SAFEGUARDING DATA IN M’SIA’S NEW ERA OF E-INVOICING

Vast potential: Digitalisation boosts growth and efficiency, but adopting strong cybersecurity measures and secure software can protect data, systems and customers. Image: Blake Wisz / Unsplashed

AS THE roll out for Malaysia’s e-invoicing mandate draws near, small businesses around the country are embarking on their digital transformation journeys.

In doing so, they unlock numerous benefits such as increased efficiency and productivity and improved customer engagement, while becoming more competitive and resilient.

This digital shift however, can also introduce significant data and security risks.

Understanding these risks is crucial to protect businesses, their data and their customers.

Data breaches and other online crimes, including hacking and financial fraud, can have disastrous effects on businesses, such as the exposure of sensitive customer information, intellectual property theft and the disruption of business operations.

These breaches in security can result in significant losses for companies, sometimes amounting to millions of ringgit.

Additionally, small businesses, often the targets of cyber-attacks because they are seen as more vulnerable, may lose valuable consumer trust and potential opportunities.

Ahead of the phased mandate launch in August, business owners can ensure they are fully prepared by understanding the key advantages and risks of e-invoicing, and take proactive measures to safeguard their business.

Security first: Cyber threats are increasingly complex and widespread. Small businesses can protect sensitive data by choosing reputable software with strong security.

Security benefits and e-invoicing considerations

Despite the risks, the shift towards e-invoicing is certain to offer businesses numerous immediate and tangible benefits.

Enhanced efficiency, reduced errors and improved transparency in financial transactions make e-invoicing more secure than manual handling and traditional invoicing practices.

With oversight from the Malaysia Digital Economy Corporation (MDEC), e-invoicing is tracked through the Peppol framework and verified in real-time, providing an additional layer of security and accountability.

Verification through Peppol ensures that invoices are authentic, preventing fraud and alterations.

This standardised network facilitates the secure and efficient exchange of electronic documents, protecting them from cyberattacks and potential data breaches.

Choose a reputable software provider

As Malaysian businesses look to adopt solutions that will enable them to comply with the upcoming mandate, prioritising reputable software providers to ensure data, privacy and security protection cannot be overstated.

In today’s digital landscape, cyber threats are pervasive and increasingly sophisticated, targeting vulnerabilities in businesses of all sizes.

By choosing established software providers known for robust security measures, small businesses can protect sensitive customer information and internal data from breaches and theft.

Reliable software providers offer regular updates, advanced encryption and compliance with regulatory standards, ensuring that businesses remain resilient against evolving cyber threats.

Additionally, this proactive approach fosters customer trust, as clients are more likely to engage with businesses that prioritise their privacy and data security.

Xero, for example, adheres to stringent security standards and compliance requirements to effectively safeguard user data.

By incorporating multi-factor authentication (MFA), user accounts and financial data remain secure and protected while Xero’s encryption protocols prevent unauthorised data access, safeguarding it from cyber threats.

With a global presence, including in countries such as the United Kingdom, United States, Singapore, Australia and New Zealand, Xero maintains a high level of cybersecurity features and compliance measures to meet regional and international standards.

The accounting platform currently supports many local businesses in streamlining processes and improving data security.

Additional precautions

In addition to leveraging the security features of cloud accounting software like Xero, Malaysian businesses can take extra precautions to safeguard their accounting data. This includes:

> Paying attention to security notices: staying informed about security alerts and notices from software providers to promptly address emerging threats.

> Reporting unusual activity: encouraging employees to report any suspicious or unusual activity related to accounting data to prevent potential security breaches.

> Deploying antivirus and anti-malware solutions: installing reputable antivirus and anti-malware software on their devices to protect against potentially malicious software.

There is no question that digitalisation presents enormous opportunities for growth and efficiency for small businesses, but with that, come some critical security risks.

By adopting cybersecurity measures and choosing software with robust protection features, small businesses can safeguard their data, systems and customers.

Proactive security management not only protects against financial losses and reputational damage but also builds trust with customers, fostering long-term business success.

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E-invoicing system set to go

PETALING JAYA: With two days to go, most of the 5,000 companies under Phase 1 of the e-invoicing rollout are raring to go and looking at a smooth takeoff, say stakeholders.

Associated Chinese Chambers of Commerce and Industry of Malaysia treasurer-general Datuk Koong Lin Loong said these companies, with an annual turnover of RM100mil and above, should not face any major hiccups when transitioning to e-invoicing on Thursday.

“They will be able to cope with the transition as these companies have the resources to do so,” he said when contacted yesterday about worries some businesses have expressed about beginning the e-invoicing process.

Asked if accounting firms acting for these companies are facing pressure in switching to e-invoicing, Koong, who is a practising auditor and licensed tax agent, said that it is unlikely.

ALSO READ: How e-invoicing affects you

“There is some misunderstanding that e-invoicing is like the Goods and Services Tax (GST), which required some companies to change their entire accounting system.

This is not the case with e-invoicing because companies are already generating invoices through email and their existing computing systems. The only difference is that their invoices will now be digitised and linked to the Inland Revenue Board (LHDN),” he added.

Koong also said that it is quite normal for businesses to express worries whenever a new system is introduced, like mobile phone and QR code payments, for instance.

ALSO READ:‘There’s time for smaller companies to learn the new system’

“There would have been a lot of complaints prior to the Covid-19 pandemic (in 2020) if businesses had been asked if ewallets could be used to make payments. They were practically non-existent.

“But nowadays such payments are widely accepted even among smaller businesses and hawkers,” he said.

Experts say the pandemic greatly sped up digital payments globally, as, for a few years, people were living mostly online.

ALSO READ:LHDN announces six-month grace period for einvoicing implementation

When it comes to e-invoicing, the driving force is efficiency in collecting taxes and stopping leakages to increase the government’s tax revenue. To further ensure a smooth transition, Koong said the LHDN has announced some flexibility and relaxation of e-invoicing regulations.

For instance, there will be no prosecution action under Section 120 of the Income Tax Act 1967 for non-compliance with e-invoicing rules, provided the business complies with consolidated e-invoicing requirements.

This means the supplier can gather all statements or bills issued and then issue a consolidated einvoice as proof of the supplier’s income, according to einvoicemalaysia.my.

ALSO READ:Are you ready for e-invoicing starting Aug 1?

Koong added that the LHDN is planning to roll out an e-invoicing mobile app and e-POS (electronic point-of-sale) system by the end of this year, free of charge for businesses to download.

Phase 2 of the e-invoicing system will be implemented on Jan 1, 2025, for companies with a turnover of below RM100mil and up to RM25mil, while full implementation under Phase 3 will begin on July 1, 2025, for businesses with an annual turnover of above RM150,000.

Malay Chamber of Commerce Malaysia secretary-general Ahmad Yazid Othman said most Phase 1 companies are ready, although some may still be facing some difficulties, especially smaller businesses that serve the larger companies under the Aug 1 rollout.

He added that companies are expecting to run into teething problems just as they did when the GST was first implemented in April 2015.

ALSO READ:The e-invoicing dilemma

“The LHDN has given its assurance of some flexibility and relaxation of regulations during the initial implementation period, and this is most welcome.

“We hope that companies will not delay implementing e-invoicing with these assurances, which will at the same time motivate other companies to speed up the transition process when their turn comes,” he said.

Ahmad Yazid, who is also a senior fellow with the Malay Economic Action Council, said the experience gained from Phase 1 of the e-invoicing process will be helpful for both the LHDN and businesses to better prepare for the coming phases next year.

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How e-invoicing affects you

‘There’s time for smaller companies to learn the new system’

LHDN announces six-month grace period for einvoicing implementation

Are you ready for e-invoicing starting Aug 1?

Microenterprises unprepared for e-invoicing, says Wee

The e-invoicing dilemma

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Planned e-invoicing will be troublesome

The e-invoice conundrum dilemma

Planned e-invoicing will be troublesome

KUALA LUMPUR: The planned introduction of e-invoicing will be both redundant and cause more trouble than it is worth, says Datuk Seri Dr Wee Ka Siong.

The MCA president said the government’s push to prevent tax evasion could be easily solved by the reintroduction of the Goods and Services Tax (GST) rather than e-invoicing.

“If we look at GST previously, we didn’t need to mandate this (invoicing) as it was already an automatic mandatory component of GST for those that wanted to get their tax refunds.

“This made it a two-in-one solution as the government didn’t need to make any sort of invoicing compulsory as businesses were forced to produce clear records to claim tax refunds,” he said in a video on his Facebook page yesterday. 

Dr Wee, who is the Ayer Hitam MP, also noted how the frequently changing guidelines – currently at version 2.1 – by the Inland Revenue Board were causing unnecessary confusion.

“This is already the sixth version and every few days it changes.

“How is anyone expected to keep up with this constant development, especially as it’s a complete system transition

“I understand there is also no significant allocation for any workshops or campaigns to educate businesses on how to transition.

“This is a serious issue, as they need to know the transition process in order to be able to comply with it,” he said, adding that the new system could disproportionately impact small businesses negatively.

“This is because compliant businesses will need to digitalise all their business transactions through e-invoices that smaller businesses don’t need to provide.“As such, larger businesses may be discouraged or even indirectly banned from engaging with smaller businesses due to the need for e-invoices that smaller businesses cannot provide.

“This effectively forces smaller businesses to have to implement e-invoicing if they want to engage with bigger businesses,” he said.

Dr Wee noted that the requirement for businesses to fill out 55 data fields for e-invoicing, which carries a penalty of up to RM20,000 for each error, worsens the situation. This exposes businesses to additional financial strains, such as paying fines or hiring administrative or accounting professionals to complete the data.

“How many people understand what a credit note and a debit note are? The big businesses may be fine, but the small ones will have to pay experts to help them solve this,” he said, adding that security and tax data privacy concerns must also be addressed ahead of the new digital system’s implementation.

“Having all 55 data fields from various big businesses collected and stored in a central database makes it a prime target for hackers.

“We still don’t know what cybersecurity measures they may have to defend the system,” he said.

The e-invoicing system will be rolled out gradually starting on Aug 1, and eventually be extended to all taxpayers by July 1, 2025.

Prime Minister Datuk Seri Anwar Ibrahim has said the e-invoicing system will be applied first to taxpayers who earn an annual income exceeding RM100mil.

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e invoicing Malaysia solution - Malaysia IRBM e-invoicing

Related:

Microenterprises unprepared for e-invoicing, says Wee

https://www.thestar.com.my/news/nation/2024/05/21/microenterprises-unprepared-for-e-invoicing-says-wee

Mandatory e-invoice countdown clock starts next week

Give us time to adjust, urge small businesses

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Digital way to declare and pay income tax

e-Filing counter facilities are no longer available since last year following the new norm SOP.

 LET’S Click HASiL is a convenient programme for taxpayers to declare their income and pay taxes to the the Inland Revenue Board (IRB).

What is Let’s Click HASiL

Let’s Click HASiL enables taxpayers to submit their income tax return or make payment through the convenience of the easy, accurate and secure MyTax app.

MyTax is the primary access to ezHASiL services such as e-Filing, e-Register, ByrHASiL and other services accessible to all taxpayers with a single sign-on.

Taxpayers can file their return form electronically while ensuring the details are accurate.

Additionally, the programme also provides advice to taxpayers through virtual briefings held in accordance with new norm SOP set by the government.

Submission deadline

The Let’s Click HASiL programme runs from March 1 to June 30,2021.

For individuals without business income, they have until April 30 to submit their BE Form.

People who receive income from business have until June 30 to submit their B Form.

However, e-BE submission via e-Filing allows taxpayers to submit the form by May 15 – an extended period compared to paper submission by April 30, while the deadline for e-B is July 15.

 

Tax refund

For individuals without business income, their employer would have made monthly tax deduction off the monthly salary, reducing the burden of employees as they don’t have to pay a lump sum for their annual income tax.

You are eligible to receive a tax refund if you have paid excess monthly tax deduction than the actual tax levied. The income tax imposed can be reduced through tax reliefs and tax rebates.

The e-Filing service gives taxpayers the advantage of receiving their tax refunds within 30 working days as opposed to 90 days for form submissions by post or hand delivery.

ezHASiL simplified taxation

ezHASiL enables taxpayers to manage their taxation online through e-Filing, e-Register, e-Update, e-Ledger and ByrHASiL without having to visit IRB branches physically.

e-Filing counter facilities are no longer available since last year following the new norm SOP.

The e-Filing system can be accessed via the IRB’s official website at www.hasil.gov.my > MyTax > ezHasil Services > e-Filing.

First-time users are required to obtain the PIN number by filling in the feedback form on the website.

Once you have the PIN number, you can start your e-Filing, make payments using ByrHASiL, access payment review through e-Ledger or update personal details via e-Update.

Declare and pay your income tax at mytax.hasil.gov.my. Let us all do our part to ensure prosperity for the country.

Inquiries can be made through the Customer Feedback Form or call the HASiL Care Line (03-8911 1000). Visit www.hasil.gov.my for further information.

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Groups_ Stick to promise and not penalise taxpayers _ The Star

Ma'sian immigration blacklists: PTPTN loan defaulters among 1.14 mil barred from travels

PUTRAJAYA: A wide net has been cast on those barred from leaving the country by the Immigration Department.

And it is not just tax offenders and those with criminal records who face a rude shock at border checkpoints or at the airport.

The latest figures show some 85,000 National Higher Education Fund (PTPTN) beneficiaries who did not repay their loans on the department’s travel blacklist.

They are among 1.14 million people on the list which includes 701,266 Malaysians.

The department has advised Malaysians to check their Immigration status prior to making holiday plans overseas to avoid problems.

“It is the responsibility of the traveller to first check if they are cleared to leave the country.

“It doesn’t matter if you are planning to leave by flight, road, rail or sea.

“As long as you are on the blacklist, you will not be allowed to pass the Immigration checkpoint, even if you have a valid flight ticket,” Immigration security and passport division director Ibrahim Abdullah told The Star.

As of Sept 3, the department’s overseas travel restriction orders included those who have been declared with outstanding debt issues. There were 277,693 such Malaysians named by the Insolvency Department.

Malaysians who have violated a foreign country’s immigration laws, such as by overstaying or abusing their travel visas, are also not spared.

Ibrahim said the countries concerned may bar the defaulters from re-entering the country and this information would be shared with the local Immigration department, such as Malaysia’s, which would then put the defaulter on a watchlist.

A total of 32,516 Malaysians were in this category for having overstayed in another country, alongside 115,803 foreigners who have similarly overstayed in Malaysia and are now barred from leaving the country.

“If any Malaysians on the watchlist try to leave the country, they will be stopped and taken in for an interrogation until it is satisfied that they will not commit the same act in another country again,” said Ibrahim.

Stubborn tax defaulters make up a sizeable group on the travel blacklist, with 135,111 persons named by the Inland Revenue Board.

The Star has reported on Aug 26 that defaulters will not be allowed to travel abroad until they have settled their tax obligations.

The treatment will be the same for those with outstanding issues with the Employees Provident Fund (EPF), such as those who failed to file their EPF contributions. There were 10,219 Malaysians and 532 foreigners listed under this category.

Another 133,314 non-citizens have been barred from leaving the country for having their citizenship revoked or application rejected by the National Registration Depart­ment.

This is on top of 88,830 foreigners who had entered the country illegally and have been classified under the Immigration’s Kes Tanpa Izin.

An unusual cluster of 210 Malaysians were also placed under this category which, according to Ibrahim, had referred to those who have been identified by the Home Ministry as having been involved in activities involving illegal foreign workers.

Several other categories were criminally-linked, including those under police observation (15,699 cases) and for drug-related charges (7,673 cases) or crime (5,090 cases).

There were also 4,953 Malaysians barred from overseas travel for violating Customs regulations.

To find out if you are barred from travelling abroad, one needs only to enter the MyKad number on the department’s travel status check portal at http://sspi2.imi.gov.my/

“If they have been barred, they must be present in person at the nearest Immigration passport and security division, where they will be told why they are not allowed to leave.

“This is to avoid identity abuse by a third party as we do not want private information to be divulged to an impostor,” Ibrahim said.

Almost 85,000 PTPTN study loan defaulters barred from leaving Malaysia

PETALING JAYA: Almost 85,000 National Higher Education Fund Corporation (PTPTN) recipients have been barred from leaving the country to date.

PTPTN chief executive officer Agos Cholan said the corporation had to resort to barring the defaulters from leaving because they had been ignoring repeated reminders to repay their loans.

He said the corporation would send borrowers a reminder to begin repaying their loans six months after graduation.

“If there is no payment after two months, the first notice would be sent,” he said.

This, he added, is followed subsequently by a second and third notice if there was still no repayment.

Agos said after this, the corporation would send a legal notice and subsequently blacklist the borrowers.

To lift the travel ban, Agos said they would need to make some payment immediately, depending on their income.

“They would also need to sign papers committing to pay monthly instalments and arrange for a bank’s standing instruction or salary deductions. Restructuring is allowed if they wish to vary instalment amount,” he said.

Agos said the number had reduced from some 130,000 in 2007 who were barred.

Since Prime Minister Datuk Seri Najib Tun Razak’s announcement that borrowers could expect a 20% discount if they repay their loans in full by March 31 next year, Agos said there had been a few enquiries on the dates.

Najib, when tabling Budget 2015 last Friday, said borrowers who were unable to do so could still get a 10% off their loans if they made continuous payments for 12 months until Dec 31, 2015.

Borrowers were given similar discounts under the Budget 2013.

The travel ban is also imposed on 277,693 Malaysians listed under the Insolvency Department for failing to settle their debts.

Tax defaulters are also on the blacklist, with 135,111 persons named by the Inland Revenue Board.

Another 32,516 Malaysians who have violated laws in foreign countries, including overstaying, have also been barred from leaving the country.

Also blacklisted are 115,803 foreigners who have overstayed in Malaysia.

Immigration's security and passport division director Ibrahim Abdullah told The Star that as long as a person was on the blacklist, they would not be allowed to pass the Immigration checkpoint, even if they have a valid flight ticket.

"It doesn't matter if you are planning to leave by flight, rail, road or sea," he told The Star.

The report added that the travel ban will also be imposed on those with outstanding Employees Provident Fund issues, including those who had failed to file their EPF contributions. A total of 10,219 Malaysians and 532 foreigners are listed under this category.

Meanwhile, The Star also reported PTPTN chief executive officer Agos Cholan as saying that they had to resort to barring the study loan defaulters from leaving the country as they had ignored repeated reminders to repay their loans.

Agos had also reportedly said that to lift the travel ban, defaulters would need to make some payment immediately, with the amount determined by their income. – October 14, 2014.

Source: The Star/Asia News Network

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US government monitoring its oversea citizens by Foreign Account Tax Compliance Act (FATCA)

Malaysia to ink pact in line with FATCA

KUALA LUMPUR: All local financial institutions will be required to declare their American customers to the United States Internal Revenue Service (IRS) under a new agreement to catch its tax evaders who hide their money overseas.

Malaysia will be entering into an inter-governmental agreement with the US in line with the implementation of its Foreign Account Tax Compliance Act (Fatca).

Inland Revenue Board (IRB) chief executive officer Tan Sri Dr Mohd Shukor Mahfar said Malaysia would fully enforce all the requirements of Fatca by September next year.

“Fatca is a very interesting move by the US to monitor its citizens who have income outside of the country. The rest of the world is required to abide by Fatca or the US government will impose a withholding tax of 30%.

“So, IRB, as the tax authority for Malaysia, along with Bank Negara, will be signing the agreement,” he said at the National Tax Conference 2014 here yesterday.

The tax is imposed by withholding earnings on the funds in the account of the US citizen and paid to its government.

Under the Act, all foreign financial institutions must declare the financial holdings of any US citizen or cough up a 30% withholding tax on their own.

The US imposes income tax on its citizens, regardless of which country they reside in.

Many countries, including Switzerland which was previously considered a haven for those who sought to keep money overseas in secrecy, have signed the agreement.

Other countries listed by the US Treasury website are Britain, Australia and France while Indonesia, Thailand, Singapore and China are those which have consented to entering the agreement.

Earlier, Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah said the proposed amendment to Inland Revenue Board of Malaysia Act would be tabled at the Dewan Rakyat sitting in October.

Previously, a controversy had erupted when it was alleged that the amendments would transform the tax agency into a firm that invested taxes collected on behalf of the Government.

The Finance Ministry later denied this, adding that all direct taxes collected by the board would be channelled to the Federal Consolidated Fund.

By P. Aruna The Star/Asian News Network

IRS Notes:

Foreign Account Tax Compliance Act

FATCA Current Alerts and Other News
The provisions commonly known as the Foreign Account Tax Compliance Act (FATCA) became law in March 2010.
FATCA targets tax non-compliance by U.S. taxpayers with foreign accounts
FATCA focuses on reporting:
	By U.S. taxpayers about certain foreign financial accounts and offshore assets
	By foreign financial institutions about financial accounts held by U.S. taxpayers or foreign entities in which U.S. taxpayers hold a substantial ownership interest
The objective of FATCA is the reporting of foreign financial assets; withholding is the cost of not reporting.

Individuals		Financial Institutions		Governments
U.S. individual taxpayers must report information about certain foreign financial accounts and offshore assets on Form 8938 and attach it to their income tax return, if the total asset value exceeds the appropriate reporting threshold. Form 8938 reporting is in addition to FBAR reporting. > Learn More ...		Foreign To avoid being withheld upon, a foreign financial institution may register with the IRS, obtain a Global Intermediary Identification Number (GIIN) and report certain information on U.S. accounts to the IRS. > Learn More... U.S. U.S. financial institutions and other U.S withholding agents must both withhold 30% on certain payments to foreign entities that do not document their FATCA status and report information about certain non-financial foreign entities. > Learn More...		If a jurisdiction enters into an Intergovernmental Agreement (IGA) to implement FATCA, the reporting and other compliance burdens on the financial institutions in the jurisdiction may be simplified. Such financial institutions will not be subject to withholding under FATCA. > Learn More ...

Property gain tax won't hurt genuine buyers

Banning DIBS is the right move

FOR many years, the National House Buyers Association (HBA) has been urging the Government to take measures to stem the steep rise in property prices to avoid a “homeless generation” as current property prices are far beyond the reach of many low and middle-income families in urban and suburban areas.This is a ticking time bomb that will result in many social problems if left unchecked.


Real Property Gains Tax (RPGT)

The announcement of the revised rate of tax on gains made in the disposal of properties, namely, the Real Property Gains Tax (RPGT), formerly known as the Anti Speculation Act, under Budget 2014 is far more superior to what had been proposed under Budget 2013 (See table above)

This is because, typically, if the property is purchased directly from the developer, it takes two years (for landed properties) and three years (for strata properties) to be completed.

Hence, under the previous RPGT, speculators could purchase properties from property developers upon their launch and then flip these properties on completion (after two years) and having to pay 10% (i.e. within the 3rd to 5th year).

It is hoped that the revised RPGT rate will deter speculators and, at the same time, not punish genuine house buyers who buy for their own stay or long-term investment. It is worth noting that buyers of residential property could seek a once-in-a-lifetime exemption from the tax.

Budget 2014 is best described as an “excellent mathematical formula” to curb the unbridled escalation of house prices, which has in the last three years skyrocketed. The Government has taken a step in the right direction with measures to slow down the steep rise in property prices due to false demand caused by excessive speculation fuelled by easy housing loans and the previously low RPGT.


Foreign purchasers to pay more

HBA applauds the move to increase the minimum price of property that can be purchased by foreigners from RM500,000 to RM1mil. Foreigners must be prevented from “snapping up” property meant for the lower and middle income.

This artificially inflates prices and creates a domino effect which can result in higher property prices across the industry. This is especially true for development corridors such as Iskandar Malaysia which has seen foreign purchasers arriving in droves and scooping up properties with their advantageous exchange rate.


Banning the Developer Interest-Bearing Scheme (DIBS) 

DIBS is popular with speculators as they pay nothing to make a profit. Their initial down-payments and deposits are sometimes factored into the purchase price by the collusive developers, and some unethical financial institutions do not even require that the developer collect the deposit that has to be paid by the so-called purchaser.

This is one of the factors which induces “bogus” house buyers (which I have written about in this column on Aug 31 entitled: Of Speculators and bogus house buyers) who merely flip the property at the right time.

Kudos to Bank Negara for heeding our call and banning DIBS. It may be worth noting that Singapore banned DIBS in 2009.

Considering the deep pockets of property speculators, the effectiveness of these measures remain to be seen. However, they are expected to make speculation unworthwhile. HBA praises the Prime Minister for putting a stop to DIBS, which is one of the reasons attributed to the steep increase in property prices for three reasons:

1. DIBS encourages speculation as the house buyer does not need to “service” any interest/instalment during the construction stage. This will “lure” and tempt many house buyers to speculate and buy into DIBS projects hoping to flip on completion and make a quick profit with little or no capital upfront. Connivingly, the interest element is “serviced” by the participating developers.

2. DIBS artificially inflates prices as all interests borne by the developer are ultimately imputed into the property price. This in turn creates a domino effect which pulls up property prices in surrounding locations.

3. Bank and financial institution staff conniving with developers using the DIBS model should be investigated on their “modus operandi” in financing those artificially inflated prices (DIBS + sales price) and ignoring guidelines on prudent lending.

Banks and financial institutions are to be prudent and only provide mortgage financing up to the fair value/market value of the property. In this respect, a benchmark of fair value or market value is the current properties available. Somehow, properties sold under DIBS are always priced much higher; 15% to 20% higher compared with those without DIBS.

For standard condominiums costing RM500,000 without DIBS, should the developer market such properties under DIBS, the selling price could be as high as RM650,000. This creates a potential property bubble should the developer default in “servicing” the interest and the borrower/purchaser also defaults. The bank would only be able to recover up to RM500,000 if the said property is auctioned at market value.

In the event of an economic downturn, banks saddled with too much DIBS end-financing could collapse as the losses from such DIBS end-financing will erode the banks’ capital.

The collapse of just one bank/financial institution could cause a systemic collapse of the entire financial industry.

Bank Negara should take action against such bank and financial institution staff who have provided both project financing and end-financing to DIBS projects under the newly-minted Financial Services Act, 2013.

With the RPGT increase, banning of the DIBS and the Government’s aspiration to supply more ‘ownership housing schemes’ at affordable pricing, it is hoped that speculative demand for properties will stabilise to a more realistic level. I have heard that many businessmen do not do business anymore but indulge in property speculation as a livelihood and for income.

It is akin to the stock market dealings that were rampant during a ‘bull run’. Certain things have to be stopped before they become worse like the sub-prime crisis in the US.

If readers were to take a drive around completed projects, they will find signboards advertising units for sale upon the delivery of keys. If the purchaser is purchasing for his own occupation, why is there this need to put up these signboards or appoint estate agents to dispose of the units? It goes to show that some purchasers are merely speculators (not investors) from day one and the banks and financial institutions choose to “close one eye” despite knowing this.

Have the banks ever gone to the ground to check whether the units purchased and financed are actually “owner occupied”? If the property is “owner occupied”, the risk rating is lower and thus, he enjoys a lower interest rate. But if it is non-owner occupied, it should have higher interest rates. Borrowers of “owner occupied” properties are normally required to make a declaration to that effect to enjoy a lower interest rate.

But does the bank participate in this booking of credit risk?

If the property is non-owner occupied, the lending will fall under ‘real estate classification’ and not ‘housing’.

So, there may even be misreporting to Bank Negara and subsequent national statistics.

This column continues next week.

- Contributed by Chang Kim Loong

CHANG KIM LOONG is the honorary secretary-general of the National House Buyers Association (www.hba.org.my), a non-profit, non-governmental organisation (NGO) manned by volunteers. He is also an NGO Councillor at the Subang Jaya Municipality Council.

Related posts:
1. New tax rate on property to keep away flippers
2. Malaysia's high property taxes may not stop prices going up, sub-sales residential houses likely to soar!
3. Malaysia Tax Budget 2014 Updates