Opinions on Budget 2010: Property Sector

The Minister mentioned that property tax is a means of redistribution in our society, together with our income tax regime.

Where our income tax regime brings income to tax on a progressive basis, our property tax regime is currently at a flat rate. Where individuals are taxed on a progressive basis, those who earn more get taxed more.

Consequently, the Minister’s proposal to introduce progressive rates to our property tax regime is meant to tax those who are wealthier. It is a means of wealth redistribution in society which is not only effective but also fairer.

Singapore’s property tax regime will thus, with effect from January 2011, become a progressive tax for owner-occupied residential properties. The first $6,000 of the annual value of an owner-occupied residential property will be exempt from property tax, the next $59,000 will be taxed at 4 percent and the balance at 6 percent. Other properties will continue to be taxed at a flat rate of 10 percent.

Based on the proposed progressive rates for owner-occupied residential properties, a vast majority of Singaporeans will end up paying less property tax as these are generally in the lower bands of tax. Only the better-off, who are in the minority, may end up paying more.

This will continue to be a happy story until the annual values of owner-occupied residential properties go up (and they will over time), in which case, more Singaporeans may find themselves in the upper bands.

A separate but related item on the Minister’s 2010 Budget statement is the proposed increase in the foreign worker levy.

While the initiative is meant to discourage Singapore’s increasing dependence on foreign workers, the industry that will be affected most will be the construction industry.

The construction industry will thus likely do what is probable – that is to pass the costs down as construction costs. Consequently, property prices will be indirectly affected. Whether this will increase the annual values of properties will remain to be seen.

The writer is an Executive Director of KPMG Tax Services in Singapore. The views expressed herein are those of the author and do not necessarily represent the views of KPMG in Singapore.

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