Estate Duty To Be Removed

Source : The Straits Times, Feb 15, 2008

SINGAPORE will abolish estate duty, or taxes collected on wealth left behind after an individual's death, Finance Minister Tharman Shanmugaratnam announced on Friday.

'If we make Singapore an attractive place for wealth to be invested and built up, whether by Singaporeans or foreigners who bring their assets here, it will benefit our whole economy and society,' he said in his budget speech in Parliament.

It will cost the government $75 million a year, he said.

Singapore inherited estate duty from the British. The rates originally were high - and until 1984, the top rate was 60 per cent.

The current rates are much lower - five per cent for the first $12 million of dutiable assets and 10 per cent thereafter.

On the removal of the estate duty from the tax regime, with immediate effect, Mr Shanmugaratnam said: 'Estate duty is a means to rebalance opportunities with each new generation and prevent wealth from being concentrated in fewer and fewer hands over time.'

'It was especially relevant at the time when the bulk of wealth comprised land that was passed down through the family. Today, however, wealth is being created in many more ways and by a wider group of entrepreneurs, many of whom start off with little.'

'Wealth is also being managed today on a global basis. Proponents of removing estate duty have therefore argued that removing it would encourage wealthy individuals from all over Asia to bring their assets into Singapore, thus supporting the growth of the wealth management industry.'

'Ordinary Singaporeans have also argued that having worked, paid taxes on their income and property, and built up their savings, they want to be able to pass it on to their families. Some are in fact liable for Estate Duty when their estates receive large life insurance payouts.'

The Minister said the current low exemption limit for non-residential assets, set at $600,000, compared to the higher limit of $9 million for residential properties in fact tends to affect the middle and upper-middle-income estates disproportionately compared to wealthier ones.

'We have considered raising the $600,000 limit for non-residential assets so as to correct for this. However, this would further shrink what is already a narrow tax base and render the tax less effective,' he said.

'I have therefore decided to remove Estate Duty from our tax regime, with effect from today. It is not just a practical or expedient measure, but one that on balance will be in our collective interest.'

'If we make Singapore an attractive place for wealth to be invested and built up, whether by Singaporeans or foreigners who bring their assets here, it will benefit our whole economy and society, not just the individuals who build up their wealth. It is not a zero sum game.'

He encouraged individuals who have accumulated wealth to think of how they can use it to make a contribution to society, and make full use of the enhanced incentives introduced last year to promote philanthropy.

This will benefit schools, universities and hospitals, and the growing range of charitable causes in Singapore.

With the removal of Estate Duty, he said the remaining tax on wealth would be property tax.

On why this should be retained, the minister said: 'It is an efficient tax, set at a low rate in relation to the full value of the property, especially for owner-occupied homes. You cannot tax-plan it away. It also does not affect our middle and upper-middle-income estates disproportionately compared to wealthier ones.'

'This is why most countries have some form of tax on property - including even Hong Kong, which like us does not have capital gains tax and has already done away with Estate Duty. Only Ireland does not have a tax on residential property, but the Irish have capital gains tax, inheritance tax and gift tax.'