Besides property, other options include reintroducing estate duty and following a model of taxation used in the cantons of Switzerland. BT FILE PHOTO
Updated from : The Business Times, 1 Mar 2021
A REVIEW of wealth taxes to fund growing recurrent spending could centre on property taxes, with cooling measures potentially adjusted in tandem, say tax analysts.
However, they recommended a calibrated approach to any adjustments, so as to protect Singapore’s competitiveness as a wealth hub. Having handled the pandemic fairly well, Singapore could even afford to wait a little longer and reap some benefits if other countries raise taxes first to fund Covid-19 measures.
Deputy Prime Minister and Finance Minister Heng Swee Keat said on Friday that Singapore has scope to further review wealth taxes, even as it raises the goods and services tax (GST) and implements new taxes to fund increased social spending.
The property market’s resilience despite the pandemic-driven recession makes property taxes the most likely to be on the table, said Associate Professor Simon Poh, a tax specialist at the NUS Business School.
He suggested property tax rates of 22 per cent for non-owner occupied residential properties with an annual value of more than S$120,000 (up from the current 20 per cent on properties above S$90,000).
CIMB Private Banking economist Song Seng Wun noted that vacant properties could be taxed at higher rates than those that are being rented out, since the owners would already be paying taxes on the rental income.
Increasing the annual property tax rate on larger properties could also be considered, said TSMP Law Corporation joint managing partner Stefanie Yuen Thio: “If you can afford a S$30 million bungalow in Cluny Road, you can probably afford to pay more annual property tax on it.”
Adjusting property cooling measures such as additional buyer’s stamp duty (ABSD) could be used to tax wealth, depending on how adjustments are calibrated, said Shantini Ramachandra, Deloitte Private Southeast Asia tax leader.
She said that property tax for residential properties and buyer’s stamp duty (BSD) for higher-value residential property would be the measures “felt most keenly within the luxury property space and by developers on land purchases including en-bloc purchases”.
Assoc Prof Poh suggested levying a higher BSD rate of 5 per cent on properties valued above a high threshold such as S$2 million, to ensure that the measures are targeted at wealthier taxpayers.
“Another possibility that has so far not been considered is the implementation of seller’s stamp duty for residential properties, even if the purchased property is sold after three years of acquisition,” he said, adding that this could also be set at a high sales price like S$2 million.
However, care should be taken that the measures do not end up straying from their original purpose, said Kylie Luo, leader of accounting and audit firm BDO’s asset management and private wealth tax practice in Singapore.
“While there may be room to explore furthering the scope of BSD and ABSD, the primary objective of such measures should still be to regulate the property market, and should not be a primary source of tax revenue,” she said.
TSMP’s Ms Yuen Thio said a capital gains tax on property sales is an option that would be easier to swallow than higher ABSD, since it would be paid at the point of sale and out of a profit.
Additionally, such a tax would target the foreign investors behind the recent spike in purchases of luxury properties and good class bungalows, making it a “subtle form of taxing foreign investment”, she said.
Besides property, other options include reintroducing estate duty and following a model of taxation used in the cantons of Switzerland.
Ms Yuen Thio noted that estate duty would help prevent wealth from becoming concentrated among a few wealthy families, and the government could exempt charitable donations in line with its efforts to encourage philanthropy through means like legacy gifts.
Chris Woo, tax leader at PwC Singapore, suggested that “as Singapore has aspired to follow the Swiss model in many aspects”, it could also emulate Switzerland’s model of taxation where a net wealth tax is levied based on the balance of one’s worldwide gross assets minus debts. Such assets could include bank account balances and other equities, life insurance policies with a surrender value, luxury vehicles and aircraft, and other valuable assets such as artwork and jewellery.
The fair market value of the assets would be subject to taxation, with some assets subject to depreciation. The taxation rate could be up to 0.3 per cent of such value, Mr Woo suggested.
Any tax changes would need to be carefully calibrated and timed, ideally taking cues from the global situation, said CIMB’s Mr Song. As Singapore is not in desperate need of funds to cover Covid-19 expenditure, it can afford to slow down and observe how the global trend of pressuring wealthier companies and individuals to contribute more develops.
“Whatever measures we want to put through will have to be consistent with our underlying fiscal policies… in terms of looking at the taxation policy more broadly and being seen as being fair to all,” he said.
“It is key that there is no populist move. Ensure that the laws of the land remain consistent with the broader picture of Singapore being a hub.”
Ms Ramachandra of Deloitte noted that Singapore’s position as Asia’s private banking centre depends on several factors besides its tax policies, including the rule of law, political stability, modern infrastructure and strategic location. “A gradual and measured implementation of a wealth tax would help to minimise any potential fund outflows to other private banking centres,” she said.
Alternatively, Singapore could hold off on higher taxes and instead focus on capturing opportunities that would arise if other countries raise taxes first, said BDO’s Ms Luo. Tax hikes in competing financial hubs, such as Hong Kong’s recent move to raise stamp duty, could make Singapore appear comparatively attractive and draw more relocations and investments.
“By taking a different, bolder approach, Singapore can seek to attract more high-net-worth and ultra-high-net-worth families to Singapore. The multiplier effect which these wealthy individuals or families would bring could then drive the recovery of Singapore’s economy during the post pandemic times,” she said.
Ms Yuen Thio agreed: “A gradual imposition of taxes that target the super wealthy, so long as they would still be enjoying a more relaxed tax rate than in their home countries, would probably not be a deal-killer for foreign investment. But I would wait to see what other countries do in terms of tax so that Singapore isn’t a first mover in upping tax rates.”