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Tuesday, February 23, 2010

BT : Property tax gets a welcome tweak

Business Times - 23 Feb 2010

BUDGET 2010: PROPERTY
Property tax gets a welcome tweak

More progressive system will benefit more owners, won't hit high-end demand

By KALPANA RASHIWALA

MOST market watchers have welcomed Finance Minister Tharman Shanmugaratnam's move towards a progressive property tax regime for owner-occupied residential properties as a fairer system.

Currently, owner-occupied residential properties are taxed at a flat rate of 4 per cent of annual value (AV) or the estimated annual rent of a property, excluding the rent for furniture, fittings and service charge.

But for property tax payable on such properties from January 2011, there will be three tiers of tax rates. The first $6,000 of AV will be exempted from property tax. The next $59,000 AV will be taxed at 4 per cent and the balance of AV above $65,000 will be taxed at 6 per cent.

'The new system ... will benefit most Singaporeans ... all HDB flat owners and the large majority of private property owners will pay lower taxes compared to the current system,' Mr Tharman said.

'...our property tax rates, even for the high-end, will remain lower than in most international cities. That is as it should be, so that we remain a vibrant and attractive place for businesses and individuals,' he added.

All owner-occupied homes will enjoy tax savings of $240 as a result of the exemption of the first $6,000 of AV, according to Mr Tharman.

'Owners of high-end properties with AVs of more than $77,000 will see a small increase in tax payable, as their effective tax rates will be higher than the current 4 per cent. They comprise the top 3 per cent of private owner-occupied residential properties, or the top 0.4 per cent of all owner-occupied homes in Singapore.

'Homes with AVs of about $80,000 will face only a small increase in tax, of slightly less than $100 per year. A property with an AV of $150,000, which typically is a large property in the central districts and is within the top 0.5 per cent level of private owner-occupied homes, will face an increase in property tax of about $1,500 per year,' he added.

The move will cost the government about $230 million a year initially.

Knight Frank managing director (residential services) Peter Ow welcomed the change, describing it as 'taxing the rich to give the poor. It's a fairer system'.

He does not expect the higher property tax rate payable for higher AV properties to dent demand for residential properties bought for owner occupation. 'The 2 per cent will not hurt the pockets of owners in this bracket. A property with $65,000 AV would probably be worth around $2.5 million to $3 million.'

Leonard Ong, executive director, KPMG Tax Services, said: 'We think it is a good way for Government to help owner occupiers of residential properties in Singapore. The bulk of them will be in the lower band of property tax; only a minority, those who own higher-value properties, will be in the upper tax band. This benefits more people than the current structure, which is a flat rate system.'

The property tax for non-owner-occupied residential properties as well as other properties will remain at a flat rate of 10 per cent of AV.

Inland Revenue Authority of Singapore determines the AV of a property by analysing rents of similar properties.

Currently, in addition to the 4 per cent concessionary tax rate, owner-occupied residential properties with AVs below $10,000 can enjoy the ongoing 1994 property tax rebates ranging from $25 to $150, depending on the AVs of the properties. The rebates, introduced together with the Goods and Services Tax, are aimed at supporting the lower- and middle-income groups. 'It has significantly reduced property tax payable by HDB flat owners. However, as HDB homes gradually appreciate in value over the long term, flat owners will see an increasing property tax bill over time,' Mr Tharman said.

The government provided special additional rebates last month to mitigate increases in tax payable as a result of higher rentals and hence AVs of HDB flats over the past two years.

However, the need for a longer-term solution that provides a fair and balanced system for all property owners led Mr Tharman to announce the progressive property tax schedule for owner-occupied residential property.

Market watchers also noted that there were no property tax rebates for commercial and industrial properties in the latest Budget statement.

Earlier in his Budget speech when he covered the fiscal position for FY2009, Mr Tharman also revealed that a strong recovery in the volume of transactions in the property market boosted stamp duty collections which ended up $1.3 billion higher than initially estimated.

Copyright © 2010 Singapore Press Holdings Ltd. All rights reserved.



Fair: The need for a longer-term solution that provides a fair and balanced system for all property owners led Mr Tharman to announce the progressive tax schedule


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