to be paid half-yearly in advance: Section 133 of the Act.

THE VALUATION LIST

Before a local authority is able to impose rates, it must first prepare a list, known under the Act as a "Valuation List", of all holdings within its administrative area that are not exempted from the payment of rates. The Valuation List must identify each and every such holding, its owner and (if known) its occupier, as well as its annual value or improved value: Section 137 of the Act. Section 137(3) requires local authorities to prepare a new Valuation List once every five years or within such extended period as the State Authority may determine. However, it is often the case that the 5-year time period is not followed. At times, the same Valuation List can continue to apply for ten to twenty years or longer. As the preparation of a new Valuation List would entail considerable time, effort and cost, it is perhaps not surprising for Valuation Lists to continue to apply for far longer than the envisaged 5-year period. Instead, local authorities tend to prefer to amend existing Valuation Lists as and when circumstances justify. In this regard, Section 137(2) of the Act specifically provides that a Valuation List together with the amendments to it shall remain in force until superseded by a new Valuation List.

The power to amend a Valuation List is found in Section 144 of the Act and may be exercised if one of the grounds set out under subsection (1) of that provision is established. For example, a local authority may amend a Valuation List where by reason of a mistake, oversight or fraud, the name of any person or the particulars of any rateable holding is omitted from the Valuation List, or any rateable holding has been insufficiently valued. Amendments may also be justified if the value of a holding has increased by reason of any new building being erected, modified or altered after the preparation of the Valuation List in question.

As the power to amend a Valuation List is the more common method of keeping a Valuation List current, it would be important for ratepayers to understand their rights of objection in order to avoid being subject to excessive rates as a result of such amendments, particularly where the value of a rateable holding is large as in the case of petroleum refineries, hydroelectric dams, factories, plants, gas pipelines, etc. Additionally, a successful challenge to a proposed unwarranted or excessive increase in the annual value or improved value of a large holding will result in savings on an annual basis, rather than a saving which is one-off.

The scope for savings should not be underestimated because the holding in question may often be such that its market value or annual value cannot be ascertained through sale or rental transactions involving comparable holdings. For example, the market value of a petroleum refinery is likely to be difficult if not impossible to ascertain through an attempt to shortlist sales of petroleum refineries that are comparable in terms of size and capacity. The paucity of such comparable transactions may be due to there being no other comparable refinery existing within Malaysia, or because of the lack of purchasers interested in refineries. In such circumstances, other approaches to or methods of valuation have to be applied and it is in these instances that scope for large differences of opinion regarding values may exist. Under the Malaysian Valuation Standards, there are three primary approaches to valuation that are recognised, namely the Comparison Approach (discussed above), the Income Approach and the Cost Approach. Additionally, under the Income Approach, there are subsets known as the Investment Method, the Residual Method, the Profits Method and the Discounted Cash Flow Method.

An example of an approach to valuation which can potentially assist when there are insufficient comparable transactions (under the Comparison Approach) is the Cost Approach mentioned above. The Cost Approach involves the process of ascertaining the value of a property by reference to the cost of constructing a similar property. Even so, the exercise may not be straightforward. For example, a factory may have been built many years before the date of valuation, hence there may be no similar factories built since then for the purpose of gauging the current cost of constructing a similar factory. This issue not only raises matters of valuation, but is intertwined with questions of law. As courts need to be satisfied that valuations are correct and consistent with principles of law, it would be important for valuation reports to be well-reasoned, substantiated and presented in a manner that can be understood without undue effort. Experts who prepare valuation reports should also be prepared to answer questions regarding their report under cross-examination in court.

PROCEDURE FOR AMENDING A VALUATION LIST

The procedure for amending a Valuation List can be found in Sections 144(2)-144(6) of the Act. Before a local authority can exercise its power to amend a Valuation List, it has to first give 30 days' notice of the amendment to all persons interested in it. Any person aggrieved by the proposed amendment on any of the grounds set out in Section 142(1) of the Act may make an objection in writing to the local authority not less than 10 days before the amendment is made. The usual grounds of objection are that the holding in question is valued beyond its rateable value and that the holding sought to be charged with rates is not rateable. The new rate resulting from an amendment to a Valuation List becomes payable from the commencement of the next half year or such earlier date as the local authority may determine: Section 144(6) of the Act.

In two recent cases that were argued at the High Court, the local authorities that were involved attempted to retrospectively charge the new rates resulting from their amendments to the applicable Valuations Lists through reliance placed on, inter alia, the said provision (Section 144(6) of the Act) and a Court of Appeal decision which they contended permitted rates to be charged retrospectively. However, the High Court decided in favour of the ratepayer, holding that local authorities do not have the power to charge rates retrospectively.

APPEALS

Any person who is dissatisfied with the decision made by a local authority in respect of his objection may appeal to the High Court. However, it is important to bear in mind that the time limited for an appeal to the High Court is only 14 days. It is therefore imperative for the ratepayer to be vigilant of the local authority's decision regarding his objections and to act promptly against it if the decision is unacceptable. Notwithstanding the right of appeal to the High Court, the ratepayer must nevertheless pay the local authority the amount of rate appealed against prior to the commencement of the appeal. The appeal procedure is set out in Section 145 of the Act. In the event the High Court decides in favour of the ratepayer, the excess amount paid to the local authority may either be set off against future rates due to the local authority or refunded to the ratepayer.

CONSEQUENCES OF FAILURE TO PAY RATES

The local authority may, in order to recover the arrears of rates, attach and sell by public auction the moveable properties belonging to the owner or occupier liable to pay the arrears, and in certain circumstances, the local authority may even commence legal proceedings to attach and sell the holding or holdings in respect of which the arrear has accrued. The provisions of the Act relating to the recovery of rates in arrears are Sections 146- 156.

CONCLUSION

There appears to be a lack of awareness among ratepayers about their rights and this is probably due to the amount of rates payable in most cases being low. However, as discussed earlier, the potential savings annually from a successful challenge to rates that appear excessive can be large in holdings that are high in value and it is imperative to be alert so that an appropriate objection can be raised within the relatively short time frames prescribed under the Act.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions