Singapore will ensure higher earners pay more tax: Indranee
SINGAPORE — Singapore will ensure its tax system is based on “solid” economic performance and the principle that higher income earners pay more, said Senior Minister of State (Finance and Law) Indranee Rajah, after Prime Minister Lee Hsien Loong signalled that the nation needs to prepare for tax increases.
SINGAPORE — The Republic’s tax system should be based on the principle that high earners should pay more, Senior Minister of State (Finance and Law) Indranee Rajah said in an interview with Bloomberg published on Wednesday (Nov 22).
Ms Indranee’s comments came after Prime Minister Lee Hsien Loong signalled on Sunday (Nov 19) that Singapore needs to prepare for higher taxes beyond the current term of government, given the rising investments and social spending.
The tax system “must be all based on solid economic activity”, said Ms Indranee, who assessed that Singapore’s economy is “absolutely” in such a state now.
Among other things, she said the country’s tax regime is backed by the principles of diverse revenue sources, a progressive system based on income, and economic growth.
To make Singapore’s tax system more progressive, experts told TODAY that the Government could look into increasing income tax for the super-rich by creating a new tax bracket for example, raising property tax or imposing a luxury tax.
National University of Singapore (NUS) Business School Associate Professor of Accounting Simon Poh said: “The tax regime could get even more progressive for the ultra-rich, while not affecting the sandwiched class or the low income.”
Mr Panneer Selvam, a partner at Ernst & Young Solutions, said the income bracket that could most likely see an increase in tax rate would be those earning over S$160,000. Based on chargeable income for the year of assessment in 2016, raising the top marginal income tax rate by 1 per cent to 23 per cent could result in the government’s approximate tax revenue going up by some S$300 million, he said.
“An alternative is to perhaps follow the trends in Europe and introduce a new bracket for exceptionally high earners - individuals earning over S$500,000 per year (that) account for about 1.5 per cent of assessable resident tax payer population,” said Mr Selvam.
CIMB Private Bank economist Song Seng Wun said the Government could also tweak the regime such that more people fall under the higher tax brackets. Higher taxes on high-end properties or luxury goods could also be imposed, the experts said.
Mr Chris Woo, Tax Leader at PwC Singapore, added: “An increase in tax for luxury goods, such as luxury cars, clearly target the high-income earners.”
For example, the Additional Registration Fee (ARF) - which is higher for more expensive cars - could be increased further, said Prof Poh.
In 2008, the Government scrapped estate duty, or taxes collected on wealth left behind after an individual’s death. On the rationale behind the move, then-Finance Minister Tharman Shanmugaratnam said Singapore should remain an attractive place for wealth to be invested and built up, and he also noted that ordinary Singaporeans would want to pass on their assets to their families, among other reasons.
The experts reiterated that bringing back the “death tax”, as estate duty is known colloquially, would do more harm than good.
While Prof Poh described it as a “politically correct tax” to impose, he noted that the Government had scrapped it for several reasons, including the need to ensure that Singapore’s wealth industry stays competitive to attracting foreign talent and flow of funds. Mr Song said it could be “more feasible to look at ways to get the wealthy to pay taxes on a regular basis, rather than when they pass on”.
However, the experts cautioned that raising income taxes for the rich is not without its pitfalls.
Mr Chiu Wu Hong, Head of Tax at KPMG Singapore, said: “A further hike in personal tax rates may send a wrong signal to top talent considering a move to Singapore. It is therefore important that in tweaking the tax system, the needs of the middle class and that of high net worth individuals need to be balanced.”
In her interview with Bloomberg, Ms Indranee also cited e-commerce as an area that would allow Singapore to further diversify its tax base. “You can imagine, 20 years from now, the way people purchase is very different and by that time online platforms will be mainstays, so if that’s not part of the tax regime, there’s going to be a lot of holes there,” she said. This change should have been achieved “probably yesterday”, she added.
Nevertheless, experts have previously pointed out the myriad of challenges in taxing online purchases. Among other things, e-commerce transactions carried out on “closed communications systems” such as WeChat could be hard to track. Intermediaries such as mobile marketplaces or platforms with multiple sellers could also make the collection of such taxes more complex.