Q.
The definition of Annual Value under Section 2 of the Local Government Act 1976 (Act 171) (as amended) is very detail. By using adequate valuation examples, elaborate what is Annual Value.
(25 marks, 2013 Q2)
A.
Local Government Act 1976 (Act 171) on "Annual Value" as verbatim below:
Interpretation
2. In this Act, unless the context otherwise requires— “annual value” means the estimated gross annual rent at which the holding might reasonably be expected to let from year to year the landlord paying the expenses of repair, insurance, maintenance or upkeep and all public rates and taxes:
Provided that—
(a) in estimating the annual value no account shall be taken of any restrictions or control on rent in so far as it limits the rent which may be required by a landlord or recovered from a tenant of a holding;
(b) in estimating the annual value of any holding in or upon which there is any machinery used for any or all of the following purposes:
(i) the making of any article or part of an article;
(ii) the altering, repairing, ornamenting or finishing of any article;
(iii) the adapting for sale of any article, the enhanced value given to the holding from the presence of such machinery shall not be taken into consideration, and for the purposes of this paragraph “machinery” includes steam engines, boilers or other motive power belonging to such machinery;
(c) in the case of any land—
(i) which is partially occupied or partially built upon;
(ii) which is vacant, unoccupied or not built upon;
(iii) with an incomplete building; or
(iv) with a building which has been certified by the local authority to be abandoned or dilapidated or unfit for human habitation,
the annual value shall be, in the case of subparagraph (i), either the annual value as hereinbefore defined or ten per centum of the open market value thereof at the absolute discretion of the Valuation Officer, and in the case of subparagraphs (ii), (iii) and (iv) the annual value shall be ten per centum of the open market value thereof as if, in relation to subparagraphs (iii) and (iv), it were vacant land with no buildings thereon and in all cases the local authority may, with the approval of the State Authority, reduce such percentages to a minimum of five per centum;
(d) where in respect of any particular holding, in the opinion of the Valuation Officer, there is insufficient evidence to base a valuation of annual value upon, the Valuation Officer may apply such methods of valuation as in his opinion appears appropriate to arrive at the annual value;
“building” includes any house, hut, shed or roofed enclosure, whether used for the purpose of human habitation or otherwise, and also any wall, fence, platform, underground tank, staging, gate, post, pillar, paling, frame, hoarding, slip, dock, wharf, pier, jetty, landing-stage, swimming pool, bridge, railway lines, transmission lines, cables, re-diffusion lines, overhead or underground pipelines, or any other structure, support or foundation;
Brief Summary
Please see write up by Christopher Chan on Proposal revision of assessment rates explained.
'Elaborate what is Annual Value' - that is the question.
By definition, "Annual Value" is
"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."
In layman term, if you have a house which is rented out at RM600 per month, the annual rental is RM7,200. However, the landlord needs to pay for repairs (RM1,000), Insurance (RM200), Maintenance and Upkeep (RM1,500), IndahWater rates (RM140), Other Rates/Taxes (RM200), the balance is:
7,200 - (1,000+200+1,500+140+200) = 7,200 - 3,400 = 3,800.
At this point, let us not get confused with the Nett Rental Value (RM3,800) and the Gross Rental Value (RM7,200). So, which is the "Annual Value"?
From Section 2, Local Government Act 1976, it says "estimated gross annual rent", thus it is RM7,200.
It is this Annual Value (RM7,200) which is imposed a rate by S.130 (Basis of assessment of rates), in particular S.130(2)(a) for maximum 35% of Annual Value, and S.130(2)(c) drainage rate at 5%.
Thus, the rates for the above property should be maximum at:
Annual Rate - RM7,200 x 35% = RM2,520 (RM1,260 half yearly).
Drainage Rate - RM7,200 x 5% = RM360 (RM180 half yearly)
Notwithstanding, most Local Authority is not imposing such a high rates - 35%, but at 6-10% or less. Thus, the usual rate for a double storey house is RM576 per year - 8% (RM288 half yearly). This is due to valuation for the area being carried out many years back.
For example, in Kuching at 20 years back, a double storey house could only be rented out at RM350 per month the most. This value is never reassessed since then, and thus the annual value is near RM4,200.
This "Annual Value" is imposed a rate of 8% thus, the half yearly rate payable is RM168 (RM336/year).
If a new valuation exercise is being carried out by JPPH, the market value of Annual Rent may be now at RM1,200 per month, which is RM14,400 per year. The new assessment rate at 8% should be RM1,252 yearly (RM576 half yearly).
Ref:
Section 2 and 130 of Local Government Act 1976, available at
http://www.agc.gov.my/Akta/Vol.%204/Act%20171.pdf
http://savemoney.my/property-assessment-rates-in-