Re: TOC on property tax

I am naturally sympathetic to the opposition cause in Singapore as I really despise the autocratic regime of the PAP. Nevertheless, I need to admit that PAP got all the brains and the opposition is not really formidable as well. TOC is among the top alternative voice in Singapore and I respect their continuous political advocacy, but sometimes I found their argument wanting.

For example, the recent article on property tax which is written by Leong Sze Hian. Leong writes routinely for TOC and usually he writes about policies which involve numbers. I like numbers as well as numbers are definite and, although you can still twist and spin it according to what you want, at least it will be easier to call a bluff when you see it.

Some of the arguments in the article are valid. For example, the property tax is based on the so-called Annual Value (AV), which in turn is based on the estimated annual market rent of the property. And this value applies for all properties, including the owner-occupied properties. The rented properties will be taxed at 10% rate, while the owner-occupied properties will be taxed differently (first $6,000 will be tax free, next $59,000 will be taxed at 4%, the rest of the amount, if any, will be taxed at 6%). So if you really want to argue, perhaps you can argue why an owner-occupied home is taxed based on the annual market rent value, when the owner-occupied home is not for rent! But eventually it is all semantic, since you know that in some way or another you will be taxed for your property anyway, and you need some basis for it. We can perhaps use the house valuation value as the basis for the property tax for the owner-occupied homes, but I guess in the end the current law is neat enough such that you can use one value (AV) to calculate the tax for two types of houses (owner-occupied and rented).

The bizarre part of the article is how he presented the % increase of the property tax. He noted that, for a 4-room flat, the minimum tax payable in 2012 after the rebate is $77 while in 2013 the number becomes $128 after $40 rebate, which makes for a 66% increase in property tax.

The thing is this argument is misleading. Note first that the property tax rate itself stays the same in 2013 (0% for first $6,000, 4% for the next $59,000, and 6% for the rest of the amount, if any). What increases is the AV, which accounts for the increase in rent price in Singapore. Again, you can argue about this one, and ask why the owner-occupied homes need to follow the trend of the rent price. But again, if we use an alternative law and peg the owner-occupied home based on the valuation value, for example, the valuation value will also increase as the resale price also increases (although, to be fair, it is not as high as the rent increase rate).

Next, the calculation itself. The rate is not linear because of the 0% rate for the first $6,000, and hence you can’t just divide the $51 tax increase with last year’s tax values to get the right picture about the increase in property tax (not to mention that both years have tax rebates which will worsen the non-linearity).

For example, your house AV in 2012 is $8,000, while in 2013 the number becomes $9,000 (a 12.5% increase, well within the 8-13% increase in AV for 2013). In 2012 (before the rebate), you will be paying tax of 0%*6000+ 4%*2000 = $80, while in 2013 (before the rebate), you will be paying tax of 0%*6000 + 4%*3000 = $120. The increase in AV is “only” 12.5%, but the tax increase (before the rebate) is 40%! After the $55 rebate in 2012, the property tax becomes $25, while in 2013, after the $40 rebate, the number becomes $80. Gasp! The tax increase is even wider after the rebate, as it goes from $25 in 2012 to $80 in 2013, a 220% increase! A 12.5% increase in AV could lead to 220% increase in property tax! And this highlights the non-linearity of the property tax comparison and why Leong is misleading with his article.


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