Incentive for green buildings

According to Green Building Council of South Africa, green building incorporates designs,
construction and operational practices that significantly reduce or eliminate the negative impact of
development and people. Green building are energy efficient, resource efficient and environmentally
responsible. In short, green buildings are environmentally and ecological friendly.
Green building ratings development has started as early as in the 1990s with BREEAM (UK,
1990) and later LEED (USA, 1996) being the better known ones (Tan 2009). In Malaysia, Green
Building Index (GBI) was introduced on 21 May 2009 by the Board of Architects Malaysia (PAM) and
the Association of Consulting Engineers Malaysia (ACEM). It served as an initiative to widen the
usage of green technology in the construction of buildings which would eventually address both
rising energy costs and climate change effects.
In order to be awarded with GBI certificate, the buildings have to meet the six keys criteria
namely, energy efficiency; indoor environmental quality; sustainable site planning and management;
material and resources; water efficiency; and innovation. In line with the introduction of GBI, the
government in its budget 2010 had introduced tax incentive for GBI-certified buildings in order to
encourage the construction of green buildings which are;

Building owners obtaining GBI certificates from 24 October 2009 until 31 December 2014 will
be given income tax exemption equivalent to the 100% additional capital expenditures in

obtaining such Certificates.

Buyers purchasing buildings with GBI Certificates from developers be given stamp duty
exemption on instruments of transfer of ownership. The exemption amount is equivalent to
the additional cost incurred in obtaining the GBI certificates. This exemption is given to
buyers who execute sales and purchase agreements from 24 October 2009 until 31
December 2014.
(PWC, 2010)
The qualifying buildings must be owned and used in the business and deemed to be

incurred on the day the certificate is issued. However, this incentive is not applicable to a person
who has incurred qualifying expenditure on a building, plant or machinery for a basis period for a YA
where during that basis period the person has claimed in respect of that building, plant, or
machinery under the exemption stated in Income Tax (Exemption) (No.5) Order 2011, PU(A) 325/11.
There are a few tax issues relating to this incentive. The main one being the scope of GBI
tax incentive is too narrow as the incentive is only applicable to those who construct as well as own
green buildings. Property developers are being left out (Eco-Business 2010). Moreover, according
to Journal of Accountancy August 1, 2009, some buildings are owned by government agencies
which do not pay taxes. So, there was a concern that the impact of the incentive would be
dramatically reduced since it was not useful for the said properties owners. To counter this problem,
the United States Congress made the unusual decision to allow the building designers to take the

deduction although they have own no ownership in the property. Hence, Malaysian government has
to take this issue into consideration in order for the purpose of GBI to be achieved holistically.
There are a number of criticism on GBI tax incentives. According to Aliagha at.al, the
criticisms are such as (1) on qualifying expenditure where the incidental cost such as GBI
registration fees, GBI facilitator cost and consultancy cost are not included as additional capital
expenditure incurred to obtain the GBI certification; (2) on qualifying person where only a person
who incurs qualifying expenditure and commences his business at GBI building would qualify for
GBI income tax incentives. Thus, property developers, private house owners who lease GBI
residential properties to collect passive income and first property buyers would not qualify for GBI
income tax; (3) the GBI income incentives and stamp duty exemption is standard and not enhanced
if the GBI certified building attains higher category, such as from silver to platinum category; (4) lack
of clarity and details on qualifying expenditure as to what constitutes reference base cost for green
asserts as some green asserts were given reference base cost while others were not; and (5)
generally the current tax incentives for green technology in Malaysia may not be sufficiently
attractive to the public and private sectors as compared to those given by neighbouring countries
(PwC 2010). Moreover, participation in GBI is generally voluntary for existing and new buildings,
private and public building. There is no element of mandatory clause or regulation making it
mandatory for some class of new building to achieve at least the minimum certified level of GBI
rating or a mandatory regulation setting a realistic target such as 2025 for some class of existing
public buildings to undergo major retrofitting to at last to either certified or silver GBI rating level.
https://www2.deloitte.com/content/dam/Deloitte/my/Documents/tax/my-tax-greener-days-ahead-formalaysia-noexp.pdf
not sure abt current development