Second Reading Speech by Second Minister for Law, Mr Edwin Tong, on the Land Betterment Charge Bill
10 May 2021 Posted in Parliamentary speeches and responses
- Mr Speaker, I beg to move, “That the Bill be now read a Second time.”
Sir, this Bill seeks to introduce a tax, called a Land Betterment Charge (LBC) in relation to land.
a. 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.
b. It ensures the return to the community, as set out in Section 5 of the Bill, of an appropriate amount or proportion of economic benefit 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.
a. Today, there is already an existing framework by which Development Charge (DC) or Temporary Development Levy (TDL) is collected by URA, and Differential Premium (DP) is collected by SLA. All these three charges exist today.
b. Under this existing framework, landowners and developers currently have to pay:
i. A DC or a TDL to URA, where the grant of planning permission for a development proposal regarding land results in an enhancement in land value, or
ii. A DP to SLA, if there is an enhancement in land value resulting from a waiver or a 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, TDL and 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 LBC will be charged by and collected by a single agency – in this case, the Singapore Land Authority (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.
Basis of charging – Tax rates
- Part 2 sets out the tax rate and the 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. 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, 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’s also the case today - based on 100% of the increase in land value.
a. These cases fall into three broad categories.
b. 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.
c. 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 that land, prior to a certain cut-off date, such as before the Temporary Occupation Permit 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.
d. 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.
Methods for calculating LBC
- 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 the land use group.
a. The table of rates will apply for the majority of cases and will allow landowners to estimate the amount of LBC upfront. 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.
a. 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 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 the leasehold land. In other words, an 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. 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.
a. 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.
b. This will allow the Ministry of National Development to make provisions for concessionary relief in certain circumstances, such as:
i. 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
ii. to encourage construction productivity; or
iii. to promote environmentally sustainable development.
- This will enable the continuation of existing DC exemptions which are provided for under the Planning Act today. It will also provide the Government with flexibility to extend concessionary relief in the future, to encourage desired outcomes on land planning and development.
Liability for payment of LBC
Part 4 of the Bill sets out who would be liable to pay LBC and how that liability may be assumed or deferred, as the case may be.
a. 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. That’s the standard default position.
b. 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.
c. 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 already currently provided for in the Planning (Deferment of Payment of Development Charge by Charities) Rules 2017, and the Planning (Deferment of Payment of Temporary Development Levy by Charities) Rules 2016.
d. 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.
Collection, recovery and evasion
- Part 5 of the Bill deals with assessment and collection of the LBC, while Part 6 deals with the recovery of unpaid LBC.
What is new is that SLA is empowered to issue a rectification order to collect penalty tax on top of the LBC due, where there has been:
a. an illegal development of land, and URA regularises the development through a subsequent planning authorisation afterwards; or
b. 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.
c. In that situation, the penalty tax is fixed at 30% of the LBC that is due.
SLA is also given the discretion to impose a higher or lower penalty tax at a percentage fixed by the Bill:
a. To increase the penalty tax if the taxpayer hinders or obstructs the determination of the taxpayer’s liability; or
b. 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:
a. abolish the collection of DC and TDL under that Act; and
b. 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 lodgment 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.
Last updated on 10 May 2021