Commentary: Singapore's wealth tax debate should move beyond inheritance

Commentary: Singapore's wealth tax debate should move beyond inheritance Rather than focusing on inheritance, should Singapore’s wealth tax debate look at whether property price gains were privately earned or collectively generated? NUS Business School professor Simon Poh weighs in. SINGAPORE: The debate over how Singapore should tax wealth has never quite gone away, as policymakers grapple with a familiar challenge: How can the country guard against rising wealth inequality without undermining its competitiveness and attractiveness to investors? Some proposals were floated recently in parliament. For example, Member of Parliament Shawn Loh suggested taxing inherited high-value properties, “perhaps the most expensive 1 per cent of properties”, as he called the growing wealth divide “one of the greatest challenges of our time”. Earlier in the year, Singapore’s first-ever official measure of wealth inequality – which was higher than income inequality – also prompted calls from both sides of the House for greater taxation of assets, including reinstating estate duties. For several years, Singapore has gradually expanded the use of wealth taxes through tweaking property taxes, stamp duties and taxes on luxury vehicles. Property taxes and stamp duties are, in effect, indirect wealth taxes that are relatively easy to administer and difficult to avoid because the underlying assets are visible and immovable. This approach also has important advantages over a comprehensive net wealth tax. Unlike financial assets, private businesses or overseas investments, property values can be readily observed and verified. Administrative costs are relatively low and opportunities for avoidance are more limited. These practical considerations explain why Singapore has historically relied on property-related taxes as its primary form of wealth taxation. A TAX ON INHERITED PROPERTIES? The question raised by Mr Loh is whether this framework should be extended to inherited wealth. There are compelling arguments in support. Inheritance taxes have often been described as consistent with meritocratic principles. They can help prevent excessive accumulations of wealth across successive generations and preserve equality of opportunity. These considerations become more relevant as asset values, particularly residential property values, continue to rise. Yet the shortcomings of traditional inheritance taxes should not be underestimated. Singapore abolished estate duty in 2008 partly to strengthen its competitiveness as a regional wealth management hub. Furthermore, wealthy individuals frequently have opportunities to reduce exposure through lifetime gifts, trust structures and advance succession planning. The result is that inheritance taxes can sometimes generate less revenue than expected while imposing considerable administrative complexity. For these reasons, caution remains on reintroducing a broad-based inheritance tax. By comparison, targeting high-value inherited property can be a low-hanging fruit after considering the shortcomings of a pure wealth tax, as well as the ease and cost-effectiveness of implementing such a proposal. CURRENT DEBATE MAY BE TOO NARROW However, Mr Loh's suggestion also raises an important issue that perhaps deserves greater attention than inheritance itself. A substantial portion of property appreciation in Singapore is not generated solely by the efforts of individual property owners. Property values often rise because of public investments in transport infrastructure, urban renewal, schools, healthcare facilities, security and economic development. A homeowner who does nothing may still experience significant capital gains because of broader societal progress. This leads to a potentially different policy question: Rather than focusing primarily on whether wealth was inherited, should policy focus on whether gains were privately earned or collectively generated? Economists have long referred to this concept as "economic rent" or unearned gains arising from scarcity and public investment. In land-constrained cities such as Singapore, landowners often benefit from increases in value created by the wider community rather than by their own investment decisions. If so, there may be a stronger policy rationale for taxing such gains than for taxing inheritance per se. Viewed through this lens, the inheritance-tax debate may be too narrow. The real issue may be how society shares the benefits created collectively when property values substantially exceed inflation over long periods. One possibility is to examine whether existing property taxes sufficiently capture these gains. Another is to consider targeted transfer taxes that apply only when very high-value properties change hands, whether through sale, gift or inheritance. Such an approach would focus less on the identity of the recipient and more on the amount of societal wealth embedded within the asset. This perspective can address one of the longstanding weaknesses of traditional inheritance taxes, which often raise concerns about fairness because beneficiaries may be forced to liquidate family businesses or homes to pay taxes. By contrast, a system linked to realised transactions or deferred payment mechanisms could alleviate cash-flow concerns, while still capturing part of the economic value generated by society as a whole. That said, measuring the amount of societal wealth within an asset poses its own set of challenges. For example, when assessing the price appreciation in a property, there may not be consensus on whether this is attributed to a new MRT, a new mall or other intangible reasons. BEHAVIOURAL EFFECTS OF WEALTH TAXES There is another dimension that has received relatively little attention in the Singapore debate. Wealth taxes are often discussed primarily as revenue-raising tools but their behavioural effects may be equally important. Property taxes influence investment decisions, allocation of capital and housing market dynamics. If carefully designed, they can encourage more productive deployment of capital rather than passive accumulation of appreciating assets. At a time when policymakers are seeking to support entrepreneurship, innovation and economic dynamism, it may be worth considering whether parts of the tax system inadvertently favour asset appreciation over productive risk-taking. This does not mean that property ownership should be discouraged. Rather, it suggests that the tax system should maintain a balanced treatment between wealth generated through enterprise and wealth from passive asset appreciation. Ultimately, Singapore’s wealth tax debate should not be framed as a simple choice between having or not having an inheritance tax. A more useful question is how Singapore can continue to preserve meritocracy while maintaining competitiveness, attracting capital and ensuring that the gains from collective national success are shared fairly. Simon Poh is Associate Professor (Practice) of the Department of Accounting at the National University of Singapore (NUS) Business School. The opinions expressed are those of the writer and do not represent the views and opinions of NUS.