The 99-to-1 Scheme: A Tax Evasion Tactic Under Fire
September 21, 2024, 5:26 pm
In Singapore, a mother and son face charges for allegedly lying to the Inland Revenue Authority of Singapore (IRAS) over a controversial property purchase scheme. This "99-to-1" arrangement has become a hot topic, drawing scrutiny from authorities and raising questions about tax compliance and the integrity of the real estate market.
The 99-to-1 scheme allows one buyer to hold 99% of a property while another holds just 1%. This setup is not illegal in itself. However, when used to dodge the Additional Buyer's Stamp Duty (ABSD), it crosses into murky waters. The ABSD is a hefty tax imposed on property buyers who already own real estate. In Singapore, this tax can reach up to 30% for foreigners and permanent residents, while citizens face a 20% rate on their second property.
Consider a scenario: Mr. A and Ms. B want to buy a S$1 million home. Mr. A already owns another property, which means he would typically owe S$200,000 in ABSD. But if they play the 99-to-1 game, Mr. A can buy the property entirely in his name, then sell 1% to Ms. B. Now, he only pays ABSD on S$10,000, reducing his tax burden to S$2,000. This two-step transaction allows them to sidestep the hefty tax while still securing a joint mortgage.
This scheme has been around for a while, but it gained notoriety in April 2023 when IRAS announced audits of such transactions. The agency detected a rise in these arrangements, prompting a crackdown. The government is tightening the screws on tax evasion, especially as property prices soar and cooling measures become more stringent.
The recent charges against the mother-son duo mark the first prosecution of its kind. Each faces five counts under the Stamp Duties Act for allegedly providing misleading information to IRAS. The son, Tan, purchased the property in September 2021 and later transferred a 1% share to his mother. When questioned by IRAS, he claimed he acted hastily and needed his mother to secure a loan. These statements, if proven false, could lead to severe penalties.
The case highlights a broader issue: the integrity of the property market and the lengths to which some will go to avoid taxes. The government has ramped up efforts to ensure compliance, with Finance Minister Lawrence Wong revealing that IRAS identified 166 cases of tax avoidance in a review of 187 99-to-1 transactions. The total amount of ABSD and surcharges expected to be recovered is around S$60 million.
As the government tightens its grip, the public service must also navigate the complexities of governance. Senior Minister Lee Hsien Loong recently warned that as political competition intensifies, decision-making may become more short-sighted. He emphasized the importance of maintaining political stability and making responsible choices, even when they may not be popular.
The tension between short-term political gains and long-term policy decisions is palpable. In Singapore, the government has historically managed to avoid the pitfalls of populism that plague other nations. However, as electoral margins narrow, the pressure to cater to immediate public sentiment grows. This could lead to decisions that prioritize popularity over necessity, undermining the quality of governance.
Lee pointed to the recent Goods and Services Tax (GST) hike as an example of responsible governance. The government knew a tax increase was necessary to fund healthcare for an aging population. They chose to implement the hike in two phases, acknowledging public concerns and allowing citizens time to adjust. This approach reflects a commitment to transparency and trust, essential elements in maintaining public support.
The public service plays a crucial role in this dynamic. It must engage citizens in good faith, ensuring that policies are not only well-crafted but also well-received. The mission of the public service is to serve the people, a responsibility that goes beyond mere career advancement. Leaders must set the tone, demonstrating integrity and commitment to the nation's welfare.
As the 99-to-1 case unfolds, it serves as a reminder of the delicate balance between compliance and evasion. The government's crackdown on tax avoidance is a necessary step to uphold the integrity of the property market. However, it also raises questions about the broader implications for governance and public trust.
In conclusion, the 99-to-1 scheme is more than just a tax evasion tactic; it reflects the complexities of Singapore's real estate landscape and the challenges of governance in a competitive political environment. As authorities pursue accountability, the public service must remain steadfast in its mission to serve the people, ensuring that decisions are made with integrity and foresight. The road ahead may be fraught with challenges, but the commitment to transparency and responsible governance will be the guiding light.
The 99-to-1 scheme allows one buyer to hold 99% of a property while another holds just 1%. This setup is not illegal in itself. However, when used to dodge the Additional Buyer's Stamp Duty (ABSD), it crosses into murky waters. The ABSD is a hefty tax imposed on property buyers who already own real estate. In Singapore, this tax can reach up to 30% for foreigners and permanent residents, while citizens face a 20% rate on their second property.
Consider a scenario: Mr. A and Ms. B want to buy a S$1 million home. Mr. A already owns another property, which means he would typically owe S$200,000 in ABSD. But if they play the 99-to-1 game, Mr. A can buy the property entirely in his name, then sell 1% to Ms. B. Now, he only pays ABSD on S$10,000, reducing his tax burden to S$2,000. This two-step transaction allows them to sidestep the hefty tax while still securing a joint mortgage.
This scheme has been around for a while, but it gained notoriety in April 2023 when IRAS announced audits of such transactions. The agency detected a rise in these arrangements, prompting a crackdown. The government is tightening the screws on tax evasion, especially as property prices soar and cooling measures become more stringent.
The recent charges against the mother-son duo mark the first prosecution of its kind. Each faces five counts under the Stamp Duties Act for allegedly providing misleading information to IRAS. The son, Tan, purchased the property in September 2021 and later transferred a 1% share to his mother. When questioned by IRAS, he claimed he acted hastily and needed his mother to secure a loan. These statements, if proven false, could lead to severe penalties.
The case highlights a broader issue: the integrity of the property market and the lengths to which some will go to avoid taxes. The government has ramped up efforts to ensure compliance, with Finance Minister Lawrence Wong revealing that IRAS identified 166 cases of tax avoidance in a review of 187 99-to-1 transactions. The total amount of ABSD and surcharges expected to be recovered is around S$60 million.
As the government tightens its grip, the public service must also navigate the complexities of governance. Senior Minister Lee Hsien Loong recently warned that as political competition intensifies, decision-making may become more short-sighted. He emphasized the importance of maintaining political stability and making responsible choices, even when they may not be popular.
The tension between short-term political gains and long-term policy decisions is palpable. In Singapore, the government has historically managed to avoid the pitfalls of populism that plague other nations. However, as electoral margins narrow, the pressure to cater to immediate public sentiment grows. This could lead to decisions that prioritize popularity over necessity, undermining the quality of governance.
Lee pointed to the recent Goods and Services Tax (GST) hike as an example of responsible governance. The government knew a tax increase was necessary to fund healthcare for an aging population. They chose to implement the hike in two phases, acknowledging public concerns and allowing citizens time to adjust. This approach reflects a commitment to transparency and trust, essential elements in maintaining public support.
The public service plays a crucial role in this dynamic. It must engage citizens in good faith, ensuring that policies are not only well-crafted but also well-received. The mission of the public service is to serve the people, a responsibility that goes beyond mere career advancement. Leaders must set the tone, demonstrating integrity and commitment to the nation's welfare.
As the 99-to-1 case unfolds, it serves as a reminder of the delicate balance between compliance and evasion. The government's crackdown on tax avoidance is a necessary step to uphold the integrity of the property market. However, it also raises questions about the broader implications for governance and public trust.
In conclusion, the 99-to-1 scheme is more than just a tax evasion tactic; it reflects the complexities of Singapore's real estate landscape and the challenges of governance in a competitive political environment. As authorities pursue accountability, the public service must remain steadfast in its mission to serve the people, ensuring that decisions are made with integrity and foresight. The road ahead may be fraught with challenges, but the commitment to transparency and responsible governance will be the guiding light.