ESTATE DUTY (AMENDMENT) BILL

Order for Second Reading read.

The Second Minister for Finance (Mr Lim Hng Kiang): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

In his Budget speech this year, the Deputy Prime Minister and Minister for Finance announced a series of measures to promote the spirit of philanthropy among our people. One of these measures requires a change in the Estate Duty Act. With effect from 1st January 2002, administrators and families of deceased individuals will be allowed to donate the estate of their next-of-kin to Institutions of Public Character (IPC) and the value of the donation will be exempt from estate duty.

Prior to this change, it was possible to apply for exemption from estate duty for such donations on a case-by-case basis. But to make the process less cumbersome and more transparent, donations from estates to IPCs will be exempted automatically as soon as they are made on or after 1st January 2002.

The second amendment to the Act is a policy change introduced to encourage more foreigners to hold Singapore dollar denominated assets. A non-domiciled individual who passes away on or after 1st January 2002 will not be subject to estate duty on the value of his movable assets. This is an initiative to improve Singapore's position as an international private banking centre.

The last two amendments in this Bill are consequential non-budget related amendments to the Act. First, the term "National Museum" in the Act will be replaced by "Approved Museums" as the "National Museum" is no longer in existence. Secondly, the administrator of the Technopreneur Home Office (THO) Scheme is no longer the National Science and Technology Board but the Economic Development Board.

Sir, I beg to move.

Question proposed.

Mr Andy Gan Lai Chiang (Marine Parade): Mr Speaker, Sir, thank you for allowing me to speak.

The move to refine the Estate Duty Act by amending section 11 to provide that estate duty be exempted in respect of any movable property passing on the death of a person dying on or after 1st of January 2002 who is not domiciled in Singapore at the time of his death, is laudable, as it will encourage foreigners to invest more in Singapore.

While it is necessary to draw more expatriates to put their money into our banking sector, we should also bear in mind the effects of the Estate Duty Act on Singaporeans. While foreigners are building their wealth with no fear of having to pay estate duty, those domiciled in Singapore have to prepare for another round of taxes on their estate before the beneficiaries are able to receive the proceeds. As we aspire to improve our economic well-being, more and more citizens may reach the tax range of the Estate Duty Act, as their assets, both movable and immovable, build up over their lifetime and, in the course of which, they already pay taxes. Having to levy estate duty on top of that is a very traumatic way for the Government to raise money from a family which, while suffering from the loss of a loved one, also has to cope with the uncalled for hardship to pay estate duty. This is especially so in a depressed market and the family suddenly has to sell its assets to raise cash to pay the estate duty, plus interest on late payments.

But it can also be said that most people do not have to worry about estate duty, as there is an exemption of $600,000 in respect of the deceased's movable assets which include CPF money, plus an exemption of $9 million in respect of all dwelling houses. Thus, if during his lifetime, a person plans his estate in such a manner that what he leaves behind is within the limits of the exemption granted, his estate would not have to pay any duty. However, the fact remains that the surviving family members will still be required to file a return to prove that the deceased's estate is fully exempted from estate duty. And that is a long tedious process by itself.

Section 35 of the Act requires the personal representative to file particulars relating to all the properties of the deceased, including the value thereof, in respect of which estate duty is payable. Furthermore, under the Estate Duty Act, the Commissioner is empowered to assess the estate of a deceased person, even when no estate duty return is filed. In the meanwhile, the beneficiaries, if dependent on the deceased's money, could not use it for their day-to-day purpose.

There is nothing wrong for a taxpayer to pass his assets on to his loved ones without being taxed again. Hence, many are at a loss as to why such a discriminatory taxation law still exists when the majority of Singaporeans has been spared such an ordeal.

Another point which may be of interest in determining the benefits of keeping the law on estate duty is the question of the amount of estate duty collected each year, as compared to the cost of collecting it. If the sums collected do not justify the cost incurred, and if the amount is negligible as compared to other forms of taxes, then we should be looking at also extending section 11 of the Estate Duty Act to resident taxpayers who are Singaporeans. This will help alleviate the burden of taxes on those with substantial movable assets that are above the exemption limit.

The Government should have tax laws that not only encourage the creation of wealth but also discourage measures taken in avoiding estate duty, especially when Singaporeans have to resort to transferring their wealth to other countries like Malaysia, India and Australia, where estate duty has been abolished.

Mr Speaker, Sir, I support the amendment with the hope that this action by the Government will be the start of a series of bold steps to examine the Estate Duty Act again and, perhaps, at the next Budget exercise, all Singaporeans can look forward to the day when they can be spared the trauma of having to live with this form of outmoded tax law.

Mr Lim Hng Kiang: Mr Speaker, Sir, I thank Mr Andy Gan for his comments. I think there are three issues that he raised.

First, a very fundamental issue, is should there be estate duty in Singapore. This is a continuing debate - whether or not we should have a death tax regime. Most countries do have it - the UK, USA, Hong Kong, Ireland. They have either inheritance tax or estate duty. Some countries do not have an inheritance tax or estate duty, but they have a gift tax, ie, those who receive them have to pay a tax on the gifts that they are given. So this is a fundamental issue: when somebody builds up the wealth and you transfer the wealth as an inheritance, whether that should be taxed. As I said, a few countries have dispensed with this tax, but the majority of tax regimes still continue with this tax. So we will continue to review this.

The second issue is whether or not we should treat immovables and movables differently. In Singapore, our estate duty is already very benign. Immovables are exempted up to $9 million, ie, if you have properties in Singapore, only properties above $9 million would be subject to estate duty. For movables, the exemption limit is $600,000. The exemption limit for movables covers both movables in Singapore as well as outside Singapore. So it is not true that Singaporeans can avoid estate duty by investing in movable assets outside Singapore. The tax treatment for movables is anything above $600,000, both within Singapore and outside Singapore. So, that is the second clarification I would like to make.

The third clarification is how do we treat people who are not domiciled in Singapore. That is section 11 that Mr Andy Gan refers to. For people who are not domiciled in Singapore, the estate duty only covers immovables in Singapore, because we want to make sure that foreigners who buy property, the property will be subject to a tax above the exemption limit. But foreigners who are not domiciled in Singapore are only taxed for movables within Singapore. So they could put their movables outside Singapore, and that would be outside the ambit of our tax. So, to encourage such foreigners not to keep their movables outside Singapore but to encourage them to invest in Singapore dollar denominated assets, this is the reason for the section 11 amendment.

The reason why we are making this change with respect to foreigners is because, for foreigners, we are already not taxing them on movables outside Singapore. Therefore, we are now also exempting them on movables in Singapore, so that it is a level playing field, and we hope that they will in fact invest in Singapore assets. That is the reason for the change.

But I take note of Mr Andy Gan's comments, and I am sure this whole debate on estate duty will continue.

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 Lim Hng Kiang].

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