In 2011, the government introduced the Additional Buyer’s Stamp Duty (ABSD) to Singaporeans. Investors, developers and other people involved in the property industry seem to have totally bought the belief that this property taxation system is just a temporary measure for the benefit of the market.
ABSD requires Singaporeans to pay additional 7% – 10% for buying their second or subsequent properties. Foreigners pay more. Due to decreasing home prices and rising unsold units, many expect for the ABSD to be lifted soon. But what if it did not happen?
At a recent tax symposium held in China, Deputy Prime Minister Tharman Shanmugaratnam commented about a system that promotes inclusive progress. The slow growth of the economy handicaps tax collection and this could mean continued challenges with funding requirements given Singapore’s ageing population.
To counter the flagging economy, the government would look into altering the ways and means of collecting taxes. But according to CIMB economist Song Seng Weun, changing today’s system would result to wealthier people forking out more in the years to come.
Experts also predict that implementing higher income tax would discourage multinational corporations and global talent from coming in the country greatly impacting the nation’s progress.
On the other hand, policymakers acknowledge the fact that consumption taxes such as goods and services tax cuts larger percentage from earnings of low-income population than the high-income ones.
In other words, removing ABSD would leave behind fewer wealth taxes. Some of those are tax for cars based on size, the tiered Additional Registration Fee model and property tax.
Property taxation is “the most efficient tax, or the least damaging to income growth”, as per Mr. Tharman. “However, they must be progressive, providing allowance for properties of low value and higher tax rates for properties of high value,” he added.
He also emphasized that they must “distinguish between primary or owner-occupied residences, which should be taxed less, and investment properties.” As it is known, the property taxes structure is simple. The goal to make Singaporeans stick to Singapore thru home ownership. Owner-occupied homes have 4 percent property tax against the annual value. Investment residential properties on the other hand have 10 percent tax.
When asked whether ABSD would stay for good, a Finance Ministry spokesman safely stated that stamp duties for real estate and property transactions are “already a permanent feature of Singapore’s tax system”.
Looking into the numbers and reading between the lines, it appears that ABSD is here to stay. It comes together with the Seller’s Stamp Duty payable for properties sold within four years.
Investing in properties for quick money is no longer easy. Leverage has become tight. Immigration is now stricter lessening the chance of gaining from the secondary market. Holding cost goes nowhere but up and properties are taxed even when vacant.
With all these factors, investors should find ways to make the business worthwhile. Or maybe how can they make themselves used to the new norm.
Say hello to the new standard in property taxation.