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Monday, October 15, 2012

Golf clubs in Malaysia face closure with new tax

Golf industry cries foul over new form of taxation and there is definitely a cause for concern.

Golf clubs in Malaysia face an uncertain future with the new tax issue hanging over their heads.

THE Malaysian golf industry has come under threat of closure again and this time it comes from the Inland Revenue Board.

The IRB now wants to tax all the 180 proprietary clubs (private commercial clubs) on the advance licence fees since the clubs were set up.

The advance fee is the collection of 80% of membership fees that they collect when folks first sign up.

This amount is collected in advance and slowly released into the balance sheet of the companies for the period of the trust deed.

While the industry disputes that the money was taxable as it was a sum that they had to refund if there was a breach of the trust deed, the IRB said it was income to the club and thus is taxable.

The total amount the authorities want the clubs to cough up is more than RM600mil – a sum the golfing industry cannot afford to pay and this could spell the end of many clubs in the country.

A spokesman for the Malaysian Association of Golf & Recreational Club Operators (Magro) said it was not as if the clubs had not been paying taxes or had been hiding the advance fee from the IRB.

He said that the clubs had been in touch with the IRB from the start and had proposed the normal way of taxation based on services.

“This was accepted until 2010 when the IRB wrote to a few clubs and after conducting field audits, decided that the advance fee was taxable.

“The total bill is over RM600mil and they wanted to back tax us all the way to the day the very first member signed up,” the spokesman said.

However, the IRB after several rounds of discussion agreed to cap the backdate of taxation and allow the amount owed to be paid over three years.

A club manager of a popular club in Petaling Jaya said even that concession by the board is totally unacceptable because it will mean the effective end of the golf industry in Malaysia.

“All our profits for the next few years will be wiped out just paying this back taxes. Our club owners will definitely want to exit this business.

“Most of the land we sit on are worth a lot of money and it will make sense for the owners to close down the club and build residential units instead.

At the most, the value of a golf course is only about RM200 per square foot but the houses, condominiums and shops built on top of these land will be worth thousands of ringgit per square foot,” he added.

Already there are several clubs in the Klang Valley, which have either been closed down like Kajang Hill GCC or downsized like KGSAAS, because it is so much more profitable to develop the land into residential and commercial projects.

The owners could also go the way of Palm Garden Golf Club where the owners bought back all the sold membership and turned it into a “premier public course” and thus paying taxes only on income earned from services.

There are about 500,000 members to the 180 proprietary clubs (this ruling by the IRB does not affect members club, at least, not yet) who will eventually lose out in terms of facilities.

There is also the 50,000 direct and indirect workers who will be jobless once the clubs close down.

There is also a tremendous loss of tourism dollars. A total of 120,000 foreign golfers play in Malaysia each year.

They spend an average of four hotel room nights per visit translating into 480,000 room nights. Each of them spend an average of RM300 per night for accommodation and a further RM1,500.

This means that if the golf industry collapsed the country’s economy would lose RM864,000,000 annually.
Let’s not be pound wise penny foolish. The tax dollars can be found through other means and let’s hope the authorities realise this.


Related post:

Golf courses targeted for re-development - Too valuable for golf?

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