Property Tax (Amendment) Bill

Mdm Speaker, thank you for allowing me to speak on the Property Tax (Amendment) Bill 2013.

I rise in support of the amendments in the Bill. I would like to touch on the changes in the Bill that differentiate the treatment for residential property and non-residential property and the introduction of the progressive property tax structure on residential properties effective 1 January 2014. The new tax structure will allow the first $8,000 Annual Value (AV) of residential property to enjoy 0% tax and different tax rates to be applied for subsequent AV amounts. With these changes to the Property Tax on residential property, more households with lower value property will benefit as they will pay less property taxes than what they are paying currently.

Therefore, as the Minister has said, it is socially equitable and it is fair that the changes will result in tax increases that will impact mainly those who can afford higher end property. This will mean that they will have to pay more. And with these amendments, those benefiting from investments in property will also pay more than owner-occupied property.

The changes do, however, add to the complexity of residential property tax. The progressive nature of the tax (more tiers for the different tax rates), as well as the fact that computation of the amount of property tax as a percentage of the annual value of the property (based on the estimated yearly rent that the property can fetch if it were rented out), does make it quite complex.

Variability of the annual value of the property does lend uncertainty to property tax. So, while the annual value may not vary year over year, the fact that this will vary with market conditions implies no ability to guarantee the impact on the taxpayer. For many of my residents who are retirees and live in the property that they own, this does cause some level of anxiety. So, while they own their own property and live in them, they are anxious about the amount of tax they have to pay despite not making any rental income from their home.

While I support the amendments in the Bill, I would like to put forward a consideration for a different treatment of "owner-occupied residential property", and I assume that some of the tax people might fall off their chairs with this.

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The consideration I am asking for is, do not treat owner-occupied residential property as a tax on wealth.

I do understand that this is not a trivial consideration and it is a fundamental shift from the current intention of the tax which is a tax on wealth. Property is definitely an important form of wealth or asset in Singapore, whether owner-occupied, rented out or used for investment purposes.

This will have a significant impact on tax revenue, as asset tax, which property tax and owner-occupied rental tax are part of. It is estimated to form about 7.4% of Government Operating Revenue in the financial year 2013, thereabouts it is about $4 billion. This will impact the programmes and initiatives that this revenue also funds.

The rationale for my putting forward this consideration is not just from a tax perspective but rather that of housing policy, nation building and rootedness to Singapore.

The Home Ownership for the People Scheme was introduced in 1964. And this gave Singaporeans a tangible asset in the country and a means of financial security. Home ownership has also helped Singapore in our economic, social and political stability. As we know, over 80% of Singaporeans live in public housing, with about 95% owning their HDB flats, that is, they are owner-occupied.

As the Prime Minister said in his recent National Day Rally Speech, I quote, "Housing has and will continue to be an important way to share the fruits of our progress with all Singaporeans and to level up the poor. The HDB programme is not just about the roof over our heads. It is also a valuable nest egg. But it is not just a valuable nest egg. It is also a home, a home where we sink roots, where we raise families, where we build ties, friendships, emotional ties with our fellow Singaporeans."

A person living in his/her house – HDB or private – is really not fully realising the value of the asset. We have an ageing population and a growing middle class that has worked hard over the years to own their own homes, public or private. Many are living in them. As they retire or slow down in their career, they increasingly depend on their savings. And for those who do live in them, while, yes, they do have wealth, that is, their homes, they are not really fully realising the value of their wealth unless they sell their homes. For our seniors, we do want them to be able to continue to live in the community and

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environment that they are familiar with and where they have built their bonds. For those who have investments and own other residential properties, they should continue to be taxed on them.

I support the amendments in the Bill as this would be moving in the right direction and I am not asking for the consideration to happen now as it has significant impact on both tax revenue and the programmes that the revenue supports. I do, however, believe that there is merit to think about the perspective of commitment to Singapore through the basics of Singapore's home ownership fundamentals and the treatment of tax on homes.

Thank you, Mdm Speaker. I would also like to thank Ms Jessica Tan for her comments on the changes that we are about to introduce.

Ms Tan has pointed out that owners who occupy their residential properties do not realise any gains from the property until the property is sold and suggested that we limit property tax to owner-occupied homes only at the very high-end so as not to impact middle-income groups as well as retirees.

Mdm Speaker, property tax is our sole tax on wealth. It is not a form of income tax and, hence, property tax is payable, regardless of whether it earns rental income for the owner. The principle of taxing property as an asset that is part of the owner's wealth-holding is a common practice in several other countries, including the UK, Malaysia and Hong Kong, where property tax is payable on owner-occupied properties just as in Singapore. So, we are not the only ones that levy property tax on owner-occupied properties.

An important feature of our property tax system is that owner-occupied residential properties are already taxed at significantly lower rates than those held for investment purposes. And this is not the case in Malaysia and Hong Kong. For example, the property tax on a home with an annual value of $30,000 is $880 if it is owner-occupied, and $3,000 otherwise. So, we have already made quite a distinction between residential properties that are owner-occupied or held for investment purposes, and there is a big concession being offered to owners who use it for residential purposes.

I share Ms Tan's concern for middle-income and retiree households and we were particularly sensitive to this group of owners when we reviewed our property tax structure to make it more progressive. And that is why only the top 1% of homes will pay higher property taxes as a result of this change. The remaining 99% of homes, which include all owner-occupied HDB flats and

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private properties with annual values of less than $59,000, in fact, enjoy property tax savings of up to $80 per household. And this will be based on their 2013 annual values.

Just to give an example. A retiree residing at Teachers' Housing Estate where almost all terraces and semi-detached houses have annual values of $30,000 or less, will enjoy property tax savings. Overall, the changes in the property taxes do not hurt most middle-income and retiree households. In fact, most will enjoy some savings.

As for the complexity of the new property tax rate structure, the majority of homes will, in fact, fall within the first two tiers of the property tax structure of 0% and 4%. But even so, property owners need not worry about calculating their property tax as IRAS will determine the annual value of the property and calculate the property tax payable accordingly.

Property owners who are interested to find out the property tax payable on their properties may also use the online property tax calculator available on IRAS' website to compute the tax amount.

I also wanted to touch briefly on Ms Tan's concern that some property owners may be worried because they do not know for a fact how much property tax they are required to pay the next time round. It is a valid concern and it has, in fact, influenced the way we decided on the basis on which to calculate property tax.

In Singapore, as in Hong Kong, the property tax is calculated on the basis of Annual Value, which is an estimate of the rental that potentially the property could receive if it was put on the market for rental.

The alternative, which some other countries use, is to base property tax on the Capital Value – what you would realise at the point of sale, for example.

We have chosen to use Annual Value rather than Capital Value for two reasons. The first is that there are far more rental transactions to base Annual Value computations on, as compared to Capital Value, which is based on sales transactions. So, this is one advantage – many more transactions that we can use. And as a result, there is less volatility, more stable.

The second advantage of using Annual Value instead of Capital Value is that rental tends to be more stable than sales. Sale prices are very much

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impacted by sentiments, the point of the economic cycle that you are in. So, simply by choosing Annual Value instead of Capital Value, we are providing more certainty for home-owners, meaning from year to year, the changes should not be too large.

Nonetheless, I take the Member's point and we will endeavour to ensure that these changes are properly explained and help property owners understand how the property tax is being computed. Of course, we will continue to review the new property tax structure to ensure that it remains as a progressive wealth tax.

I just have a final point, Madam, which is that Ms Tan had talked a little bit about the impact in dollar terms. One of the points that should be highlighted is that this set of changes to property tax was not designed, was not introduced for revenue-raising purpose. It was purely to make our property tax structure more progressive, which was something that we did in 2011 and we are taking it one step further. With that, Madam, I beg to move.

*Question put, and agreed to.*

*Bill accordingly read a Second time and committed to a Committee of the whole House.*

*The House immediately resolved itself into a Committee on the Bill. – [Mrs Josephine Teo].*

*Bill considered in Committee; reported without amendment; read a Third time and passed.*