ST : New progressive property tax system

Feb 23, 2010

BUDGET 2010

New progressive property tax system

By Jessica Cheam

SINGAPORE is shifting to a progressive property tax system that will mean lower- and middle-income property owners living in their homes will pay less tax.

All Housing Board (HDB) flat owners and a large majority of private property owners will enjoy tax savings of $240 a year as a result of the new system.

Finance Minister Tharman Shanmugaratnam said yesterday in his Budget statement that the Government intends to keep the property tax 'as a means of redistribution in our society, together with our income tax regime'.

Although the current system already taxes the wealthy more than others, there is 'scope for us to introduce further progressivity in property taxes', he said.

The new property tax regime is a three-tiered one at 0 per cent, 4 per cent and 6 per cent, and replaces the current flat 4 per cent concessionary rate for owner-occupied residential homes.

The first $6,000 of a home's annual value (AV) will be exempted from property tax - saving owners $240.

The next $59,000 will be taxed at 4 per cent and any AV above $65,000 will be taxed at 6 per cent.

The AV is the estimated annual rent of an owner-occupied property if it were rented out, excluding rent for furniture, fittings and any service charge.

The new system will apply for property tax payable from January next year.

Currently, owner-occupied homes with AVs below $10,000 also enjoy the ongoing 1994 property tax rebates ranging from $25 to $150, depending on the AV of their properties.

This will cease and be replaced by the new system. All other non owner-occupied properties are taxed at 10 per cent and are unaffected by the new tax regime.

Mr Tharman explained yesterday that when the Government abolished estate duty entirely in 2008, property tax was the remaining form of tax on assets.

He said the Government intended to retain property tax as it did not affect the middle and upper-middle groups more than the wealthier ones.

This was the reason that estate duty, which had been impacting middle and upper-middle income earners to a disproportionate extent, had been scrapped.

Mr Tharman added that a moderately progressive property tax system, together with an income tax system that collects more tax from the wealthy and a flat goods and services tax rate that everyone pays, will, together form a fair system of taxes in Singapore.

'Everyone pays something, but the rich pay more. Taken together, the overall burden of taxes will and must remain low by international standards,' he said.

He also noted, however, that as HDB homes gradually appreciate in value over the long term, flat owners will see an increasing property tax bill over time.

KPMG executive director (tax services) Leonard Ong said yesterday that the new system is a 'fairer way of collecting property taxes, as only a small, wealthier majority end up paying more'.

Indeed, owners of high-end properties will see a small increase in tax payable.

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, said Mr Tharman.

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.

However, the new tax rates, even for the high-end, will remain lower than in most international cities, he added.

'That is as it should be, so that we remain a vibrant and attractive place for businesses and individuals alike.'

Real estate consultancy Colliers International managing director of China, Singapore and Taiwan, Mr Dennis Yeo, said the switch to a more moderate progressive tax schedule is a more long-term approach than the periodic tax rebates extended by the Government previously.

'It is expected to have little bearing on the property market in terms of market sentiment and activities,' he said.

This new progressive system of property taxes will cost the Government about $230 million a year initially, said Mr Tharman.


--------------------------------------------------------------------------------

What's changing

CURRENTLY: Owner-occupied residential properties are taxed at a concessionary 4 per cent rate.

In addition, owner-occupied residential properties with an annual value (AV) of below $10,000 can enjoy the ongoing 1994 property tax rebates ranging from $25 to $150, depending on the AV of their properties.

The AV is the estimated annual rent of your property if it were to be rented out, excluding the rent for furniture, fittings and any service charge.

All other properties are taxed at 10 per cent.

BUDGET 2010:

For property tax payable from January next year, the 1994 property tax rebates will be replaced by a progressive property tax schedule for owner-occupied residential properties:

· 0 per cent for the first $6,000 of AV;

· 4 per cent for the next $59,000 of AV;

· 6 per cent for the balance of AV in excess of $65,000.

Non-owner-occupied residential properties and other properties will continue to be subject to 10 per cent property tax.