Property Tax Rise For Hotels

Source : TODAY, Wednesday, October 24, 2007

Increase due to change in formula used to calculate annual value

AS HOTEL room rates in Singapore continue to set new highs, the taxman's upcoming formula tweaks — which will see hotels' property tax bills jump by at least 33 per cent — will skim some of the cream off the cake for hoteliers.

The increase arises from a change to the formula used to calculate the annual value (AV) of hotels, which will kick in next year.

And analysts say that while the taxman's move to keep up with the buoyant tourism and property sectors will certainly reduce hotel profit margins, the market itself won't be thrown off beat.

Cushman and Wakefield's managing director Donald Han pointed out that average room rates have gone up by some 20 to 30 per cent in the first 10 months, as demand continues to outstrip supply and major hotels see more than 90 per cent occupancy. Consequently, he said, "the taxman has to look into ways of making tax collection more transparent and equitable".

Pan Pacific Singapore

Indeed, the tourism industry here is experiencing a helium boost, with the Government's aggressive marketing, the inaugural Singapore Formula One race next year and the eventual opening of two Integrated Resorts.

Figures from the Singapore Tourism Board released yesterday showed a record 766,000 visitors last month — a 7.1-per-cent increase over the same period last year. Hotels generated $152.2 million in revenue, a record 7.4-per-cent increase, while the average room rate was put at $201 — a rise of about 5 per cent.

With another 10- to 15-per-cent increase in room rates expected over the next six months, the hike in hotel property tax is not unexpected — especially since the last change to the computation formula was in 1986.

Hotel Carlton

Hotels will continue to be taxed at 10 per cent of AV. Currently, the AV is based on 15 per cent of gross room receipts in the preceding year.

This will go up to 20 per cent next year and to 25 per cent in 2009. In addition, the AV of hotels' food and beverage (F&B) areas will be based on estimated current market rent instead of 5 per cent of gross F&B receipts.

"Where Government is concerned, there is no free lunch," said Mr Han. "It has been promoting tourism and one of the immediate spillover benefits would be in the hotel sector, so the tax criteria has to reflect current market sentiments."

Raffles Hotel

But there are grouses. Said an industry insider: "The IRAS has not been able to clarify the market rent in relation to F&B outlets. Many hotels manage the restaurants themselves and there are also function and meeting rooms which may not be used frequently."

Mr Han, too, noted that market rent "differs from one property to another and factors such as location (even within the hotel) can affect the rates." The issue is compounded if a hotel decides to have its function room at an adjacent shopping centre, for instance.