What enrages you more? The fact that you can’t cash out your Central Provident Fund (CPF) account unless you renounce your citizenship, or that Singapore Permanent Residents (PRs) can withdraw all of their CPF funds AND Housing and Development Board (HDB) sales proceeds with them when they leave Singapore?
Understandably, you’re pissed off because it’s not fair that someone from another country can take part in your social security program (CPF), use it as a glorified saving account, and withdraw all of it when he/she moves back home.
Let’s not forget the property issue as well. A PR flipping his/her property before leaving Singapore can easily make several hundred thousand dollars – more than enough to buy a huge landed property in 75% of the world.
These are issues that beg the question, “Should PRs be allowed to cash out whenever it’s convenient, or should they pay their fair share?”
The CPF “Cash Out” Issue
The issue of CPF withdrawal has become an increasingly hot topic among Singaporeans. That’s because Singaporeans feel frustrated that they have little control over when and how much money they can withdraw.
In fact, an ex-CPF employee confirmed that in our article about the 3 Biggest Complaints Singaporeans Have About Their CPF Accounts. CPF is a well-intentioned social security system, but it’s not very flexible – you can’t use it if you get retrenched or have a major financial emergency, even if you have $100,000+ in your CPF account.
PRs also contribute to CPF and benefit from many of the social programs offered to Singapore citizens. However, unlike Singaporeans, they can withdraw all of their CPF account after renouncing their PR status.
Well, you can too – if you renounce your citizenship.
In a way, CPF is also like a piggy bank that gives PRs access to a “savings account” that gives them 2.5% interest, which is exponentially better than the “normal” savings account interest rate in Singapore, which is 0.01%-0.05%!
Recently, CNA reported that according to Manpower Minister Tan Chuan-Jin, over the last decade more than $4 billion dollars (avg. $426 million each year) was withdrawn from CPF members leaving Singapore.
Currently, CPF doesn’t track how much is withdrawn by PRs and former Singapore citizens. But does that really matter? After all, if there are more PRs cashing out, it shows that they’re just using CPF as a piggy that they can crack open before heading home.
And if a higher percentage of ex-Singaporeans are the ones cashing out, what does that say about the system, especially if these former citizens are leaving Singapore because of the inflexibility of CPF?
The HDB Flat “Flipping” Issue
“Flipping” property boils down to this simple definition – purchasing real estate below market value and selling the property when the market rises, usually within a short period of time. For people who flip property, their intention isn’t to live there “permanently,” but to sell it for a profit.
In terms of citizens and PRs, who do you think is more likely to buy a property and live in it on a “permanent” basis?
The answer is a no-brainer, and that’s what angers Singaporeans – the fact that PRs jumping ship to go home can just “flip” their property and leave Singapore like a bandit walking out of a bank.
Of course, Singapore does have the Seller Stamp Duty (SSD), which is meant to prevent short-term “flipping” by imposing a tax of:
- 16% of the price or market value (whichever is higher) if you sell within 1 year
- 12% of the price or market value (whichever is higher) if you sell within 2 years
- 8% of the price or market value (whichever is higher) if you sell within 3 years
- 4% of the price or market value (whichever is higher) if you sell within 4 years
However, four years isn’t a very long time. While the SSD inflicts enough financial pain to discourage short-term flipping, it won’t do much to dissuade a PR from selling his property, especially since most PRs are in Singapore for a longer period of time.
What Can Be Done to Ensure PRs Pay Their Fair Share?
“Permanent Resident,” isn’t that term ironic? Think about it, many don’t even stay and contribute to Singapore “permanently.” But this isn’t what infuriates most Singaporeans.
What really pisses Singaporeans off is how incredibly easy it is for PRs to “escape” Singapore and go back home after they’ve made their fortune. Singaporeans don’t have that option – there’s no place to escape to.
There’s no way you can ever “cash out” of the system – unless you renounce your citizenship. Where’s the fairness in giving PRs the ability to cash out without any sort of penalty?
Change has to come from the top. There’s no way around that. So what can be done to ensure there’s more “fairness” in the way the government handles PRs who choose to renounce their status?
Here are a few humble suggestions to ensure PRs pay their fair share and aren’t given “preference” over Singaporeans when it comes to their CPF accounts and property sales:
- Impose a Tax on PRs Withdrawing All Their CPF (ex. 20% Withdrawal Tax)
- Impose a 10% Lifetime Seller Stamp Duty (SSD) on PRs Selling Their Homes Unless They Become Citizens
- Give PRs a Lower CPF OA Interest Rate Unless They Become Citizens (ex. 1% lower than Citizens)
- PRs Renouncing their Status Must Sell Any Property They Own
- PRs Renouncing their Status Cannot Regain It a Second Time
These are just a few suggestions that can help alleviate some of the anger Singaporeans feel about PRs who leave the country after making their fortunes.
What are your suggestions?
What are some other fair suggestions you have regarding PRs who give up their status and leave with their CPF funds and proceeds from home sales? Share your thoughts with us on Facebook!
The post Should PRs Leaving Singapore be Allowed to Keep All of Their HDB Sales Proceeds? appeared first on the MoneySmart blog.
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Should PRs Leaving Singapore be Allowed to Keep All of Their HDB Sales ...