by Bic Cherry
To promote inclusivity, top tier residential property tax should be up to 28.6 per cent of annual value (AV).
Currently, the max residential property tax is only 16 per cent at max tier.
For residential leasehold (LH) properties under 99 years, the max property tax tier shall be 22 per cent of assessed AV – in line with max personal income tax rate.
For freehold (FH) and LH above 99 years, an additional 30 per cent surcharge will apply on the property tax charged, thus the total effective property tax for the grandest FH property would be effectively 28.6 per cent of annual value.
This is because in a diverse economy there are many forms of income not adequately taxed by the current income tax methods of assessment. These include capital and investment gains, inheritance, undeclared earnings, stock trading profits, online earnings earned offshore, etc.
Singapore also has a low wage vs. capital share of gross domestic product (GDP), thus suggesting that wealth from capital gains ought to be taxed more. Not forgetting, few of these uber-expensive and massive properties also contain a treasure trove of expensive furniture; and often, artwork, wines, jewellery, and gold bullion worth much more than the property itself – since Singapore’s gun-free and safe environment, strong army, and fast response time of Home Team services permits dual use of the large residence as a reliable physical wealth store.
Therefore, it is not unreasonable to expect that the top tier of residential property taxes ought to exceed the top personal income tax bracket. Due to lower tax levels of preceding tiers, the total tax payable shouldn’t exceed 28 per cent.
The People’s Action Party (PAP) is also actively promoting rich foreign billionaires to live in Singapore. The current residential property tax rates do injustice to the revenues that the Inland Revenue Authority of Singapore (IRAS) collects since the vast majority of Singaporeans live in LH properties.
Hence, they cannot effectively bequeath much property to their descendants, unlike the Singaporean billionaires who hold their FH property in perpetuity; thus the need for an additional FH surcharge to the ordinary LH property tax charged.
Setting the top tier property tax level somewhat in stone and linked to the very competitive personal income tax levels *(one of lowest in the world) will give these billionaires more confidence that the Government is not corrupt or confused and is able to give a coherent, reasonable, and sustainable explanation of the methodology of property tax charged.
In addition, having a consistent property tax rate which is largely tagged to the income tax and Goods & Services Tax (GST) rate will serve as a sustainable property cooling measure, and also leverage upon Asians often times maleficent obsession with property amassment to the detriment of society (like in Hong Kong where gross inequality of access to home is prevalent) – without the need for shallow, knee jerk, economically inefficient/disruptive, and unjust *property cooling measures like additional stamp duties, etc. which instead caused a property buying frenzy the night of its implementation.
Due to the one-off surcharge of stamp duty, such cooling measures only create more unpredictability and instability of the property market in the long run.
All FH property owners may at any time excuse themselves from paying the FH additional property tax surcharge by converting their land titles to LH titles.
The Government will not need to raise GST as a result of this increase in property tax, in part due to the probable overall increase in tax revenues collected (especially from massive FH properties), and in part because the greater recycling of residential properties (either due to FH property tax surcharge or the sale of recycled LH land) will be a renewable source of government revenue income to fund government budgets for subsequent years.
In view of the high wealth inequality in Singapore, it is suggested that the per capita 50 per cent tile of all residential property taxes is deposited into a ‘living-costs’ account of each citizen under the Central Provident Fund (CPF) umbrella – like the SkillsFuture account.
This non-withdrawal cash account can be used for government-sanctioned uses like fully paying residential property taxes or property rental (for rental tenants), a portion of utility and medical bills, educational courses, etc. Upon death or relinquishing of Singapore citizenship, the balance of savings in this account cannot be withdrawn.
It is noteworthy that for retirees who are asset rich and cannot afford the increased property taxes in their very large old properties, they can opt to tenant out additional rooms, convert their land titles to LH to avoid the FH additional tax surcharge, or even opt for a reverse mortgage to draw income from their wealth assets, and let the next generation repay the reverse mortgage – which is normally at the low interest rate for property loans due to the a/m stable property tax regime to keeps property prices in Singapore always stable and free from mad swings in prices, etc.
Retirees shouldn’t grumble about the higher property tax rates for FH/large-landed properties because they must remember that by property value, they are probably the biggest beneficiaries of the Singapore Armed Forces (SAF), Home Team, etc. protecting their wealth with zero inheritance tax.
As of 2019, budget for SAF and Home Team were $15.5B and $10.7B respectively. Despite massive costs savings from non-salaried service of citizens serving national service (NS), these are very large costs, and it is much more likely that the large sized dwelling is a discretionary item; and due to Singapore’s progress, their residences are worth much more now.
Hence, there is a need for progressive property taxes, whereby the top tier rates exceed that of the respective income tax bracket rates, and also the need for FH property tax surcharges to ensure the fair recycling of land for property uses in land-scarce Singapore.