KUALA LUMPUR: The National House Buyers Association (HBA) is opposing the proposed reintroduction of an inheritance tax in the 2025 Budget, which is among several measures aimed at broadening the tax base and boosting government revenue.

HBA secretary-general Datuk Chang Kim Loong argued that this tax amounts to double taxation and penalises "years of hard work."

Chang pointed out that middle-class families and small business owners would be disproportionately impacted by the reintroduction of the tax, which was abolished in 1991.

"The inheritance tax is effectively imposing a tax on inflation. If a taxpayer has worked hard, paid his taxes, and used the remaining money to invest in various assets such as property, commodities, and equities, it would be utterly unfair for these assets to be subject to an inheritance tax on the demise of the taxpayer. It is everyone's aspiration to improve his economic condition and ensure that his future generation has a better start in life," he told Business Times.

He was responding to an Utusan Malaysia report suggesting that the upcoming federal budget could introduce five new taxes: inheritance tax, unhealthy food tax, carbon pricing tax, high-value goods tax (HVGT), and artificial intelligence (AI) tax.

Analysts believe the unhealthy food tax will address rising obesity and lifestyle-related health issues, while the carbon pricing tax supports climate change initiatives targeting zero carbon by 2050. HVGT aims to reduce income inequality by taxing luxury goods, and the AI tax is meant to promote high-tech industry growth.

The inheritance tax, however, is intended to prevent the concentration of unproductive wealth in families, thereby reducing the wealth gap.

Chang criticised this logic, saying, "Imposing an inheritance tax is punishing those who have succeeded."

He emphasised that as Malaysia transitions to a developed nation, it should reward citizens for improving their financial status, which in turn boosts the economy. Imposing such a tax could discourage success, lead to capital flight, and prompt the migration of successful individuals.

"It's unfair to property buyers who have worked hard and saved for future generations. For many Malaysians, the largest portion of their wealth is tied to property," Chang explained.

He added that property values generally rise due to inflation, increased demand, and the scarcity of land.

"Investing in property is often seen as a hedge against inflation, as the rate of appreciation tends to outpace the official inflation rate."

By taxing properties through an inheritance tax, Chang argued, the government would essentially be taxing inflation.

According to Chang, the inheritance tax would be imposed when the legal ownership of the deceased's assets is transferred to the beneficiaries.

However, in many cases, beneficiaries may still be living in the inherited properties without realising any economic gain from selling them.

He cited the example of a property purchased in 1977 for RM20,000, which increased in value to RM380,000 by 2020.

While this may seem like a significant gain, he pointed out that much of this increase is due to inflation.

"Consider the following example where the man purchased the property in 1977, got married, and lived there until his passing in 2020. At the time of his death, the property was valued at RM380,000, and he had left it to his wife in his will. While it may seem impressive that the property's value increased 18-fold from RM20,000, it's important to note that this RM360,000 increase occurred over 43 years."

Chang said that while the compounded annual growth rate of the property from 1977 to 2020 is 7.09 per cent, however, a significant portion of this increase is attributable to inflation.

"While we don't have the exact inflation data for Malaysia from 1977 to 2020, we can conservatively estimate an official inflation rate of 3.5 per cent. By compounding this rate over 43 years, the property's value would have increased to RM87,794.

"But is this 3.5 per cent inflation rate a true reflection of the public's experience? Most people would argue that real inflation is higher, likely between 5.0 per cent and 6.0 per cent, so we will use 5.5 per cent as a midpoint.

"Compounding this rate from 1977 to 2020, the property's value would have risen to RM199,934. Therefore, after adjusting for real inflation, the net increase in the property's value would be RM160,066, with about 55.5 per cent of the total increase due to inflation," Chang said.

Chang said that if an inheritance tax is introduced, it is expected to be based on the property's current market value.

This means that beneficiaries would essentially be paying a tax on the inflation that has occurred since the property was acquired.

"In the example above, the wife would have to pay an inheritance tax to receive her late husband's property. If she couldn't afford the tax, the government might seize the property, potentially leaving her homeless."