Tuesday, February 15, 2011

Improperty Tax

[After so many letters to ease up on property tax, here's one who's going after the big landed property owners.]

Feb 16, 2011
Make property tax more equitable

ACCORDING to Saturday's report ("Housing affordability of key concern"), the general sentiment is that the Government would be dishing out property, utility and service and conservancy rebates, upgrading old estates to increase the supply of HDB flats and providing larger housing grants for lower-income households in this year's Budget.
While these measures would be welcomed, they are just stop-gap measures and do not address the root of the problem: land scarcity in Singapore.

Land scarcity inevitably leads to high property prices as the supply of properties is insufficient to meet demand. Living in landed property is definitely a luxury and to ensure efficient and equitable allocation of resources, luxuries should be priced accordingly to reflect their scarcity. The current property tax policy in Singapore does not adhere to this principle of efficient allocation.

Currently, properties are taxed based on their annual value, which is the estimated amount of rental the properties would fetch if they were to be rented out. At first glance, one might be convinced that the landed property owner is paying a higher property tax and is thus paying a fair price for his luxury. However, the current tax rates fail to separate the concept of property from land.

Take, for example, a bungalow that sits on a 10,000 sq m plot of land could accommodate 40 three-room flats. Thus we can say that for the same size of land, HDB flat dwellers collectively pay a higher amount of tax than a landed property dweller.

Furthermore, the tax places a bigger financial burden on the lower-income group.

A property tax reform where the notions of land and property are separated is due. Property owners should still be taxed based on the estimated rental revenue, but at a lower rate. The balance should come from a land tax, where property owners are taxed based on the size of the plot they occupy and also the share of the plot which they occupy. Thus, the landed property owner would pay tax for the whole of his bungalow, while an HDB flat dweller living in a 20-storey block would pay 1/20 of the land tax. This new tax regime would be more equitable.

Goh Ching Soon

[Amazing how ingenious Singaporeans can be when it comes to shifting their tax burdens onto other people. Yeah, let's stick it to the land owners! We'll make him pay tax for imaginary, yet to be built flats.

Oh and you live in a 20 story flat? Haven't you heard? Duxton Plain is now 40 stories high. Oh but since we are going for imaginary, I think I can imagine a time when we will have 70 or even 100 storey flats. You are squatting on a scarce resource! You in your underdeveloped 20 storey only flat!

We should just put you and with the other property tax reformers in a steel cage and let you all sort it out.]


Feb 9, 2011
Why Iras should review formula for property tax

MR PAUL Chan ('Adopt fairer tax system for owner-occupiers'; Jan 23) is right in advocating a new and fairer formula for property tax.

The current method of tagging market value to rental value is grossly unfair to owner-occupiers, and my personal experience is a good example.

When we experienced the worst year of economic growth in 2009, the property tax went down by only 23.5 per cent from that in the preceding, pre-crisis year.

[That was the year there was a 40% property tax rebate. It was a once off.]

Yet the same tax shot up by a whopping 98 per cent last year, which meant the property tax paid in 2010 was 50 per cent higher than that in the 2008 pre-crisis year.

And the economy has not even recovered to pre-crisis levels.

There were also four adjustments made between 2007 and last year, three of which were increases and one, a decrease.

Is there a need for such frequent adjustments in tax rates?

All the above reinforces the view that when times are bad, the Inland Revenue Authority of Singapore (Iras) returns less than it should, but when times are good, it takes back a lot more than it deserves.

The efforts by Iras to introduce adjustments and inform taxpayers could have been saved if a different formula is used.

As an owner-occupier, I do not lose or benefit from economic changes or changes in rental value, so why is my property tax not reflecting that?

Thian Tai Chew

[As an owner-occupier, you pay concessionary property tax. That is a recognition that you are not overtly gaining economically from the property. But your property is an asset and has economic value. If not to you, to others. A home in a more central area has a higher value. It means you have more amenities and conveniences. Someone living in a less central area has less conveniences and probably incurs more costs to enjoy the same conveniences and amenities.]

4 comments:

chingsoon.goh said...

Perhaps you can start attacking the arguments instead of laying wild accusation of the author "trying to shift the burden of tax to other people".

Do you not agree that landed property are a more inefficient use of land than apartment type housing (including condominiums)?

Do you not agree that living in landed property is a luxury and thus a higher price need to be paid?

Indeed if you have looked at the arguments presented in the letter, you would realize that the author would agree a person living in a 20-storey apartment ought to pay more Land Tax than one living in the future 70-storey one.

El Lobo Loco said...

Ching Soon,
Your argument is simplistic, using just one factor in your consideration: efficiency of land use.

City planning is a multi-factorial issue requiring considerations of appropriate use, proximity issues, buffer areas, amenities, loading, and perhaps at some point development plot ratios (which translates to efficiency of land use).

By necessity, different plot ratios are required for various reasons.

Take an example of the approach to an airport. Buildings along the landing/take off approach will by necessity have to be of limited height.

(See this complaint:
http://stforumpage.blogspot.com/2010/10/low-flying-concern-for-residents.html )

How do you propose they should be taxed for their property? Sure, it's landed property or low-rise apartments at best. But they suffer disamenities due to noise from aircraft landing and taking off. And they can't be developed any higher (like say 70 storeys) because of the constraints of being along the airport landing approach.

So is it their fault for being a low-rise apartment? Should they pay more taxes despite being inconvenienced by disamenities?

Then what about residents of older flats built 40 years ago when 10-storeys was high-rise. Compared to the 40-storey flats, are these residents (many of whom are elderly retirees with not much income or savings), who bought these flats 30 - 40 years ago suppose to be taxed 4 times what residents of spanking new flats would be paying?

Is that even close to being fair, reasonable, and rational?

Who are you trying to help or harm? Old people?

In any case, do you even know what property tax is being paid by owners of landed property?

Do you even know what changes to the property tax system are being made?

Until 2010, the property tax for owner-occupier property is a flat 4%. From 2011, it is progressive 0% for the first $6k AV, 4% for the next $59k, and 6% any AV exceeding $65k.

Under the new tax system,a 4-rm HDB flat with an AV of $9k will be taxed $120. A landed property with an AV of $84k, will incur property tax of $3,500.

That's about 30 times what the 4-rm HDB flat dweller pays. (Your original forum letter had an example of 1/20.)

A 3-rm flat dweller may well pay nothing. I checked. One pays $24. That's 1/146 of what the $84k AV owner pays.

Differentiated enough for you?

Why didn't I address the argument in the first place? Because the argument had no substance, was unrealistic, and was uninformed.

And like many uninformed, unrealistic, half baked ideas it takes time and effort to debunk them. Lies go around the world before truth has a chance to ties its shoes.

And that's as polite as I intend to be. Beyond this point I am not addressing you or your letter personally, but rather all the letters on property tax.

Get real people. Do you really think a 4-rm flat annual value is $9,000? Come on! That works out to about $750 pm rent! It's ridiculously undervalued for the purpose of property tax! Actual market rent is easily twice that! I know of 3-rm flats going for $1500 rent, 4-rm for about $2000. Their AV should be closer to $18000, and $24000!

Complain about property tax and if anyone really wants to scrutinise it ALL of us will be paying more!

The AV isn't even close to actual rental, so SHUT THE FUCK UP ALREADY!

chingsoon.goh said...

The point of my letter is for the property tax to exert enough pressure for more efficient land use. The aim is not to tax the rich more than the poor. It so happens that the rich are living in the bungalows that are hogging up precious land in our small country.

Indeed, taxing elderly retirees in low rise apartment heavily is unfair. But my intention was never to address the the equity issue. (The sentence about "... is more equitable" was added by the ST Editor).

I concede to your example of low rise buildings being a requirement around airport. But do recognize that these represent minorities of housing. Furthermore, you are going into the technicalities of implementing the new tax regime which is beyond the scope of a simple letter to the ST. Indeed, if I were to propose the tax format for them, it would be the same that apply to all other land in the country. The loss suffered by residents near the airport should be compensated by the relevant authorities (CAAS or CAG) and not through reduction in property/land tax.

Indeed, city planning is multi-dimensional, and efficiency of land use is just one of the aspects. I do not pretend to be an expert in city planning. But the land tax reform which I propose should logically lead to more efficient land use. Other aspects can be adjusted. If a problem is too knotty to solve at a go, do we simply ignore it? Or do we attempt to solve parts of it in turn?

The whole idea is simply this, land should be tax because it is a precious resource. With such land tax, private developers will be compelled to find more efficient use of these land. The supply of housing would then increase as a result.

If that means everyone has to pay more, so be it, as long as it leads to more efficient land use and increase the supply of housing in the long run.

El Lobo Loco said...

Ching Soon,

Simply stated, you have proposed a simplistic solution to a problem that may neither be urgent nor critical nor even a problem, or even if hypothetically a problem is not truly solvable.

You immediately jump to the solution of taxing landed property.

You haven't even built the case that landed property is a problem!

Take a look at this article on Singapore's housing and see if you understand the issues better:

http://heresthenews.blogspot.com/2011/02/free-market-or-govt-role-it-depends-on.html

This analysis by a JC grad shows a remarkable depth of understanding of the issues and the socio-political considerations. He understands that social aspirations need to be expressed and that just as we cannot expect everyone to live in a 4-rm flat, nor does everyone want to live in a flat.

Then read this article to understand better the issues of demand, supply lag, market irrationality, panic, and why it is not simply a matter of sorting out the seeming supply shortage:

http://heresthenews.blogspot.com/2011/02/complexity-studies-offer-rich-insights.html

That should tell you that part of the problem is stupid herd instinct. And stupid attempts to solve the problem (like your proposal).

So what other ideas are you going to propose when there is a housing slump?

And stop providing silly explanations or exceptions like getting CAAS to compensate loss due to your original dumb idea. It adds complexity to an already stupid idea. ("Putting lipstick on a hog.")

And you end up saying:

If that means everyone has to pay more, so be it, as long as it leads to more efficient land use and increase the supply of housing in the long run.

It's not going to lead to your idea of more efficient land use. Do you seriously believe that everyone should live in apartments (HDB or Pte)? No landed property should be allowed? You must be the last living communist/ socialist.

If you really think that is the way to go, you should have just proposed to ban landed property. That's a surer way. With your tax, those that can afford it, will just pay and they would still, in your words, "hog the land". And the housing supply will not change.

Look, stop commenting. I find your attempts to defend your original ill-thought-out idea quite pathetic.

Maybe the Forum editor added or amended some of your letter. I assure you my opinion did not turn on those minor amendments. In fact now that I understand that you were *NOT* aiming for a more equitable outcome, I think your idea is even more stupid, even less thought-out, even more impractical, and even less politically feasible. (Are you an opposition candidate hoping to trick the PAP into doing something stupid? Try harder.)

Maybe there was no scope in a forum letter to explain technicalities, but you had two opportunities in your comments here, and after I explained the new tax system you should at least be able to show how your proposal would be better because it is simpler and will work better.

You haven't.

Please don't take the last line as an invitation to try. I do not see myself being convinced by any of your arguments simply because your underlying assumption (landed property is a problem) has not been established. The rest of your idea therefore fails.

You may think that it is obvious, but I refer you to the first link I provided. If you still don't get it, I can't help you.

If you persist in commenting, I may not provide you with the courtesy of a reply.

I know. My replies are hardly courteous but as I said, lies and stupidity requires effort to debunk. My effort to reply is my courtesy to you.

Any future comments may be deleted without reply.