Thursday, December 30, 2010

Time for a new formula?

Explore a way to de-link property tax from rental values driven by foreigners

Dec 30, 2010

Letter from Thian Tai Chew

WITH effect from Jan 1, 2011, Singapore's property tax will shift from a flat 4-per-cent rate to a system of progressive property tax rates based on Annual Values (AV) of these properties. As a result, I will save about 8 per cent of the property tax payable for next year. Am I happy with this saving?

Let's look at the formula for calculating the property tax rate. It is based on the annual value of your property.

According to the Inland Revenue Authority of Singapore's (IRAS) circular, the AV is the estimated market rent if the property were to be let. It is determined based on the market rentals of comparable properties.

It is no secret that the rental market in Singapore is heavily influenced by the demand from foreigners working in Singapore. The more foreigners we attract here, the higher the demand for rental housing and, hence, higher rental rates.

It begs the question then - why should property tax be tagged to the influx of foreigners coming into Singapore ?

I am not against paying property tax, but I am against the link of property tax to the demand by foreigners coming to Singapore to work.

These foreigners, most of whom would go for rental housing, do not pay property tax. It is fair to assume that landlords would have already priced the property tax into the rental, hence jacking up the rental prices, which in turn would jack up the property tax as the AVs are now higher.

It is a vicious cycle and as long as we continue to attract more foreigners into Singapore, the only outcome for such a formula is that the property tax would go higher and higher.

As an owner-occupied property owner who does not partake of the rental market, I do not see why I should be taxed based on the actions of other people who are renting out their property.

Since the Government has explicitly mentioned that attracting foreign talents will remain as one of our national policies, the property tax moving forward is going only one way - up.

I do not see the rationale for paying property tax that is linked to the outcome of another unrelated policy.

It's time for the IRAS to explore a formula that would de-link the property tax from rental values that are heavily influenced by the influx of foreigners.

So the answer to my earlier question: Am I happy with the tax savings for next year? Yes, any saving is always good, but I do not like what is coming beyond 2011.

[Eh, goondu. Owner-occupier pays concessionary tax. Owners who rent or sublets their flats pay 10%. Your 4% is a concessionary rate.

More importantly, the annual value is ridiculously undervalued! (don't tell IRAS!) You look at your property tax bill and tell me you will rent your flat for annual rent equivalent to the AV assessed by IRAS.

Three room HDB flats have AVs of less than $7000 (that's about $550 per month. FOR THE WHOLE FLAT! Four rooms' AV is less than $9000 or less than $750 pm for the whole flat. This is SERIOUS under-valuation. But I don't believe IRAS is stupid. I believe this is another way they give tax concession to home owners.

So don't ask stupid questions about new formula for property tax. You are already getting a GREAT DEAL!

Idiot!]

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