Stamp Duties (Amendment) Bill

Order for Second Reading read.

The Second Minister for Finance (Mr Lawrence Wong): Mdm Speaker, I beg to move, "That the Bill be now read a Second time."

The Stamp Duties (Amendment) Bill 2017 will have its three readings done in a single Parliament Sitting today. We adopt this approach because the measure involved is market-sensitive and needs to be effected shortly after the Bill has been announced. In order to read the Bill three times in single Parliamentary Sitting, the Ministry of Finance (MOF) has sought and obtained the President's certification that the urgency exists for this Bill under Standing Order 86 of the Standing Orders of the Parliament of Singapore.

The Bill introduces a new stamp duty treatment for the acquisition and disposal of equity interests in property holding entities (PHEs). PHEs are defined as entities whose primary tangible assets are residential properties in Singapore. This new stamp duty treatment addresses the stamp duty rate differential that presently exists between the direct acquisition or disposal of residential properties and the acquisition or disposal of equity interests in entities whose primary tangible assets are residential properties in Singapore. This Bill, if approved by Parliament, will take effect on or after 11 March 2017.

Let me explain this existing stamp duty rate differential. Currently, the acquisition of shares in companies is subject to 0.2% stamp duty, based on the purchase price of the value of the shares. There is no stamp duty on the acquisition of equity interest for other types of entities, such as partnerships and trusts, or the disposal of equity interests in all types of entities, including companies. This treatment applies even when the entity's assets mainly comprise residential properties in Singapore.

In comparison, the purchase of residential properties in Singapore attracts Buyer's Stamp Duty (BSD) of 1% to 3% and Additional Buyer's Stamp Duty (ABSD) of up to 15%. Both BSD and ABSD are based on the purchase price or the value of the properties. The sale of residential properties in Singapore may also be subject to Seller's Stamp Duty (SSD). There is, therefore, a stamp duty rate differential between the buying or selling of residential properties and the buying or selling of equity interest in entities holding residential properties. With ABSD and SSD remaining relevant in our property market, we have decided that it is timely to close this stamp duty rate differential.

The Bill thus seeks to apply new duties to the acquisition and disposal of equity interest in entities whose primary tangible assets are in residential properties in Singapore under specified circumstances. These new duties, which I henceforth refer to as Additional Conveyance Duties (ACD), will apply irrespective of whether the equity interest in PHEs is acquired or disposed of for bona fide business reasons. This is just like how we currently levy BSD or ABSD, and ABSD or SSD, on the purchase or sale of residential property, even if the purchase or sale is for bona fide business reasons.

The new ACD will apply, in addition to the prevailing stamp duty of 0.2%, for the transfer of shares in companies. I should highlight that the measure will not impact the ordinary buying and selling of shares by retail investors in entities listed on the Singapore Stock Exchange. Currently, they are not subject to share duties where the shares are scripless and no document is executed for the transfer of such shares. Rather, ACD is aimed at the transfer of equity interest in PHEs by significant owners of such entities.

Madam, I will now elaborate on the key features of the new measure. Specifically, an entity is regarded as a PHE under two circumstances. The first category of entities holds residential properties directly. To establish if such an entity is a PHE, we will apply a significant asset test. An entity can be a PHE if 50% or more of its total tangible assets is residential properties in Singapore. We will call this a Type One PHE.

There is also a second category of entities that have indirect holdings of residential property through Type One entities in which they have at least 50% equity interest. The entity may also own some residential properties directly. For such an entity, it will be considered a PHE if it meets two criteria. First, it beneficially owns at least 50% equity interest in a Type One PHE. Second, it meets the significant asset test as mentioned above. In other words, the total value of the residential property it hence owns indirectly through these Type One PHEs, as well as the value of the residential property it may own directly, comprises 50% or more of its total tangible assets.

ACD will apply to acquisition or disposal of equity interest by owners with significant equity interest in the PHE. To be considered a significant owner, one has to either presently hold at least 50% equity interest in a PHE or hold at least 50% interest after the equity acquisition.

In determining whether the 50% ownership threshold for significant ownership is met, we will take into account the equity interest held by associates. Examples of associates include a parent company and its subsidiary or, in the context of individuals, a father and his children, husband and wife.

We will also cover arrangements under which individual buyers act in concert to purchase shares with the objective of avoiding the new duties. This serves to mitigate any potential attempt to circumvent the 50% ownership threshold through its associates and thus avoid ACD for purchase or sale of its equity interest in a PHE.

The computation of ACD will be based on the prevailing market value of the underlying residential property at the time of the qualifying acquisition or disposal of equity interest, in proportion to equity interest.

With the new measure, an acquisition of equity interest in a PHE will be subject to ACD for the buyer, if the buyer is already a significant owner at the time of acquisition, or becomes a significant owner thereafter.

ACD for the buyer comprises two components. First, 1% to 3% on the value of the underlying residential properties which mirrors the existing BSD. Second, a flat 15% on the value of the underlying residential properties, which is similar to the existing ABSD for residential properties. This flat 15% rate applies irrespective of whether the buyer of the equity interest is a Singaporean, a Permanent Resident, a foreigner or a non-individual entity.

Likewise, a disposal of equity interest will be subject to ACD for the seller if: (a) the disposal is made after the seller has become a significant owner; (b) the equity interest disposed of is acquired on or after 11 March 2017; (c) the equity interest disposed of is held for three years or less from the time of acquisition.

ACD will be set at a flat rate of 12% for sale of equity interest within three years of purchase, similar to SSD for residential properties. This flat rate applies, irrespective of the holding period for the equity interest which is disposed. I should also clarify that once a person acquires equity interest on or after 11 March 2017 in a PHE and becomes a significant owner of such a PHE, ACD on sale of equity interest will continue to apply and to such time that the owner has disposed completely of all the equity interest in the PHE.

To deter potential attempt by the buyer and seller to circumvent the provisions for the new duties, the Bill includes a specific anti-avoidance provision. This provision charges the new duties notwithstanding the conditions are not met, for instance, if an arrangement was made with the purpose of allowing an entity to be no longer a PHE. The duty is not chargeable if the Commissioner is of the opinion that the arrangement was not carried out to avoid the duty.

The remaining legislative changes are mostly technical in nature. On that, Mdm Speaker, I beg to move.

Question proposed.

Mdm Speaker: Mr Yee Chia Hsing.

11.52 pm

Mr Yee Chia Hsing (Chua Chu Kang): Madam, I would like to thank MOF for introducing this Bill.

I brought up this issue during the Budget Debate last Wednesday, asking that we review the concept of ownership for residential properties to include beneficial interests instead of just looking at the registered owner. I had proposed that if a residential property is held by a corporate entity or a special purpose vehicle, and the shares of the company are transferred from seller to buyer, the normal residential stamp duties should apply.

I am pleasantly surprised by the speed that my suggestion has been taken up. I do not think the Ministry could have come up with the Bill within such a short time, so I am sure the Ministry had been looking at this issue for some time.

Madam, as our Government's spending on health, infrastructure and social support increases, we face an urgent need to increase our revenue to fund this spending.

Quoting recent newspaper articles after Minister Lawrence Wong talked about this during his Committee of Supply (COS) speech, this move is seen by some industry players as plugging an existing regulatory loophole. I would like MOF to consider if a separate taskforce can be set up specifically to look at whether there are other loopholes across the various Ministries which we have to plug.

Madam, the task of closing a loophole should not be left to the individual Ministries since we usually need a fresh pair of eyes to look at an issue. This taskforce should also look at other creative ways to increase Government revenues. I hope the Ministry will be able to find more revenue sources which are both progressive, in that only the rich pays, and discretionary, in that they have a choice. The increase in Additional Registration Fee for luxury cars in early 2013 is one such example of a tax which is both progressive and discretionary.

In terms of finding new sources of revenue, for instance, we may consider whether it makes sense to tender out car registration number plates with alphabet series which are no longer available. For example, I think a two-letter SG series number plate will be very well received.

Madam, we have just concluded our Budget Debate and COS for the various Ministries over the past two weeks. As a responsible and prudent Government, we have always tried to run a balanced Budget. But it will become increasingly challenging as our population ages.

I hope that with additional revenue sources which are both progressive and discretionary, we will not need to increase other taxes which may impact low- to middle-income families. Madam, I support the Bill.

11.55 pm

Mr Lawrence Wong: Mdm Speaker, we all take pride in the efficiency of the Government but I can confirm that this did not happen just after Mr Yee's speech in the Budget Debate.

It is something that we have been monitoring quite carefully and we have been studying this. As Members can appreciate, the design of the scheme itself and the issues at stake are quite complex. So, we have been studying this very carefully before working out the measures that have been proposed today.

I should also clarify that the motivation for this Bill is not to raise revenue. It is not a revenue-raising measure per se but the motivation for doing this is to remove the existing differential in the stamp duty rates, which I have explained earlier.

With regard to revenue issues, we have already spoken about this at length during the Budget Debate. The Minister for Finance has highlighted our approach for new sources of revenue in his round-up speech and we had a discussion on this in the COS for MOF as well. We are studying all options carefully to determine the best way to raise revenues to support our future expenditure needs. Mdm Speaker, on that note, I beg to move.

Mdm Speaker: Mr Liang Eng Hwa.

Mr Liang Eng Hwa (Holland-Bukit Timah): Mdm Speaker, I want to also express my support for this amendment to address the stamp duty rate differential and also to urge the Government to continue some form of demand management measures for our property, so that we have a stable property market.

I just have one question for the Minister. Does this new Bill provide some flexibility to address, should, in the future, the property players come up with more ingenious or some creative way to counter this? Are there provisions for that without having to come to Parliament to do another amendment?

Mr Lawrence Wong: Madam, I can confirm that that is, indeed, the case. We will have to continue to study this. After putting in this measure, I think there will be adjustment in the way industry players respond to this, so we will have to monitor very carefully. Indeed, we have also put in place, as I mentioned in my Second Reading speech just now, a specific anti-avoidance provision for the new measure, which will have the ability to cover arrangements that have the effect of reducing or avoiding liability of the new duties.

We have also put in place flexibility provisions so that even after this measure, we can make further changes if need be.

Mdm Speaker: Mr Louis Ng.

Mr Louis Ng Kok Kwang (Nee Soon): Madam, just some clarifications or concerns on the ground. One, whether the Minister feels this stabilises the property market, especially the high-end market which has been quite sluggish. Two, the real problem really seems to be an oversupply of private properties, whether the Ministry will also address this. Third, while we pass this Bill with such haste, will this not actually just result in a huge transaction in the next few hours?

Mr Lawrence Wong: Madam, on the third point, as I have mentioned, this is not done in haste. If this was done in haste, we would have probably done it much earlier. But we took time to study, to carefully consider the measures before putting it together. We are doing it three Sittings in one, not to rush through but because of the market sensitivity of the measure.

On the impact of the property market and the broader issues of high-end residential property market, whether there is, indeed, an oversupply, that is a separate matter regarding property market conditions in general. I do not want to get too much into that debate but it would suffice to say that our aim is to ensure a stable and sustainable property market in Singapore. That is what we seek to do and we are continuously monitoring the property market conditions to achieve this objective.

Mdm Speaker: Mr Cedric Foo Chee Keng.

Mr Cedric Foo Chee Keng (Pioneer): I support the Bill because it levels the playing field for payment of stamp duties. May I ask the Minister what impact this Bill would have on the property market? In other words, how prevalent is this PHE practice and would this Bill result in sudden movements in the market?

Mr Lawrence Wong: Madam, I do not want to speculate on the impact at this juncture. We would not know how prevalent it is because the people who are doing this today, doing this share transfer, are not required to declare. So, we do not have data on the numbers who are doing it.

I would not want to speculate on the impact. We know that there is a differential which we are closing today. We believe it is the right thing to do and we had taken time and effort to study this to make sure that whatever measures we are putting in place are balanced, appropriate and do not also impact negatively on legitimate business transactions. That is what we have done.

Mdm Speaker: Mr Gan Thiam Poh.

Mr Gan Thiam Poh (Ang Mo Kio): May I seek clarification from the Minister whether the transfer of equities by way of gifts is exempted? In the case of, let us say, the parents transferring the share to their children, and also transferring due to death of the shareholders, and so transfer to the beneficiaries, would that also be exempted? Also, I know the tax is on the underlying residential property value. In the case of a distress sale, in a hurry, how would you determine the value of the asset?

Mr Lawrence Wong: Madam, the circumstances under which transactions will apply are very clearly laid out in the Bill, so we will use this to apply and see whether any transactions would qualify or would need to pay for the additional new duties. The criteria and the test that we have laid out are very clearly spelt out, so we will use this objectively.

On valuation, there are clearly spelt out valuation methods to do valuations. I do not think we need to get into a debate on that. I think these valuation methodologies are already in place today to value properties. Mdm Speaker, I beg to move.

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 Lawrence Wong.]

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