Property tax assessment incentive model for green building initiative in Malaysia

Abstract

The practice of providing property tax assessment incentives for green buildings has been proven to encourage the growth of green building practices at a local level. However, the property tax assessment incentive available for green buildings in Malaysia is developed without property tax assessment basis and requires large financial expenditure from the local authority. Therefore, this scenario exhibits the incentive only relevant for local authority with strong financial budget. As a result it creates an issue for those unwilling nor do they have large financial budget to spend on the incentive program. This study aims to address the issue by developing a model of property tax assessment incentive based on improved value excluding financial expenditure from the local authority. There are three objectives outlined in this study: 1) to determine green envelope components of green building certified under Malaysian Green Building Index (GBI) rating tool: 2) to analyse the effect of the determined green envelope component on property value; and 3) to develop and validate property tax assessment incentive models for green building. The GBI certified green envelope components were determined through integrating the green benefits of identified green envelope components with GBI green criteria using meta-analysis. The sampling focuses on Malaysian property valuation practitioners with green building valuation experiences. This study comprises quantitative data involving questionnaire survey to 550 property valuation practitioners in Malaysia. The collected data were analysed using frequency analysis. The Cost-Benefits analysis between property tax assessment increment and annual energy saving conveyed by green envelope components on building was conducted to determine the appropriate baseline for percentage of reduction for the proposed incentive models. The developed models were validated through semi-structured interview with the Director of Valuation Department at Kulai Municipal Council. The findings demonstrate that out of ten green envelope components affecting property value, three green envelope components were found to increase property value, namely: solar photovoltaic, green roof and green living wall. Two property tax assessment incentive models developed are: 1) exemption model and 2) reduction model. The results indicate that the reduction baseline for solar photovoltaic, green roof and green living starts from 25%, 0% and 0% respectively. Kulai Municipal Council is willing to provide 50% reduction for each green envelope component.Through a proposed exemption model, the local authority and taxpayer do not experience any changes on their existing tax. However, through a reduction model, the local authority does experience around RM 18 to RM 40 minimum tax increment on their existing tax revenue. Meanwhile, for the taxpayer, the annual energy saving conveyed by the green envelope components is able to compensate the amount of tax increment.