Revaluation surplus and tax issues with Yeo Hiap Seng

What is the issue?
Yeo Hiap Seng (YHS) said the revaluation surpluses ($215.3mio) accumulated for several pieces of land it owned are not taxable gain and has not made any tax provision.

PricewaterhourseCoopers, its auditors, has signed off on the accounts for the year ended Dec 31, 2006 while highlighting the "discrepancy" in the audit report.

The Inland Revenue authority (IRAS) has, expressed its disagreement with that position. It is currently reviewing the information submitted by YHS.

Further Explanation
YHS has chosen to make no provisions for tax liability on revaluation surpluses of $128.8 million and $86.5 million, on its tax counsel's advice that they are capital accretion.

The Sterling / Gardenvista - condominium developments
Prior to obtaining the developer's licence in Apr 1997, I presume that YHS would be saying that it was holding the land as long term investment or for its own use given F&B as its main business.

Only after Apr 1997, YHS, with the developer's licence, is now officially in the property development business.

Thus any appreciation in the value of the lands it was holding prior to that date would go to Revaluation Reserve account. Thus YHS's position that $215.3mio revaluation surplus is deemed not taxable.

In 2004, however, the IRAS said some revaluation surpluses may not be considered capital accretion. In Feb 2006, IRAS repeated that part of YHS's $128.8 million surplus would not be considered capital accretion. It asked YHS for more information so that it could update its assessments. YHS made submissions to IRAS on June 9.

Why we should kill off "estate duty" asap?

The reasons for abolishing the estate duty are:-

1. Together with income tax, GST and estate duty, it is a triple whammy for taxpayers. You are subject to tax from the first day of work till one's last day on earth.
2. We have a lopsided exemption limit of $600,000 for movable assets against exemption up to $9mio for residential property. This lopsidedness would ensnare many middle-income households to be liable for estate duty.
3. Will the existence of the estate duty discourage wealthy retirees to settle in Singapore? Maybe. Maybe not. If the tax revenue from this source is relatively insignificant, why risk it?

Why Govt's hesitation to remove the tax?

• Allow me to speculate.
• The Govt could be due to collect some real monies from the estates of tycoon Khoo Teck Puat and ex-OUB banker Lien Ying Chow. While last year's estate duty collection maybe a "mere peanut" amount of $80mio, the coming years of rapidly aging Singapore should "help" to raise the collection figures on this front.
• Alternatively, the Govt could be too busy to dedicate resources to review this area that affect only a minority but the very rich few.