SHOULD WE BRING BACK ESTATE DUTY?

On 19 November 2017, Prime Minister Lee Hsien Loong announced that the PAP Government is planning to increase taxes. [1] His announcement fuelled wide speculation of an imminent hike in Goods and Services Tax (GST).

GST is a tax on domestic consumption. The tax is paid when money is spent on goods or services, including imports. GST is not applicable for sales and leases of residential properties, importation and local supply of investment precious metals and most financial services.

GST was first introduced in Singapore on 1 April 1994 at 3%. The GST rate was increased to 4% in 2003, to 5% in 2004 and to 7% in 2007. GST currently stands at 7%. 

On 29 November 2017, The Business Times reported: "The Goods and Services Tax (GST) is likely to be raised by two percentage points in the coming years as Singapore's spending needs continue to grow, according to DBS senior economist Irvin Seah."[2]

It is important to note that GST is considered to be a regressive tax.  A regressive tax is one where the poor pay more tax, as a percentage of their income, than the rich. GST is a tax on consumption.  Generally, poorer households spend a greater proportion of their income on consumption compared to higher income households. So, when tax is based on consumption, the poor would end up paying more tax, as a percentage of their income, than the rich.

The fact that GST has remained the same since 2007 makes it the easiest target to hit in the hunt for additional revenue.

If taxes must be raised, two types of taxes which impact richer Singaporeans more than poorer Singaporeans come immediately to mind.     

1.       CAPITAL GAINS TAX

Capital Gains Tax (CGT) is a tax levied on the profits a person realizes when he sells his asset for a price that is higher than the original purchase price.

There is no CGT in Singapore. The gains derived from the sale of a property in Singapore are not taxable. (Exception: when a person is deemed to be trading in properties, the gains from the sale of property in Singapore is considered taxable income.) Likewise, no tax is payable on profits derived from the buying and selling of shares or other financial instruments.

Singapore has been a "No CGT" city for the longest time that I think "No CGT" has become a sacred cow - never to be slaughtered!

2. ESTATE DUTY

Estate Duty (ED) is a tax on the total market value of a person's assets (cash and non-cash) at the date of the person's death. Beneficiaries will receive their share of the deceased's estate net of ED. 

The British introduced ED into our tax system. The rationale for ED is to prevent accumulation of wealth. The aim is to encourage asset-rich people to distribute their wealth during their lifetime in order to minimise ED. If you die a pauper, there will be no ED; if you leave behind millions to your loved ones upon your death, your estate will attract ED.

While Singapore never had CGT, we had ED all while, until it was abolished in 2008.

In 2008, Minister for Finance Mr Tharman Shanmugaratnam (MOF) informed Parliament that he had decided to remove ED for deaths on and after 15 February 2008.

In announcing his decision to abolish ED, MOF said:

"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."

 - BUDGET STATEMENT 2008 delivered in Parliament on 15 February 2008 by Mr Tharman Shanmugaratnam, Minister for Finance, Singapore (Para 4.71 to 4.79)[3]

At the end of the day, the abolition of ED was not up for debate in Parliament. Rightly or wrongly, it was the prerogative of the MOF to decide whether to continue, modify or abolish ED.  The MOF decided to do away with ED and it was so. 

When a person dies and leaves property to beneficiaries, the beneficiaries gain a windfall. The share of the deceased's estate comes to him as a gift.  He did not have to work for the benefit.  

In comparison, earned income is taxable. For every dollar earned and worked (for which time was spent and effort made), a certain portion must go to the State (subject to applicable exemptions and allowances).  So taxing earned income and taxing gifts have very different impact on a person. 

• ·         Was the removal of ED applauded by asset-rich Singaporeans? 
• ·         Is a “No ED” regime more beneficial to the rich?
• ·         Have Singaporeans on the whole benefitted from and continue to be better off, without ED?

Interestingly, ED (if we have it) would only tend to affect a minority of Singaporeans i.e. the wealthy and beneficiaries of the wealthy.

CGT (if we have it) would only affect those who have capital (money, assets) in the first place and make money from capital. 

Income tax is imposed on people who work and on companies which are profitable.

GST affects all Singaporeans (whether you work or don’t), but impact poorer Singaporeans more.  

If the Government needs more money, we should consider whether the rationale for removing ED continues to apply and whether it would be beneficial to the collective interests of Singaporeans to bring ED back - or more pertinently, introduce an updated form of ED - in preference to increasing GST.

By Jeannette Chong-Aruldoss

30 November 2017

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[1] http://www.straitstimes.com/singapore/spore-to-raise-taxes-as-govt-spending-increases

[2] http://www.businesstimes.com.sg/government-economy/gst-hike-by-how-much-and-how-soon

[3] http://www.singaporebudget.gov.sg/budget_2008/speech_toc/downloads/FY2008_Budget_Statement.pdf

Khoo Teck Puat died 21 February 2004, his estate was liable for Estate Duty

Kwa Geok Choo died 2 October 2010, after the abolition of Estate Duty 

THE 2017 PRESIDENTIAL ELECTION – AN UNMITIGATED FIASCO

Flushed with political capital from a trouncing 70% mandate captured at the September 2015 General Elections, the PAP Government kicked off its 13th Parliament in January 2016 by announcing plans to make changes to Singapore's political system.

Presumably to serve Singaporeans, but perhaps to serve the PAP's hegemony, the plans would include changes to the Elected Presidency (EP).

Appointment of a Constitutional Commission

In a generous gesture towards open and consultative governance, the PAP Government commissioned nine highly credentialed, well-known Singaporeans (the “Commission”) to study and make recommendations to the Government on certain aspects of the EP.

Significantly, this would be only the second constitutional commission since Singapore's independence. The only other time we had a constitutional commission was on 12 August 1965, just three days after Singapore's independence, when Prime Minister Lee Kuan Yew sought Chief Justice Wee Chong Jin to convene a commission to recommend a Constitution for the new Republic.

Notably, the Government confined the Commission to three specific aspects of the EP:

1. a mechanism to safeguard minority representation;
2. the qualifying criteria for candidacy; and
3. the role of the Council of Presidential Advisers.

The Commission immediately organized a nationwide public consultation, in the process of which the Commission received 107 written submissions and heard oral representations from 19 contributors over four full-day public hearings.

The appointment of the Commission and public consultation it undertook received the full measure of coverage by the mainstream media.

In August 2016, the Commission submitted its 183-page Report to the Government.

Regarding the aspect of a mechanism to safeguard minority representation, the Commission recommended a reserved election scheme. When a member from any racial group has not occupied the President’s office for five continuous terms, the next Presidential elections should be reserved for candidates from that group. In the event that no suitable candidate from that group emerges, that election would then be opened to candidates of all races. The reserved election would then be deferred to the next presidential election, and the practice of holding a reserved election will continue until a candidate from the racial group for which a reserved election had been convened is elected as President.

White Paper

In September 2016, in response to the Commission’s Report, the Government released its White Paper on the Constitution of the Republic of Singapore (Amendment) Bill (the “Bill”) that would bring in the changes to the EP. 

According to the White Paper, the Government and accepted in principle the Commission’s main recommendations.

In particular, the Government agreed with the Commission’s proposed safeguard mechanism of holding reserved elections when a particular race group has not been represented in the Presidential office after five continuous terms.

However, in some areas the Government rejected the Commission’s recommendations or accepted them with modifications, so there were a number of recommendations which did not make it to the Bill which the Government presented to Parliament for debate.

Interestingly, the Commission took the liberty of deviating from the confines of its terms of reference to put in a recommendation that the EP be abolished altogether, suggesting that we should go back to the old system of appointing the President. The Commission suggested that the President’s symbolic and custodial roles be “unbundled” and divided into two different institutions. The appointed President would serve his symbolic and ceremonial role as the Head of State with the custodial role given to an appointed specialist body. The Commission thought that a nominated presidency would better suit its symbolic function as a unifying figure who represents multi-racial Singapore. Predictably, the Government categorically rejected the Commission’s idea of returning to a nominated presidency.

Qualifying Criteria for Candidacy

Regarding the aspect of qualifying criteria for candidacy, the Commission made three recommendations:

1. That the offices of the Accountant-General and the Auditor-General be removed from the list of public-sector qualifying offices;
2. That the period which qualifying public sector candidates must hold office be increased from three to six years; and
3. That the benchmark of $100 million in shareholders’ equity required for private sector candidates be increased to $500 million.

Of those three recommendations on qualifying criteria for candidacy, the Government rejected all but one. 

The Government rejected the Commission’s recommendation to remove the offices of the Accountant-General and the Auditor-General from the list of public-sector qualifying offices under the automatic track.  As such, there was no provision in the Bill to amend the existing list of public-sector qualifying offices.

The Government also rejected the Commission’s recommendation to double the duration which applicants must have served in the qualifying public-sector office, from 3 to 6 years.  The duration which applicants must have served in the qualifying public-sector office would remain as 3 years.

We now know that had that particular recommendation been adopted, Halimah Yacob who was Speaker of Parliament for 4.5 years (14 January 2013 to 7 August 2017) - would not have qualified.

On the other hand, for private sector aspirants, the Government accepted the Commission’s recommendation to increase the benchmark of $100 million to $500 million in shareholders’ equity.  It later transpired that two aspirants from the private sector were found ineligible to run for the EP on the basis of failing to meet this new criterion.

• Did the Government play double standards when it rejected the Commission’s recommendation in respect of public sector candidates while accepting the Commission’s recommendation in respect of private sector candidates?

• Were the qualifying criteria for public sector candidates set too low?

• Indeed, how challenging is the role of a Speaker in a parliament where the opposition number 6 MPs out of 89?

• Were the qualifying criteria for private sector candidates set too high?

• Does the emphasis on financial competency undermine the EP’s equally important symbolic function as a unifying figure for multi-racial Singapore?

• How can we be assured that qualifying criteria for candidacy did not privilege the ruling party and the political elites at the expense of democracy and the political independence of the EP?

The Government’s Prerogative

The Government chose to appoint a Commission to study and make recommendations to the Government. The Government chose the members of the Commission and determined its terms of reference.  It is the Government’s prerogative to accept, reject or modify any of the recommendations made. 

The Government’s decision on which of the Commission’s suggestions to pick, discard or modify, is not open for debate.

What the Government put up for Parliament to debate on was the Bill - the end result of the Government’s cherry-picking exercise.

On 7 November 2016, the Bill was tabled to Parliament. It was at this point, that the Prime Minister dropped the bombshell. The Government had decided that when the Bill was passed, the next presidential elections would be one reserved for Malays. By the Government’s reckoning, the five-term count starts from President Wee Kim Wee.

The Bill was debated in Parliament over three days.  39 Members of Parliament (MPs) — including Prime Minister Lee Hsien Loong and five ministers weighed in.

Needless to say, the Bill was passed by Parliament on 9 November 2016.

For record purposes, the Bill was passed by a vote of 77 to 6, with all six elected MPs from the opposition Workers’ Party objecting. 

With the passing of the Bill, Singaporeans braced themselves for a presidential election reserved for Malays.

The Most Controversial Presidency in the History of Singapore

On 7 August 2017, Halimah Yacob, a member of the PAP since 2001, resigned from her positions as Speaker and MP, and from her membership in the PAP to announce her a candidacy for the 2017 presidential election. Her decision to run was endorsed by the Prime Minister as well as many other PAP leaders, making it crystal clear to everyone that she was the PAP’s choice.

On 28 August 2017, the Government issued the Writ of Election.

On Nomination Day, Halimah Yacob turned out to be the only applicant eligible to run for the EP under the changed rules. On 14 September 2017, merely 37 days after leaving the PAP, she become the 8^th President of Singapore. 

The PAP made as if switching immediately from active PAP politician to non-partisan unifier for all Singaporeans was no big deal.  But for other Singaporeans, her close ties with the ruling party begged the question: when she becomes President and start holding the second key, can she really act independently from the ruling party and be an effective check on the Government? The question became rhetorical as she was the only candidate for the EP.

The cancellation of polls came as a shock to Singaporeans. All the months and months of talk about the EP engendered by the mainstream media, got many Singaporeans geared up with anticipation for the excitement of hustings and electioneering, and for the privilege to mark their choice with an X on ballot slip. News of a one-horse race was not just a let-down. Singaporeans felt robbed of their participation in politics.

Moreover, that the 2017 presidential election was to be one reserved for Malays was already mired in controversy. For many Singaporeans, the Government’s reasoning that the count should start with President Wee Kim Wee because he was the first President “who exercised the powers of the Elected President” was incredulous, failed logic and difficult to swallow.  Singaporeans are clear in their minds that our first Elected President was Ong Teng Cheong. A 5-member Court of Appeal’s dismissal of a legal challenge to the Government’s insistence on starting the count with President Wee Kim Wee, did little to assuage the widespread cynicism that the Government would have their way even at the expense of logic.

The PAP Government has the dubious distinction of making many innovations to our political system: the Nominated Member of Parliament scheme, the Non-Constituency Member of Parliament scheme, the Group Representation Constituency scheme, and of course the EP. Our Constitution has endued numerous amendments, usually coming into effect shortly before an election.  In the cynic’s view, it’s like moving the goal posts so that the opponent can never strike a goal.

The recent amendments to the Constitution to change the EP rules coming in just months before the 2017 EP elections, is par for the course with the PAP. 

Is the PAP Government’s constant tinkering with our political system a form of gerrymandering?

The 2017 presidential elections becoming a one-horse race, the citizenry’s contempt and suspicion that the whole episode was but a charade to shoo-in a ruling party stalwart – did the PAP Government see that coming?

Was the PAP Government a victim of its own gerrymandering?

Jeannette Chong-Aruldoss

2 October 2017