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Second Reading Speech By Mrs Lim Hwee Hua Senior Minister Of State For Finance On The Property Tax (Amendment) Bill 2008, at The Parliament, 18 Nov 2008

18 Nov 2008

1. Mr Speaker, Sir, I beg to move, "That the Bill be now read a second time".

2. The Bill proposes two changes to the Property Tax Act. The first amendment clarifies the tax treatment of structural networks while the second amendment provides a mechanism to allow Government to set-off the amount of outstanding tax against what is due to the taxpayer from the Government.

3. Sir, let me now explain the first amendment.

Clarifying the tax treatment of "structural networks"


4. Structural networks, which typically refer to networks of pipelines, cables, ducts and railway lines attached to land, have hitherto been subject to property tax in Singapore. This is similar to the tax treatment in other jurisdictions like the UK and Hong Kong. However, unlike these jurisdictions, we do not have specific provisions under our Act to explicitly treat structural networks as properties subject to property tax.

5. Currently, IRAS taxes structural networks together with the building to which they are attached. For example, electricity networks are assessed together with the substations, and the property tax is payable by the owner of the electricity networks and substations since the owner is deriving the benefits from these networks. The electricity network may extend beyond the boundaries of the land on which the substation is sited and may pass through lands which the network owner does not own. As for the lands through which such network passes, the owner of the land is assessed for property tax which will not take into account the network concerned since he does not derive benefits from the network which passes through his land.

6. Recently, following a case taken to the Courts by a taxpayer with regard to its network of pipelines attached to a cooling plant, the High Court in May 2007 arrived at the position that the pipelines, a type of structural network, were not assessable for property tax as the pipelines were considered to be part of the cooling plant which is classified as machinery falling within the ambit of section 2(2) of the Property Tax Act. Section 2(2) currently exempts machinery used for certain purposes from property tax. In March 2008, the Court of Appeal ruled in favour of the taxpayer that the pipelines were not subject to tax.

7. The case also raised the issue of whether the current provisions of the Act allow IRAS to hold the owners of the structural networks responsible for paying the property tax for the parts of the networks that pass through lands not owned by the network owner.

8. The proposed amendments in this Bill thus seek to clarify the circumstances under which structural networks are assessable for property tax, in line with the Government's policy intent.

9. Sir, it has been and remains the Government's policy intent to subject structural networks to property tax, just like in the UK and Hong Kong. We recognise that pipelines or cables attached to machinery could arguably be part of machinery, and hence be exempted from tax under 2(2) of the Property Tax Act. However, it has not been and is still not the policy intent for the property tax exemption for machinery to apply to the entire structural network, including those parts that extend outside and beyond the structural network of owner's building which houses the machinery to which the pipelines and cables are attached. Those parts of a structural network which perform a distribution or transportation function should not be considered as mere machinery. They should be subject to property tax.

10. For practical reasons, we propose to use the boundaries of building which houses the machinery to which the pipelines and cables are attached to draw the line between the parts of the structural network that may be considered as machinery (and hence be exempt under section 2(2) of the Property Tax Act) and those that may not be considered as machinery, and hence be subject to property tax.

11. It also has been and remains the policy intent to hold the network owner responsible for the property tax since he is the one who derives benefits from the network. Otherwise, based on the court decision, the owners of the land through which the structural network passes would have to pay the tax, which would be inequitable as these land owners do not in practice receive payment or benefit for the use of their land for such networks.

12. What we need is to clarify in the Act the circumstances under which structural networks are to be subject to property tax, just as jurisdictions such as Hong Kong and UK have done. In these countries, they have specific provisions in their Acts to treat structural networks as properties assessable to tax. This is notwithstanding that their Acts, like ours, also exclude machinery from property tax. In UK and Hong Kong, it is also the network owners that are taxed on the structural networks, including networks that extend beyond the building which the network owner owns. In Hong Kong, the Act was specifically amended in 1991 for this purpose.

13. The amendment to the Property Tax Act therefore seeks to provide, for avoidance of doubt, the circumstances under which structural networks are assessable for property tax. The proposed Bill is meant to preserve our current tax treatment of structural networks.

14. Clause 2 of the Property Tax (Amendment) Bill specifies the circumstances under which structural networks are assessable for property tax as outlined above. To give certainty to network owners on such scope of taxation, a list of structural networks that will be taxed in accordance with that scope will be prescribed in Subsidiary Legislation.

15. Clause 4 of the Bill validates past collections of the property tax on or in respect of structural networks. This is in line with the policy intention all along to subject such structural networks to property tax. The validation clause will not affect cases such as the case in which the Court of Appeal has ruled in favour of the taxpayer, cases on structural networks that are before the Valuation Review Board, as well as unresolved cases on structural networks in respect of which objections have been made to the Chief Assessor or Comptroller of Property Tax, before 20 October 2008, which is the date of the first reading of this Bill.

16. Sir, the provisions of the Act will come into force at the latest by 1 January 2009 to correspond with the billing cycle for property tax on 1 Jan every year.

Allowing the Government to set-off the amount of outstanding tax owed to it

17. Sir, let me now move to the second amendment of the Property Tax Act. Presently, the Act provides for the appointment of a person, who can be someone in the private sector or statutory board, as an agent to pay over to IRAS monies that he holds for taxpayers who owe taxes. However, Government office-holders are currently not appointed as agents, as the Government is not included as a "person" under the Property Tax Act. This exclusion is inadvertent. Thus, Clause 3 amends the Act to allow the Government to set-off tax arrears against monies due to the taxpayer from the Government. Similar amendments of the Income Tax Act, Stamp Duties Act, and GST Act will also be made to effect the set-off mechanism for Government to recover outstanding taxes.


18. Mr. Speaker, Sir, I beg to move.