ST Forum : Make property tax more equitable

16 Feb 2011,
Make property tax more equitable

ACCORDING to Saturday's report ("Housing affordability of key concern"), the general sentiment is that the Government would be dishing out property, utility and service and conservancy rebates, upgrading old estates to increase the supply of HDB flats and providing larger housing grants for lower-income households in this year's Budget.

While these measures would be welcomed, they are just stop-gap measures and do not address the root of the problem: land scarcity in Singapore.

Land scarcity inevitably leads to high property prices as the supply of properties is insufficient to meet demand. Living in landed property is definitely a luxury and to ensure efficient and equitable allocation of resources, luxuries should be priced accordingly to reflect their scarcity. The current property tax policy in Singapore does not adhere to this principle of efficient allocation.

Currently, properties are taxed based on their annual value, which is the estimated amount of rental the properties would fetch if they were to be rented out. At first glance, one might be convinced that the landed property owner is paying a higher property tax and is thus paying a fair price for his luxury. However, the current tax rates fail to separate the concept of property from land.

Take, for example, a bungalow that sits on a 10,000 sq m plot of land could accommodate 40 three-room flats. Thus we can say that for the same size of land, HDB flat dwellers collectively pay a higher amount of tax than a landed property dweller.

Furthermore, the tax places a bigger financial burden on the lower-income group.

A property tax reform where the notions of land and property are separated is due. Property owners should still be taxed based on the estimated rental revenue, but at a lower rate. The balance should come from a land tax, where property owners are taxed based on the size of the plot they occupy and also the share of the plot which they occupy. Thus, the landed property owner would pay tax for the whole of his bungalow, while an HDB flat dweller living in a 20-storey block would pay 1/20 of the land tax. This new tax regime would be more equitable.

Goh Ching Soon