Skip to main content
Best News Website or Mobile Service
 
WAN-IFRA Digital Media Awards Worldwide
Best News Website or Mobile Service
 
Digital Media Awards Worldwide
Hamburger Menu

Advertisement

Advertisement

Singapore

Budget 2022: Tax changes signal that Singapore wants to reduce inequality, strengthen social compact, say analysts

Budget 2022: Tax changes signal that Singapore wants to reduce inequality, strengthen social compact, say analysts

Some HR experts say that Singapore has lost its shine as an expat haven. (Photo: TODAY/ Raj Nadarajan)

SINGAPORE: Major tax changes and increased social spending in Budget 2022 are strong signals that the Government wants to reduce inequality and is investing in strengthening Singapore’s social compact, analysts told CNA.

Dr Gillian Koh, deputy director of research at the Institute of Policy Studies said that the staggered rise in Goods and Services Tax (GST) and Government support to cushion the cost increases provide “an easing into a new regime in Singapore’s fiscal system”.

The GST increase was one of the major announcements made by Finance Minister Lawrence Wong on Friday (Feb 18) in the Budget themed “Charting our new way forward together”.

The GST will be raised in two steps, from 7 per cent to 8 per cent in 2023 and then to 9 per cent in 2024. 

To cushion the impact of the GST hike, the Government will add S$640 million to the S$6 billion Assurance Package, which was announced in 2020. This extensive package of cash payouts and subsidies will be given to middle and lower-income households to soften the blow of rising costs.

The GST was widely expected to be implemented by July this year, but Mr Wong said that it will be “delayed” due to concerns that Singaporeans have about the GST increase taking place at the same time as rising prices. 

The phased GST rate hike indicates the authorities’ cautious attitude as its impact on price inflation and consumer sentiment could slow Singapore’s economic recovery, said Mr Yu Liuqing, EIU country analyst for Asia.

“We believe this delay also reflects that the government is conscious that the hike is unpopular among the electorates. The delay and phased hikes will moderately cushion some of the negative public perceptions,” he said.

While taxes are never popular, the phased implementation and the Assurance Package will help cushion the extra expenses households will incur, said political observer Associate Professor Eugene Tan. 

“What does contribute to the hike being more palatable is that it is one of a suite of tax changes that will increase the tax incidence on the better-off,” said the law professor from the Singapore Management University.  

“Taxes are not a zero-sum game as such where there are so called winners and losers. Everyone’s a winner if the taxes are used to strengthen the social compact.”

As many experts pointed out, a key plank of this year’s Budget was a suite of taxes on those earning more than S$500,000, higher-end properties and luxury cars.

While one analyst called these “low-lying fruit” and most agreed that they will not be substantial revenue generators, Dr Koh said that these taxes are a signal that more is expected from those who can afford it.

They should also be seen coupled with more social spending in the form of expanded help for lower-wage workers, social safety nets and other social transfers towards basic healthcare and education.

Assoc Prof Tan said the Budget underscores that Singapore is “clearly welfare-oriented”, even if state policy is to resist being a welfare state or perceived to be one.

According to DBS senior economist Irvin Seah, there has been a “distinct leftward slant” in the fiscal focus of Budget 2022.

He pointed out as examples schemes for workers like the the Progressive Wage Credit Scheme and the enhancement to the Workfare Income Supplement schemes.

“As it is, Singapore’s Gini coefficient has been falling along with the efforts made in past years to strengthen the social safety net … the measures announced in this Budget will likely guarantee a declining trajectory in the Gini coefficient and a more equitable society in the coming years,” said Mr Seah.

TAXES UNLIKELY TO DETER WEALTHY

One of the main tax hikes was for non-owner-occupied residential property for those owning more than one home.

Currently at 10 to 20 per cent, the tax rates for such properties will be raised to 11 to 27 per cent in 2023, before being raised further to 12 to 36 per cent in 2024.

KPMG Singapore’s tax partner See Wei Hwa said that the increase of the top marginal property tax rate to 36 per cent effectively brings the headline rate of property tax back to the level last seen more than 40 years ago in 1978.

“The steep increase in rates show the Government’s resolve in tackling rising wealth inequality in a country where immovable properties constitute a significant proportion of the assets of high net worth individuals,” he said. 

When fully implemented, new property taxes are expected to raise Singapore's property tax revenue by about S$380 million a year - around 12 per cent of the existing property tax collection of $3.1 billion.

Most said that this hike and other wealth taxes will not weaken Singapore's attractiveness to the wealthy.

EIU’s Mr Yu said that capital gain tax, probably the most important for high net worth individuals, remains “off the table”, and this “bodes well” for Singapore’s appeal.

“However, the trend of doubling down on redistribution and tackling inequality is clear. This trend will undoubtedly unsettle some of the high net worth individuals.”

MORE CAN BE DONE?

Some others thought that Singapore can go further in taxing the rich.

Mr Adrian Sham, tax and private clients partner at Grant Thornton Singapore recommended that a higher rate of property tax should be applied to non-productive or non-occupied property.

“This is to encourage the property to be productive and adding value to our economy, (rented out or lived in), otherwise a penal tax rate would apply to individuals parking their wealth in Singapore property,” he said. 

He pointed out that a lot of foreigners park their funds in Singapore property, driving up the prices, and he believes that such a tax will combat this.

Two other analysts suggested re-introducing estate duty or inheritance tax.

Mr Yeoh Lian Chuan, private client and tax partner at Withers KhattarWong said that there were no steps this time to tax inheritance, which had been speculated about in the market.

“In my view it is right in principle to impose some tax on the intergenerational transfer of wealth. This is so that children of the wealthy don't have an 'unfair' head start as wealth begets wealth,” he said.

He pointed out that it is an anomaly in Singapore’s system that lifetime transfers of real estate are subject to stamp duty, but inheritance transfers are not, and said that the Government should “close this gap”.

However, the revenue base of such a tax is small, at S$100m or less a year, and many Asian countries do not tax inheritance, so Singapore many not necessarily wish to be the “first mover in the opposite direction”.

IMPACT OF HIGHER INCOME TAX

In contrast, a spike in the personal income tax rate for the top 1.2 per cent of earners would raise more revenue (S$170 million). 

From the year of assessment 2024, the portion of income more than S$500,000 to S$1 million will be taxed at 23 per cent, while that in excess of S$1 million will be taxed at 24 per cent, both up from 22 per cent currently.

Mr Yeoh said that compared to taxes on luxury cars and property, this tax hike could have more of an impact on “the mindspace and decisions” of high-income professionals, making them less keen to move to Singapore but even so it is a “relatively modest increase”. 

“The approach to tap income taxes in addition to property also, in principle, represents a good, balanced approach in my view to securing the revenue base,” he said.

It may also spur consideration of whether to corporatise business, given the increase in the gap between the top personal and corporate tax rates. This gap could incentivise professionals to group together in order to corporatise and reduce their tax liabilities, he said.

Most analysts told CNA that this year’s Budget strives to strike a good balance. Assoc Prof Tan said that the changes generate more revenue for the public coffers while making the tax system more progressive

Taken as a whole, they help to contribute to a fairer and more progressive tax system that can generate a more sustainable source of tax revenue, said Associate Professor Simon Poh from the National University of Singapore’s Business School.

“At the same time, various measures of targeted help are extended to our more vulnerable workers, businesses and households who are adversely impacted, and all these contribute to a more caring and inclusive society, in line with the theme in this year’s Budget," he said.

Source: CNA/hm(rw)
Categories

Advertisement

Also worth reading

Advertisement