| 2.69 Our two major assets taxes
are property tax and estate duty. For property
tax, I have decided to remove the property tax
surcharge. This was introduced in 1974 to discourage
foreigners from owning landed properties. It is
no longer needed as we now regulate property ownership
by foreigners through the Residential Property
Act and most of these landed properties have been
divested. This change will take effect on 1 July
2006.
2.70 There has been a lively debate on estate
duty, with Singaporeans speaking up on both sides
of the issue. One recent letter to the Straits
Times Forum set out cogently the rationale for
the estate duty. I quote: “Many feel that
estate duty is, in fact, the most moral of taxes.
The individual himself is not affected by the
tax, by definition – he is dead when it
is levied. Thus its impact during the wealth-development
phase of an individual’s life is less distorting
than other forms of taxation. The development
of wealthy dynastic elites carries with it the
risk that meritocracy will degenerate into oligarchy
as the elites define and control the measures
of merit.”
2.71 Indeed, this is the reason why we have retained
estate duty all these years. We want every citizen
to succeed in life because he has worked for it,
and not because he has inherited wealth. An intergenerational
tax levied upon those who inherit wealth helps
to re-balance opportunities with each passing
generation.
2.72 Against these merits, we must weigh the
shortcomings of our estate duty system, which
critics have highlighted. The exemption limit
of $9 million for residential properties is much
higher than the $600,000 limit for all other assets.
This biases investment choices and results in
very narrow coverage, with only the top 3% of
estates paying estate duty. The collection is
modest – on average about $70 million per
year, though no Finance Minister will sniff at
this sum. More fundamentally, even if we fix these
specific weaknesses, we cannot stop people from
avoiding estate duty through creative estate planning.
And Singaporeans probably know a lot more about
estate planning after the Straits Times published
an article on “6 best ways to avoid death
tax”!
2.73 Several jurisdictions have abolished estate
duty in recent years, including Australia, Malaysia,
New Zealand and Hong Kong. In Singapore, any change
must preserve our tax revenue and maintain the
principle of taxing wealth. The Ministry of Finance
is studying the matter carefully, in the context
of our overall regime of assets taxes. We should
reach a conclusion by the next Budget.
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