Land Betterment Charge Bill

Order for Second Reading read.

8.00 pm

The Second Minister for Law (Mr Edwin Tong Chun Fai): Mr Speaker, Sir, I beg to move, “That the Bill be now read a Second time.”

Sir, this Bill seeks to introduce a tax, called the Land Betterment Charge, which I shall refer to as LBC, in relation to land.

The LBC is a tax on the increase in land value, resulting from a chargeable consent given in relation to the land, on or after the Bill’s operative date. It ensures the return to the community, as set out in section 5 of the Bill, of an appropriate proportion of economic benefits from the grant of rights to develop or otherwise use land. The money collected as LBC can then be used to fund a wide range of infrastructure development and public programmes undertaken by the Government.

Sir, the LBC is not a new charge. Today, there is already an existing framework by which Development Charge, which I shall call DC, or Temporary Development Levy, which I shall call TDL, is collected by URA and a Differential Premium, a DP, which is collected by the Singapore Land Authority (SLA) today. So, all these three charges exist today.

Under this existing framework, landowners and developers currently have to pay a DC or a TDL to URA, where the grant of planning permission for a development proposal regarding land results in an enhancement to land value, or a DP to SLA if there is an enhancement in land value resulting from a waiver or variation of a restrictive covenant contained in the state title of that piece of land.

This Bill proposes for a single LBC to replace the DC, the TDL and the DP. Those three charges are similar in nature, as they all cream-off in different ways the increase in value of land resulting from chargeable consents.

The principles for computing LBC and proposed rates of charging will remain largely unchanged from the current regime.

One key change is that the LBC will be charged by and collected by a single agency – in this case, SLA. This will benefit landowners and developers, as they no longer need to apply to various public sector agencies for the payment of such charges.

Sir, I will now take the House through the key features of this Bill.

Part 2 of the Bill sets out the tax rate and rules for calculating the LBC. These should already be familiar to landowners and developers as they are currently used by URA and SLA in calculating DP, TDL and DC. So, there is no change to that.

The Bill itself does not set out the tax rate, which is a percentage of the increase in the value of the land likely to accrue from the giving of the chargeable consent. The rate itself will be set out by the Minister in regulations and will be reviewed periodically as necessary.

In general, though, I should tell Members that the LBC rate will be set at 70% of the increase in land value arising from the grant of consent for proposals involving the development of land which is what it currently is today.

In certain cases, as Members may know, on an exceptional basis, the LBC rate will be higher – that is also the case today – based on 100% of the increase in land value.

These cases fall into three broad categories.

First, where the state title contains a restrictive covenant on change of land use because the land was previously sold by the state directly to the lessee without a tender. The current practice is to collect DP at 100% of the enhancement of land value, if there were to be a material change of use of that piece of land.

Second, where the state title contains an “additional land premium” condition. Such a condition may be included in a state title to allow for the collection of the value enhancement arising from an intensification or change of use of land, prior to a certain cut-off date, such as before the Temporary Occupation Permit (TOP) of a development is obtained, or until certain conditions are met. The condition is to discourage landowners from changing their plans shortly after the purchase of the piece of land from the state, in order to avoid paying the full market rate to the state at the point of purchase.

Finally, a 100% tax is planned for the varying of state title restrictions against subdivision, or against controlled activities which are unconnected to the development of land.

Sir, Part 2 of the Bill sets out the two methods used to assess the amount of LBC. These methods are, again, not dissimilar to how DC, TDL and DP are computed today.

The first method uses a Table of Rates, which is similar to the DC Table of Rates in the Planning (Development Charges) Rules today, which goes by each geographic sector and land use group. The Table of Rates will apply for the majority of cases and will allow landowners to estimate the amount of LBC upfront using that Table of Rates. This provides a clear and certain process for landowners and developers to assess the likely LBC that they would have to pay should they choose to enhance or develop the use of land.

The second method involves a valuation of the enhancement in land value by the Chief Valuer of the Inland Revenue Authority of Singapore (IRAS) or a private valuer appointed by SLA.

The second method applies where a taxable person chooses this method in lieu of using the Table of Rates method; or in specific circumstances where the Table of Rates might be inapplicable, such as where there is either no suitable or no comparable use group for assessment.

The Table of Rates and formulae for computing LBC will be prescribed in the Regulations. These will adhere with current principles, except for an adjustment for leasehold properties which will be standardised under the LBC regime.

The LBC payable for all state leases with a residual tenure of 99 years or less will be adjusted by a leasehold factor to account for the remaining tenure of leasehold land. In other words, the adjustment is made depending on the length of the balance of the remnant lease. There is currently no such adjustment for DC today to take into account the remaining tenure. So, this adjustment would make for a more accurate reflection of value.

Part 3 of the Bill sets out the provisions to exempt or provide concessionary relief from the liability to pay LBC.

Specifically, clause 13 empowers the Minister for National Development, in consultation with the Minister for Law, to provide for concessionary relief from the payment of LBC. This will allow MND to make provisions for concessionary relief in certain circumstances such as meeting planning objectives – for instance to encourage conservation of certain properties, or the comprehensive redevelopment of multiple private properties for more optimal use of land; or to encourage construction productivity; or to promote environmentally sustainable development.

This will enable the continuation of existing DC exemptions which are provided for under the Planning Act today. So, the regime for concessions exists today, in the Planning Act. It will also provide the Government with flexibility to extend concessionary relief in future to encourage desired outcomes on land planning and development.

Sir, Part 4 of the Bill sets out who is liable to pay LBC and how that liability may be assumed or deferred, as the case may be.

Under the Bill, every person who is an owner of the land when a chargeable consent is given is liable to pay LBC, by default. So, that is the standard default position. However, another party other than the owner of the land can assume liability to pay the LBC if a valid assumption of liability notice is given to SLA, or if liability to pay LBC has been deferred and the deferred liability is transferred to that other party with SLA’s approval.

Deferment of LBC liability is discretionary and not automatic.

The Bill sets out one main set of circumstances where deferment may be allowed by SLA, which is if the taxable person is a charitable institution and where the land is used wholly or mainly for charitable purposes.

This, I should add to Members, is also similar to what is currently provided for in the Planning (Deferment of Payment of Development Charge by Charities) Rules 2017, and in the Planning (Deferment of Payment of Temporary Development Levy by Charities) Rules 2016.

Where two or more persons may have a material interest in the land or are joint owners of a material interest, the Bill requires SLA to apportion the liability.

Part 5 of the Bill deals with assessment and collection of the LBC, while Part 6 of the Bill deals with the recovery of unpaid LBC.

What is new is SLA is empowered to issue a rectification order to collect penalty tax on top of the LBC due, where there has been an illegal development of land, and URA regularises the development through a subsequent planning authorisation afterwards; or where there is an activity, development or subdivision carried out in breach of a restrictive covenant contained in a state title, and SLA assesses that it is not reasonably practicable or it is undesirable to stop or resume any controlled activity or to reinstate the land.

To give Members an example of when this might happen – a developer may have subdivided the land and sold them to multiple buyers, and it would not be reasonably practicable or desirable in such a situation to order reinstatement. In that situation, the penalty tax is fixed at 30% of the LBC that is due. SLA will also be given the discretion to impose a higher or lower penalty tax at a percentage fixed by the Bill – to increase the penalty tax if the taxpayer hinders or obstructs the determination of the taxpayer’s liability; or to reduce the amount of penalty tax where the defaulting taxpayer is cooperative.

Finally, Sir, the Bill also includes other consequential amendments to the Planning Act to abolish the collection of DC and TDL under that Act; and to give the competent authority in URA and the Minister for National Development the discretion to refuse to grant an application for Written Permission, or refuse to accept a lodgement of any plans, if any LBC has not been paid in full.

Mr Speaker, Sir, the new Bill consolidates the collection of charges for the enhancement of the value of land under a single agency, SLA. This will simplify the process of collection and provide greater transparency for landowners and developers. With that, Mr Speaker, I beg to move.

Question proposed.

Mr Speaker: Murali Pillai.

8.11 pm

Mr Murali Pillai (Bukit Batok): Mr Speaker, Sir, while urban planners in most parts of the world are accustomed to planning for swaths of land, in our small Singapore, land is counted out inch by niggardly inch. As a matter of public interest, land here – those pieces that we have agreed to be developed – should be developed to its optimal potential. Where the Government allows for land to be developed more optimally, its value, in most circumstances, will tend to increase.

This Bill deals with the increased value arising from consent on the part of the public authorities. The Land Betterment Charge represents a tax to divert part of the increased value, created by the decision of the public body, for public good. The logic of this is that the value created by the decision of a public body must benefit the public.

To share the increase in the value of land with the public is not a new concept. Since Independence in 1965, Singapore has a Development Charge (DC) system, as mentioned by the hon Minister, under the Planning Act. It is a tax that is payable when planning permission is granted to carry out development projects that increases the allowable intensity or allows a change in zoning that increase the value of land.

Singapore also has a Development Premium (DP) system which works similarly. A DP is levied, as a matter of contract, unlike DC which is a tax, by the Government on the developer in return for the Government lifting title restrictions that will have the effect of increasing the value of the land.

This Bill consolidates these concepts under one Bill. This is an elegant solution to consolidate the bases for taxation and the levying of a charge arising from increase in land value because a public authority agrees to lift restrictions to enable a better utility of the land. There are similar pieces of legislation in many parts of the world, including the United Kingdom.

I seek some clarifications on the Bill with a view to understand the scope of the Bill.

First, will the DP system continue to operate outside the lifting of restrictive covenants? For example, when dealing with remnant land which is not capable of independent development because of the small size or shape, but has amalgamation potential which can bring out an enhancement in land value.

What will be the situation where the planning authority allows for amalgamation of land plots that has the effect of increasing the land value of the remnant land? From my perusal of what constitutes “chargeable consent” under the Bill, such situations seem to fall outside the Bill.

In contrast, a Land Betterment Charge may be levied arising from chargeable consent given in relation to sub-division of any land, even if there is no development on it, giving rise to an increase in its land value.

If my reading is correct, may I please ask: why is the Government not minded to bring such a situation under the Bill since the intent of the Bill is to consolidate the concepts of DC and DP under one single Bill?

Also, may I clarify that the Government will continue with the current practice to charge DP in such situations?

Second, I would like to understand the applicability of the Bill vis-à-vis decisions of the Court that may have the effect of enhancing land value.

Let us take an example where the Court makes a declaration that the burden of an easement over a servient tenement has been abandoned. As a consequence, the land value of the servient tenement may increase. Or, alternatively, a situation where the Court exercises the power under section 105A or section 140(5) of the Land Titles Act to vary or extinguish an easement or restriction over a servient tenement on the basis that they are obsolete and such burdens impede the development of the land. In such situations, by a stroke of the pen of the judge, the land value may increase too.

Again, my reading of the definition of "chargeable consent" is that such situations fall outside the Bill.

In my respectful view, if my reading is correct, there is little difference between an administrator lifting a restriction and the Court lifting a restriction that results in an increase in land value. Both should produce the same consequence. Alternatively, we should separately capture part of the increased value arising from Court decisions for public good.

Sir, let me conclude. In Singapore, land is a vehicle through which Singaporeans' wealth is built and transmitted. It is our duty to ensure that we make the best rules possible to optimise its use and to distribute the gains fairly.

I believe the Bill represents a step in the right direction. I look forward to the Minister's responses to my points of clarification. I support the Bill.

8.16 pm

Mr Leon Perera (Aljunied): Mr Speaker, Sir, I know the hour is late. I shall try to read my speech as quickly as I can.

Mr Speaker, Sir, the Land Betterment Charge (LBC) Bill has significant implications in shaping the future of development in our country. My parliamentary colleague, Mr Louis Chua will make an important speech, situating this Bill in the context of the Government's overall stance towards land sales in the treatment of the various revenue streams it thereby gains.

While I support this Bill, I will focus my speech here today on three broad areas which are mostly technical and clarificatory: firstly, greater transparency on information and consultation on this new Land Betterment Charge Bill; secondly, issues around concessionary relief in deferment of liability to pay, ensuring that we give incentives only to developments that are rightly and squarely in the public interest; and thirdly, technical clarifications of interest to industry stakeholders.

Before I proceed, I declare my interest as a CEO of a research consultancy that undertakes work in a broad range of fields.

Firstly, Sir, on streamlining. This Bill brings together in streamlines three separate charges under a single Land Betterment Charge framework.

By streamlining and combining these three charges into a single charge, this could simplify the processes for stakeholders and iron out any earlier disputes of unfairness in the different calculation methods for the different charges. However, to unlock these benefits, there should be greater transparency, accountability and stakeholder consultation on how this new Land Betterment Charge regime actually works.

Under clause 65 of the Bill, the Minister may make regulations to use the Table of Rates method. While we understand that the exact regulations will only be available at a later date, may I clarify broadly how the Land Betterment Charges will be calculated in relation to the existing regime of calculations of Development Charges, Temporary Development Levy (TDL) and Differential Premium.

Will it have elements of the existing regime or will it be a wholly new system? Will there be greater alignment across existing regimes? My colleague, Mr Louis Chua will pose similar questions in his speech.

Next, given the scale of charges set forth by this Bill, I was surprised that there was no public consultation – to the best of my knowledge – and no public consultation results made available to the public or press or in the press release by the Ministry on the Bill. Industry stakeholders have expressed similar sentiments.

Has there been a public consultation conducted on these changes? If yes, can the Ministry make public the results of the same, and if not, will the Ministry conduct one at some stage? For legislation as nuanced as this, it would be beneficial to seek out a range of stakeholder feedback. We need to surface and address potential issues and pitfalls with stakeholders.

In case studies from other countries such as Australia and the UK, policy experts and think tanks have noted the complexity of land value capture taxation. For example, while the UK has had a long history of land value capture, it has been of limited success. This was partially due to local authorities being burdened with the implementation of the policy without the necessary resources.

Next, Sir, clause 10(2) of the LBC Bill allows for not just the chief valuer but also "another individual pointed by the authority to ascertain the amount of land betterment charge by the valuation method." This opens up questions around the possibility of bias and quality control.

Firstly, if a third party, say, a private sector valuer is now allowed to do the valuation, it is possible that that there may be a perceived or real conflict of interest if this party has developer clients. This may erode trust and support within the industry for the new regime.

Secondly, I would like to clarify how this would work if the third party is involved. Will only one valuation by a single third party be allowed? Will there be a second opinion? Will the chief valuer have the final say? In other words, what controls will be introduced to check on the work of third party valuers under this Bill in respect of quality and the possibility of bias?

Next, on clause 5A. The foremost purpose of this Bill is to, "ensure the return to the community" of economic benefits reaped from the development of land. However, it appears that the LBC would go into Government revenues and be consolidated with other tax revenues for their general expenditure instead of being earmarked for particular projects that benefit the community.

In many countries, similar charges are used to fund new or pay off existing infrastructure projects in the communities where the charges are collected. For example, the construction of Hong Kong's metro railway was funded solely from the sale of development rights around stations. Close to one-third of London's Crossrail is being funded by levies on nearby businesses.

How will the funds collected by the new LBC be used to return benefits to the community? Will these funds be earmarked for infrastructural works, for example? My parliamentary colleague, Mr Louis Chua, will make a similar point and ask for greater clarity around this as well.

Next, clause 13 provides for concessionary relief if the development shows "desirability in achieving economic development or maintaining the cultural, economic, physical and social well-being of the people of Singapore and the community in the area concerned."

While it is understandable that this is worded in broad terms to cover a spectrum of possible developments that may fall under this, we should be wary of too broad a scope. We want to incentivise only developments that advance the public interest.

Could the Government provide concrete examples of the kinds of developments that would be eligible? What are the criteria for determining the eligibility for this relief? What are the guiding principles and what are the factors taken into consideration for determining the quantum of relief?

Right now, under clause 13(1), the "Land Planning Minister may, after consulting the Minister, provide by order in the Gazette for concessionary relief" of the Land Betterment Charge. In the case of competing interests, how will decisions be made?

For example, in the cases of Mandai Park developments in the Cross Island Line, these developments may result in economic benefits but they carry potential adverse environmental impacts.

Also, can the Government give itself concessionary relief? This appears to be the case from current rules. If so, how is the potential for conflict of interest managed? Can agencies and Statutory Boards seek concessionary relief and appeal decisions if concessionary relief is not obtained, and, if so, who hears such appeals?

Beyond environmental sustainability, which is mentioned in the Bill, I would like to encourage concessionary relief to be granted on the grounds of other public interest such as the conservation of heritage and art spaces.

Last October, when URA proposed the Golden Mile Complex for conservation to ensure that this move would not inhibit a future collective sale, they offered developers additional planning incentives, including a one-third increase in floor area and a waiver of a part of its development charge. This was a good use of the flexibility of the DC policy tool to incentivise developers to come on board and ensure the conserved building remains economically viable.

A conservation expert Prof Yeo Kang Shua has termed these incentives as "unprecedented and signalling that the costs of revitalisation are reduced or subsidised by the state to safeguard the common good of the country's architectural heritage".

Does the LBC include such flexibility as well? What the Government consider providing such planning incentives to development proposals for other heritage buildings?

Next, clause 22A provides for a deferment to be made if "the taxable person is a charitable institution and the land will be used wholly or mainly for charitable purposes whether of the taxable person or that person in other charitable institutions".

This is a positive step and will help offset the costs of running charities so that more of their resources can be channelled towards worthy causes. However, I have a few clarifications to seek.

Firstly, can we include organisations with Institutions of Public Character(IPCs), status to be covered by this provision? There may be organisations that have IPC status and work for the public good but are officially not registered as a charity, but as a society, for example.

Secondly, more clarity on the criteria for eligibility for this would be beneficial.

To take one illustration, in 2015, when the Singapore Weightlifting Federation, or SWF, moved into the Jubilee Industrial Building that is slated for industrial use, they had to pay at TDL estimated at $34,000 a year to use the space for sports-related purposes. With annual funding at the time of less than $70,000 from Sport Singapore and annual rental estimated at $72,000 for the Jubilee Industrial Building space, they were unable to pay the TDL. They had appealed URA's decision but did not succeed. However, earlier in 2009, the SWF had successfully applied for a waiver of the TDL when it moved from Mountbatten Community Club to Kallang. But this time, their request was rejected in 2015.

At that time, the weightlifting community was worried about the future of their sport in the country, given rising costs and these sorts of impediments. We ought to protect the future of sports in Singapore along with other worthy causes.

Next, I would like to raise some points for technical clarification.

Firstly, on stamp duty. As the LBC is a tax, as seen in clause 7 of the Bill, will stamp duty be additionally leviable on payment of LBC to the relevant authorities? If leviable, how do we reconcile this with the general position that tax is not levied on payments of tax or, in other words, that there should be no tax on tax? Under the current regime, stamp duty is leviable on DP and paid to the relevant authorities when enhancing or intensifying the use of land.

Next, on renewal of state leases and the definition of chargeable consent. Clause 3 of the Bill does not appear to capture the renewal of the leasehold tenure of state leases, for example, a 99-year lease. It is not clear as to whether or not the LBC applies to renewals. Hence, I would like to seek clarification on this point.

Next, under the current regime, the DP is typically only payable on the acceptance of the offer made by the relevant competent authorities with regard to the proposed enhancement of a land parcel. The proposed enhancement is formalised by way of a contractual agreement between the developer and the relevant competent authority, for example, SLA, by way of an offer made by the competent authority in the acceptance of the terms thereof by the developer – for example, Differential Premium payable, deadline for acceptance of the offer and so on.

As part of the terms, Differential Premiums are typically required to be paid on acceptance of the offer. Under clause 24(4) of this Bill, however, LBC is payable at the end of one month after a liability order is issued by SLA unless otherwise stated.

When a case of proposed enhancement is raised under the LBC, it seems that a liability order will be issued by the SLA after one of the following dates: firstly, the date that a planning permission or conservation permission, as the case may be, is granted in respect of the development of the land; and secondly, the date where the competent authority or land planning Minister notifies SLA that the competent authority or the land planning Minister, as the case may be, intends to grant final permission under clause 17(4) of the Planning Act 1998.

This means that the payment of LBC could be at an earlier stage than DP under the current regime since for DP, the offer and acceptance happens months after the grant of planning permission is issued.

It is not clear at what stage under the proposed regime would the applicant become aware of the different conditions they would be subjected to as the offer is being made and whether or not they would be able to refuse, reject or discontinue the proposed development after being granted provisional permission, planning permission or conservation permission. I would like to seek clarification on this point.

Next, will SLA introduce guidelines or a requirement that all changes of use applications include an undertaking that the LBC has been discussed between landlord and tenant?

Under the new Bill, the landowner with material interest in the land is by default liable to pay the LBC, providing clarity compared to the previous situation where landlords and tenants sometimes disputed the paying of TDL. While this is a good step, it would be helpful to have guidelines or a requirement that the landlord and tenant discussed this.

Anecdotal evidence suggests that in certain cases in the past, the tenant was made to bear the cost of TDL although the landlord also benefited from the change in land use permission by way of charging higher rents to the tenant. This risks an inequitable situation.

Lastly, Sir, right now, the Minister is able to decide on a case-by-case basis to defy liability to pay LBC. Can there be more specific criteria that would render a business immediately eligible for such deferment? For example, can we consider deferment due to tenants – namely small businesses – finding it difficult to pay TDL, especially those hard hit by the pandemic?

I noted that clause 14, the Minister can remit, in whole or in part, any Land Betterment Charge where the Minister is satisfied of certain conditions, including if a natural person liable to pay has suffered a loss or is in such circumstances that the charge would entail serious hardship. It would be helpful if the criteria on which these decisions would be made are spelt out more clearly.

To quote from the recent Budget cut speech made by my parliamentary colleague, Mr Gerald Giam, and I quote, "Some businesses have lamented to me that their TDL far exceeds business revenue, especially during the pandemic. If businesses are unable to pay the TDL, they might have to close down, leading to losses to themselves, their landlords and their employees. The Government will also lose out on tax revenue. Can URA consider giving such businesses rebates or deferments on their TDL?" That concludes my speech.

Mr Speaker: Mr Louis Ng.

8.31 pm

Mr Louis Ng Kok Kwang (Nee Soon): Sir, this Bill recognises that those who reap economic rewards from the development of land benefit from public infrastructure. As such, it is equitable that such economic benefits are returned to the community.

I have three points of clarification on this Bill.

My first point is on the mechanisms in place to ensure that the planning objectives of the Bill are achieved.

The new section 13 of the Bill provides the Land Planning Minister the power to provide concessionary relief from Land Betterment Charge (LBC) for the purpose of meeting certain planning objectives. These conditions include that the relief will lead to a more optimal use of land, improve the productivity of the construction sector and promote environmentally sustainable development of land. These objectives are wide-ranging and very general in nature. Given how broad these objectives are, can the Minister explain which of these specific planning objectives the concessionary relief granted to a development is intended to achieve? Can the Minister also explain how he envisions the development will achieve the intended planning objectives?

Additionally, given that a fairly long timeframe may be required to determine if some of these objectives are achieved, what measures are in place to track whether concessionary relief granted achieved the intended planning objectives?

My second point is on the scope of Minister's power to grant general exemptions from the Land Betterment Charge under the new section 12. In contrast to the Land Planning Minister's power to provide concessionary relief, the Minister's power to grant a general exemption is not expressly limited by any planning objectives.

Can the Minister provide assurance that the Minister's power will be exercised in line with the purpose of the Act as set out under the new section 5? In other words, will Minister's power to grant general exemptions be consistent with the objectives of urban development, enhance productivity for the construction industry and promote environmentally sustainable development?

My third point is how the Government will recover benefits from any unlawful development. The new section 40(2)(d) provides the Authority the power to direct a person to pay a penalty tax if the Authority considers that restoring the land and other restorative steps is not reasonably practicable or is undesirable.

However, even if an unauthorised activity ceases or the land restored, the developer may still have reaped benefits for the period that the unlawful development lasted.

At present, the Authority's power to either order restoration or impose a penalty tax appears to be mutually exclusive.

Can Minister clarify what powers the Ministry has to require that a developer disgorge the benefits that it has reaped from such unlawful development? Sir, notwithstanding these clarifications, I stand in support of the Bill.

Mr Speaker: Mr Louis Chua.

8.34 pm

Mr Chua Kheng Wee Louis (Sengkang): Before I begin, Mr Speaker, I would like to declare my interest as a research analyst covering the real estate sector.

Mr Speaker, for a relatively small island state like ours, land is often said to be a scarce and non-renewable resource. This is notwithstanding, of course, that Singapore's land area stands at around 276 square kilometres as at 2019, about 140 square kilometres or 24% higher than what it was 50 years ago. After all, there is a hard limit to the amount of land reclamation that can be carried out in our waters. It is thus essential that we focus on optimising Singapore's land use so as to extract the maximum socio-economic benefits for all Singaporeans.

Optimising land use has come a long way in Singapore, starting with the amendment of the Land Acquisition Act in 1966, following Singapore's Independence. Back in 1964, then Prime Minister Mr Lee Kuan Yew shared two broad principles on land acquisition.

The first is that no private landowners should benefit from development which has taken place at public expense; and, second, prices paid on acquisition for public purposes should not be higher than what the land would have been worth had the Government not contemplated development generally in that area.

With these principles in mind, the Land Acquisition Act was subsequently amended to strengthen the Government's powers to acquire land and limit compensation. In the debate on the Land Acquisition Bill, Mr EW Barker, then Minister for Law and National Development, concluded that: "There has not been a word of criticism. I have nothing much to add except to say that I am glad that our backbenchers have realised the importance and the necessity for this piece of socialist legislation."

The Land Acquisition Act has since been amended given changing circumstances, with the 2007 amendment providing for compensation based on prevailing market value of acquired land. But why are all these important?

The effect of legislation has meant that from 1960-2007, land owned by the public sector doubled from 44% to over 85%. Effectively, the Government has become the largest landowner and landlord, with the ability to simultaneously influence both demand and supply through policy levers. Critically, the Government also has the ability to extract monetary value from land throughout the course of time, with land having characteristics of a renewable resource and not a finite one.

First, I stand corrected, but it is the policy of this Government that, for leasehold land sold, at the end of the land lease tenure, land will revert to the Government for free and will thus be available for sale once again. Second, stamp duties will provide for taxes to be collected when sale or rental transactions occur. Thirdly, property taxes are collected on an annual basis.

The Land Betterment Charge (LBC) will be one additional mechanism, the principles of which I agree with, as it will allow for the collection of a tax on the increase in the value of land resulting from a chargeable consent given in relation to the land. For example, what used to be a low-rise carpark and hawker centre in the heart of the CBD, are set to be transformed into a modern mixed-use commercial complex rising to a height of 280 metres, one of the tallest buildings in Singapore. While the size of the land plot has not changed, the implied land value has soared considerably.

The LBC will thus be a logical policy lever to allow for value captured by the state for the public good. Specific to the Land Betterment Charge, I note that it is to be collected by SLA and replaces the taxes known as Development Charge (DC) and Temporary Development Levy (TDL) imposed under the Planning Act and the collection of Differential Premium (DP) by SLA. The streamlining of legislation and easing of administrative burden would just be much appreciated by private developers and public officers alike.

That said, I do have a number of specific clarifications to raise on the LBC.

The first, on the quantification of LBC. Clause 9 sets out the two methods to be used in assessing the amount of LBC – the Table of Rates method and the evaluation by designated valuers method. Today, DC rates are reviewed on a half-yearly basis in consultation with the Chief Valuer. The table of DC rates are broken down into 118 geographical sectors and nine different use groups.

Can the Minister clarify how the Table of Rates will be assessed and how will it be different from the current DC regime? How much will DC collections on an annual basis in the past and how would this differ with the switch to an LBC mechanism? Conceptually, almost all developments benefit from existing amenities and infrastructure. So, it is also fair that those who benefit financially when planning permission is given should share some of their gain with the community.

However, it is also difficult to quantify the land value increment resulting from infrastructure investments. Revaluation being a subjective matter, how would, for example, aggrieved landowners seek recourse for any disagreements in land valuation and LBCs, whether it is assessed under the table of rates method or the valuation method.

Second, with the blurring of lines across use groups and greater creativity in land use optimisation, we are already seeing retail malls of today house co-working offices while it is increasingly common to have lifestyle in hospitality provisions, in Grade A office buildings. How will SLA ensure that its table of rates is a dynamic one and not based on static singular interpretations of land use?

Third, on the powers conferred on the Minister. Clause 12 confers powers on the Minister to exempt any person or class of persons from all or any of the provisions of the Bill either generally or in a particular case and subject to such conditions as the Minister may impose. How is this exercise of legislative powers safeguarded and what would the conditions entail? Have similar exemptions been exercised in the past and what were the circumstances behind it back then?

Fourth, clause 13 empowers the land planning Minister to provide for concessionary relief from Land Betterment Charges, assuming certain conditions have been made. In practical terms, who will be the land planning Minister and would not the conditions under subsection 2(a), (b) and (c) be desirable, loosely defined conditions that we will expect out of property development in Singapore regardless?

Aside from the Act, these include the desirability of the proposed development or subdivision of any land in achieving economic development or maintaining the cultural, economic, physical and social well-being of the people of Singapore and the community in the area concerned.

Fifth, on the liability of lessees or occupiers, under clause 35, should the taxable person make default in payment of any LBC, the lessee or occupier will be liable for payment, notwithstanding that any such payments constitute a valid discharge from rents or payments due. While this would simplify recovery efforts, is such a clause fair to the tenants and should not efforts be focused on the defaulting party instead?

Finally, on the management of monies collected from the Land Betterment Charge. Clause 5 sets out admirable causes for imposing an LBC, including amongst others, ensuring the return to the community of an appropriate proportion of economic benefits from the grant of rights to develop or otherwise use land and to promote or encourage environmentally sustainable development or use of land. Would the Land Betterment Charges collected from the development be earmarked for the specific community in question? And how would SLA enforce the requirement for environmentally sustainable development?

To round up, Mr Speaker, I agree with the purpose of the LBC and recognise it is one of the many ways in which land in Singapore can be continuously monetised by the Government to provide for recurring revenue throughout the course of time; although I recognise at this point in time, the Government does not take into its operating Budget the recurring annual land sales revenue of about $14.5 billion on average.

With Singapore's Budget not inclusive of land sales revenue, it is worth considering realigning the focus in the sale of state land from one of revenue maximisation in that land is awarded to the highest bidder to one in which the greatest value uplift can be provided and the greatest socioeconomic good generated, similar to that as encouraged by the LBC.

Mr Speaker: Mr Don Wee.

8.43 pm

Mr Don Wee (Chua Chu Kang): Mr Speaker, Sir, the aim of this Bill is to provide for a tax, that is, the Land Betterment Charge (LBC), which is based on the enhancement of land value due to a permitted change in relation to the property. The LBC will replace the current Differential Premium (DP), Development Charge (DC) or Temporary Development Levy (TDL) payments. The basis for payment computations will remain the same. Hence, as I understand it, the changes serve primarily to simplify the process for payment computations and to consolidate collections under SLA. At the same time, the tax will be a tool for serving wider national interests.

I would like to take this opportunity to seek several clarifications relating to these broader objectives.

The first objective, as stated in clause 5, is to ensure that a fair proportion of the expected economic benefits from the land development is shared with the community.

So far, the DP and DC payments have been put into a common pool and are not earmarked for use of projects in the vicinity of the properties involved. Going forward, would the Ministry consider ploughing the LBC back into the community most directly affected by the land development, such as re-zoning or an increase in plot ratio? While such developments enhance the value of the land itself, they are not always beneficial to the vicinity. Disamenities may include heavier vehicular and human traffic, noise, pollution, obstruction of scenic views and so on. The payments can be utilised for upgrading community infrastructure and town improvement works as a form of compensation to the community.

The second aim is to provide, I quote, "certainty and transparency through rules and processes for calculating most land betterment charges by reference to fixed data without need for valuation". Presently, under URA, DC rates are reviewed every six months in March and September in consultation with the Chief Valuer at IRAS.

Would the Minister elaborate under what circumstances valuation will be required and will SLA continue to review LBC rates as frequently as possible with IRAS? Mr Speaker, Sir, in Mandarin, please.

(In Mandarin): [Please refer to Vernacular Speech.] With reference to the third and fourth objectives in clause 5, what will be the role of the LBC, in view of our new priorities in land planning and development as set out in the Singapore Green Plan 2030? In addition, would the payments collected be used to help reduce the amounts we need to borrow for future long-term national infrastructure projects? How does the Ministry intend to use the LBC for productivity enhancements in the construction industry, especially during the challenging times we are facing today? Would the Minister provide some examples which can serve to enlighten SMEs in the construction sector on how they can tap upon the incentives in this Bill?

(In English): I would like to conclude with my support for the Bill.

Mr Speaker: Minister Edwin Tong.

8.47 pm

Mr Edwin Tong Chun Fai: Mr Speaker, I thank the various Members for speaking and expressing support for the Bill. I will go straight into the queries that have been raised and try and address as many of them as I can.

Mr Louis Ng, and I think Mr Louis Chua and Mr Leon Perera, asked about the concessionary relief. Mr Ng, in particular, asked what the planning objectives are that we intend to achieve by the grant of relief in section 13.

The provisions in section 13 enable the continuation of existing concessionary reliefs from Development Charge (DC), currently provided for in the Planning Act. It will also make provision for future concessionary reliefs for developments that promote sustainable development of land and which balances the interest of current and future generations of Singaporeans.

An example of the continued provision for concessionary relief for change of use proposals within conserved buildings to incentivise the restoration of conserved buildings – I think a point that Mr Perera also touched on – and the adaptive reuse of conserved buildings. This is necessary to promote more optimal use of land, whilst at the same time, maintaining Singapore's cultural heritage.

Mr Wee also asked for examples of concessionary relief to encourage construction productivity. Any future relief schemes will be gazetted according to purposes and objectives set out in section 13 of the Bill. Appropriate measures will be considered to ensure that these objectives, as we have set out in this Bill for the new relief schemes will be achieved. MND will share more about this when they are ready.

Mr Wee asked about the use of the LBC collections – I think Mr Chua did as well and so did Mr Ng – and whether LBC collections will reduce the amount of future borrowing needed for long-term national infrastructure projects. Let me first clarify that the LBC is a consolidation of three existing revenue streams. They do not seek to enhance these. As I mentioned at the outset, the existing framework is preserved, it is just put under one collection agency, and the LBC will be the name used for all three converted into LBC.

The consolidation is therefore not expected to result in a marked increase in the amount of revenue. Indeed, the revenue to be collected will, of course, depend on the extent to which developers and landowners make an application for enhancement or intensification which triggers the use of LBC.

Clause 57 in the Bill requires all LBC collections to be paid into the Consolidated Fund. The LBC would thus be a part of the public monies available for this House for appropriate expenditures that benefit Singaporeans as a whole. It would not be earmarked specifically for one purpose or one project, but it will be available generally, in the fund to benefit Singaporeans as a whole. And, these, Mr Speaker, would include the funding of infrastructure, services and public programmes, including projects that benefit the local community, as well as broader national ones, such as the Singapore Green Plan.

For major infrastructure spend that is critical to Singapore's development, we have just talked about the SINGA Bill. This would smoothen hefty costs, which could run into tens of billions of dollars. By doing so, we will no longer need to pay for the costs upfront from our operating revenues. This is part of the Government's differentiated financing strategy for different types of expenditure.

Mr Louis Ng asked whether the Minister's power to grant general exemptions will be exercised in line with the purposes of the Act; Mr Perera, and I think Mr Chua also did. The short answer is yes; that is set out in section 5. Mr Ng may also wish to note that sections 12 and 13 require that every order made to grant an exemption or provide for concessionary relief must be presented in Parliament as soon as possible after publication in the Gazette. Members of this House will be directly informed of the making of these exemptions when these are made. I think Mr Chua also made a point about this.

Mr Ng asked how the Government will recover the benefits accrued by developers from unlawful development of land. The purpose of the LBC Bill is to impose a tax on the increase in the value of land arising from a chargeable consent. It does not provide for a penalty tax to be collected for unlawful developments where no such consent is granted. So, if you have something that is done in breach of the restrictive covenants, for example, then, subsequently when the permission is granted, not only will LBC be collected, there will also be a penalty amount levied on top of that; up to 30%, as I mentioned at the outset.

For unlawful developments involving a breach of planning control, URA under the Planning Act today may issue an enforcement notice. The notice may require the removal of any unlawful structures and reinstatement of the land to its former site.

Mr Don Wee asked whether SLA will continue to review the Table of Rates every six months with IRAS. Mr Perera also touched upon this. Mr Chua as well raised this point. Yes, it will be reviewed to ensure that it continues to be updated and the circumstances under which the assessment of LBC by valuation is required.

That is similar to what is done for the DC Table of Rates today. So, as I said, the framework does not differ. To Mr Perera's question, as to whether there will be a wholly new system, the answer, I think, is quite clear from what I said at the outset, and also my last statement that no, it would not be a wholly new system. It will be similar to the existing framework. In fact, it is a consolidation of the existing framework, which is why we felt that no public consultation was necessary in this case.

Valuations are required in specific circumstances, where the Table of Rates might not be applicable in circumstances, which I outlined earlier, such as, for unique developments, like for example, golf courses, theme parks, where there might not be a suitable or comparable use group or sufficiently rich source of data available. Taxable persons might also opt to use LBC by valuation in lieu of the Table of Rates.

Mr Perera might wish to know that this system of having a valuer as an option, apart from the Chief Valuer, currently is already available. And there has not been any specific difficulty associated with that.

Mr Murali asked if the DP system will continue outside the lifting of restrictive covenants. And I think, specifically Mr Murali cited the example of remnant land parcels, odd pieces of land, which could be put together and developed upon. Mr Murali's point is that these odd pieces by themselves are not capable of independent development, but with amalgamation, they may have the potential to bring about enhancement.

Landowners who wish to purchase remnant state land will continue to have to pay a land premium as consideration to SLA for the remnant land parcel, and the LBC applicable for any chargeable consent thereafter granted on their private land parcel as a result of the amalgamation.

So, I think to answer Mr Murali's point, if you decide to put together the parcels and you need a chargeable consent to be given in respect of say, a restrictive covenant to be lifted, then an LBC will be levied.

Mr Murali also asked for the Government's position on the applicability of the LBC in relation to Court decisions, citing examples such as the lifting of easements or restrictions, dominant/servient, tenement, for example, which may result in land value.

A Court's decision to vary an easement or restriction would not in itself constitute a chargeable consent. So, in itself, it is not a chargeable consent, under the LBC Act. So, if you have a piece of land and you are subject to a Court decision – where the Court rules one way or another on the construction of the easement, for example, that itself will not amount to a chargeable consent. What the Court does is make a pronouncement as to the proper construction of the easement already existing as to what it should entail. But having said that, it can certainly affect the value of the land and I think that is Mr Murali's point. And this will certainly be taken on board in a valuation, should chargeable consent by the state be granted subsequently with respect to this piece of land with the Court's decision taken into account.

So, the Court decision per se on itself, it would not be a chargeable consent, but if subsequently, in the context of the decision taken by the Court to vary or lift or otherwise construe a restriction in a positive manner, that will be taken into account as an enhancement in the land value. And I hope that clarifies Mr Murali's point.

I should clarify to this House that the LBC is not a tax to cream-off any transaction that leads to an appreciation land value. In other words, if you develop ways not related to the land, the LBC is not designed to cream-off those appreciations.

The liability to pay LBC arises only when the state grants a chargeable consent by allowing a landowner to develop the land further or varying a restrictive covenant in the state title, so that you can do something, which you previously could not do under the title.

In keeping with the principle in clause 5, that those who benefit financially when permission to develop the land is given should share some of that gain with the community. And I think that is also a point raised by almost all the Members who spoke on this point.

Mr Perera raised several specific questions and I will just address them here very quickly. On the question of an IPC, I think Mr Perera's point is some might not be registered as a charity. So, it might be a society with an IPC status. The regulations will consider this and will take this into account, even if you are not registered as a charity but have IPC status.

Stamp duty is not leviable on the LBC, as the LBC is a tax, as Mr Perera had pointed out. In relation to the renewal of leases, leasehold interest for state leases, a lease renewal premium is paid, not the LBC.

In terms of the LBC between the landlord and tenant, I think both Mr Chua and Mr Perera raised this, yes, it is collectible from the parties who have a material interest and that includes, in the context of a landlord and tenant, the tenant itself. The tenant may have recourse to the landlord for any portion that the landlord ought to bear, but the provisions here set out the mechanism by which the state is able to levy the LBC as against any persons with an interest in the land. And as Members would know, that includes the tenant.

To Mr Chua's point, if there is a dispute as to the valuation or disputes as to the way in which the Table of Rates is used, that dispute is taken to the Minister whose decision would be final.

On Mr Perera's question, as to whether there can be a deferment if one cannot pay the LBC. Well, in the context of most cases, LBC is levied in a situation where there is an enhancement in the value of land. So, typically, a landowner or developer who obviously would have done his sums would come, make a proposal want to develop a piece of land, and obviously the intention behind that development is enhancement of land value.

Such a situation would not often arise, but should it arise, that is something that can be taken into account, as a matter of discretion. And you look at the entire context of the situation in considering the appropriate deferment, if any.

As to timing of the payment raised by Mr Perera, both the LBC and the DP are generally payable after PP, but before the Written Permission.

Sir, I think I have covered as many of the points which I think are salient. With that Sir, I beg to move.

Mr Speaker: Clarifications? Very good.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. – [Mr Edwin Tong Chun Fai].

Bill considered in Committee; reported without amendment; read a Third time and passed.