How personal tax reliefs and deductions can be further liberalised
There are alternatives that remain unexplored in creating a system of personal income tax reliefs and deductions that are more progressive and reflective of the current Singapore society, writes the author.
Budget 2019 had something for everyone – and more for those in need. That said, those who expected the Government to dole out cash to all Singaporeans, as was the case with the SG Bonus last year, would have been disappointed.
Instead, the Bicentennial Bonus was calibrated to target those who need it most, paying special attention to lower-income Singaporeans, parents with school-going children and older Singaporeans nearing retirement.
It granted cash payments and vouchers to low-income families, Edusave account top-ups, and recognised the contribution of women to their households through the S$1,000 CPF top-up for those aged 50 to 64 with less than S$60,000 in their retirement account.
These measures, albeit one-off, help to build a more equitable society and are laudable.
But are there other ways the Budget could have provided more help to some groups of Singaporeans?
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Under Budget 2019, all resident tax payers can enjoy a personal income tax rebate of 50 per cent up to a cap of S$200.
This would benefit middle-income earners most.
Notably, the Budget did not contain any new annual reliefs and deductions for resident taxpayers, except for a revision to the Grandparent Caregiver Relief (GCR), where the age requirement of the child as a qualifying condition was removed.
This is welcomed. However, this relief remains available to working mothers only and not single fathers.
Furthermore, if the working mother is not able to utilise the relief, either through not earning enough taxable income or reaching the relief cap, the benefit to the household is lost.
The GCR, along with Foreign Maid Levy Relief and Working Mother’s Child Relief were initially aimed at encouraging women to re-enter the workforce after having children.
However, given the rise of dual income families, these reliefs would be more beneficial to the household if they could be shared with the husband on the condition that the wife is also working.
Limiting the Foreign Maid Levy Relief to only married women also overlooks single individuals — both men and women — who may be the sole earners in their household and employing a maid to care for their parents while they work.
While it is important to underscore the notion of family and marriage in Singapore society, singles should not be disadvantaged as they too can — and do — play a role in providing care for others in the family.
UPDATING CONDITIONS OF SPOUSE, PARENT AND CHILD RELIEFS
To qualify for the current spouse relief, parent relief and child relief, the requirement is that the dependent in question must earn less than S$4,000 in worldwide income.
Many youths, elderly and spouses — who are potentially dependents — could be working part-time or flexibly in today’s context, especially in this age of the gig economy.
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Being economically active has upsides for these groups: it instils a sense of independence and contribution to the family and society, while for the younger Singaporeans, it provides them with a better understanding of the working world and financial management skills.
Yet, this may result in the working family members not being able to claim spouse, parent and child reliefs.
Although there is currently no minimum wage in Singapore, and wages for part time and unskilled work are low compared to other developed nations, S$4,000 is not an excessive amount to expect to earn in a year.
For example, crew members at fast food restaurants can earn around S$7 per hour, and an individual would exceed the earning cap of S$4,000 by just working 11 hours per week in a year.
In addition, more students now undertake work internships before and during their university terms while full-time National Servicemen (NSFs) also earn an allowance. The Inland Revenue Authority of Singapore requires income from NS and internships to be included when computing worldwide income.
The average intern in a corporate role earns between S$750 and S$1100 per month, while an NSF gets a monthly allowance ranging from S$560 to S$1,260, excluding other combat and operational allowances. Hence, an intern or NSF would exceed the S$4,000 income cap in just a few months.
The impact of the S$4,000 cap on a child’s worldwide income can be worse for working mothers.
First, they will not be able to claim for child relief of S$4,000. In addition, they will miss out on the Working Mother’s Child Relief of 15 per cent of their income for the first child, 20 per cent for the second child and 25 per cent for the third child, if each of these children have earnings of S$4,000 a year.
Perhaps the qualifying criteria of the child relief should be based on the age of the child and whether parents are incurring cost in providing for the child during the year.
“Providing for” may be defined as providing a home, supporting their education and bearing costs associated with day-to-day living. Alternatively, the government could consider increasing the qualifying earning limit of the dependent.
While Budget 2019 continues to underpin the country’s commitment to build a caring and inclusive society, there are certainly alternatives that remain unexplored in creating a system of personal income tax reliefs and deductions that are more progressive and reflective of the current Singapore society.
ABOUT THE AUTHOR:
Panneer Selvam is People Advisory Services Partner at Ernst & Young Solutions. These are his own views.
