Thursday, November 26, 2009

On the Property Tax Hike

I read with interest the news article on the impending hike in property taxes, and the resulting online responses to the hike.

The interesting thing is, despite the framing of the news article, the tax rate has not been raised at all. In fact, the whole article seems deliberately confusing, resulting in much negative reaction online.

It is, however, true that the property tax payable will be higher next year than it is now. But how is it possible for the tax rate to remain constant, while the tax payable is increased? The crux to the matter is that the property tax is rated at a fixed percentage of the annual rental value of the property (named Annual Value). This Annual Value is determined periodically by the Inland Revenue Authority of Singapore (IRAS).

Now, logically the AV should be updated yearly to ensure a just amount of property tax is paid; it would be bad if the AV used to compute the property tax is higher or lower than the actual AV. Also, note that the AV is related to the market rates for rental (and hence, indirectly to property prices).

It so happens that the current adjustment of the AV is almost certainly upward due to an increase in the market rental rate (and indirectly, property prices). Hence, the property tax has increased, and yet the tax rate has not increased.

It would be unfair to accuse the Government, or any parties, of deliberate ill-will in causing the tax increase. In other words, the idea that the Government has created or levied a new, increased tax should be put to rest, for it is false.

The more accurate IRAS news regarding the matter can be read online.

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