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Move will boost S’pore’s economic competitiveness
ESTATE duty is finally dead. Tax consultants and financial advisers yesterday hailed the scrapping of the tax – denounced as ‘death duty’ by its opponents – saying that the move would boost the wealth management industry and Singapore’s overall economic competitiveness.
Eliminating the tax on a person’s assets at death puts Singapore on par with rival Hong Kong, which abolished estate duties two years ago, and would make Singapore a more attractive place in which to live, they said.
‘It’s been a long time coming,’ said Ooi Boon Jin, executive director of tax services at KPMG. ‘It’ll be a boost to the wealth management industry, and it’ll also encourage families to come and sink their roots here.’
Peter Tan, tax partner at PricewaterhouseCoopers Singapore, said that it was right for the government to remove the ‘archaic’ tax and ‘keep up with countries that have already seen the light’.
Other countries such as Malaysia, India, New Zealand and Australia have already done away with estate duties.
But there are countries that still retain an inheritance tax, such as the US and the UK.
‘It’s a misconception that estate duty only applies to the super-wealthy. It applies to middle-income people as well,’ said Mr Ooi.
Here, estate duty was previously payable on all assets of an individual upon death, subject to various exemptions, including the first $9 million of residential property and the first $600,000 for non-residential assets. The tax rate was 5 per cent on the first $12 million of taxable assets and 10 per cent for assets in excess of $12 million.
‘If you had $600,000 in your Central Provident Fund (CPF) accounts, that would have soaked up your $600,000 exemption,’ said Mr Ooi. ‘Anything else outside CPF you left behind would be subject to estate duty.’
Finance Minister Tharman Shanmugaratnam yesterday said that Singapore’s estate duty – inherited from the British when the island was a colony – would be removed with immediate effect, including for people who died yesterday.
He acknowledged that Singaporeans who had built up their savings from a lifetime of work wanted to pass on their wealth to their families. Some people became liable for estate duty when their estates received large cash payouts from life insurance policies.
Roy Varghese, director of financial planning practice at financial advisory firm ipac Singapore, said: ‘Wealth redistribution should not be at the expense of those who accumulate assets legitimately and diligently.’
Critics of estate duty have long pointed out that the tax generates insignificant revenue for the government and that wealthy people can avoid it by transferring their assets into offshore trusts.
The Inland Revenue Authority of Singapore’s latest annual report for the fiscal year to last March-end shows that it collected just $98 million in estate duties, or 0.4 per cent of the total $22.9 billion in tax collections for that year.
In contrast, corporate income tax and personal income tax collections were $8.5 billion and $4.7 billion respectively.
Removing estate duty could also give a boost to the budding philanthropic sector in Singapore, as rich individuals who had already planned for estate duty may give the money to a worthy cause, said Terry Farris, Asia-Pacific head of philanthropy services at private bank UBS. ‘It may be an opportunity to give that directly to a philanthropic initiative.’
In his Budget speech, Mr Tharman also urged wealthy individuals to make a contribution to society.
With estate duty gone, the government’s remaining tax on individual wealth is property tax, which Mr Tharman said would stay. Unlike estate duty, property tax ‘does not affect our middle and upper-middle-income estates disproportionately compared to wealthier ones’, he said.
Source: Business Times 16 Feb 08