SINGAPORE: In the lead-up to Budget 2018, much public discussion has centred on the prospect of higher taxes so much so that Finance Minister Heng Swee Keat said on Monday that the budget is not about taxes or handing out “goodies.” Nevertheless, with social and healthcare spending expected to continue rising as the Singapore population ages, the government has to find new sources of revenue to fund ever-growing investments including in public infrastructure. The government’s expenditure has more than doubled from S$33 billion (RM98.4 billion) in the 2007 financial year to USS$71 billion in FY2016. Several national leaders have said it was a matter of time before taxes have to be raised.
Credit Suisse economist Michael Wan predicted that annual government spending will rise by a further 1.7 per cent to 2.8 per cent of gross domestic product (GDP) by 2025, driven by infrastructure projects, higher social expenditure, and measures to transform the economy. If the government does not raise its revenue, it could run into a deficit of between 0.3 per cent and 1.4 per cent of GDP by that year.
Apart from taxes, the Singapore Government derives its revenue from sources including vehicle quota premiums and returns on investments made by state investment firm Temasek Holdings and sovereign wealth fund GIC. For the latest financial year, the Inland Revenue Authority of Singapore collected S$11.1 billion in GST, said Koh Soo How, Asia Pacific Indirect Tax Leader at PwC Singapore. The projected hike should be staggered over time, the experts proposed. “This would hopefully lessen the financial impact to the lower income group in Singapore,” said Richard Mackender, tax partner and indirect tax leader at Deloitte Singapore and South-east Asia. He added that the government may wish to consider extending the GST exemption to items such as children’s clothing, certain prescription medicines for the elderly, as well as basic foodstuffs including rice and vegetables. ”This, together with the permanent GST voucher scheme, would help to ease the financial impact on the lower income group,” he said. Assuming that consumers in Singapore spend about S$4 billion online each year, another S$280 million to S$360 million could be added to tax revenue from GST should it be extended fully to e-commerce, said National University of Singapore (NUS) Business School Associate Professor of Accounting Simon Poh said. A 2016 report by Internet giant Google and Singapore state investment firm Temasek Holdings projected that within a decade, the size of Singapore’s e-commerce market will grow more than five times to US$5.4 billion (S$7.5 billion).
By increasing individual income tax by 1 to 3 percentage points for the top earners, the government could boost its coffers by up to S$100 million, Prof Poh estimated. This is based on the 2017 Year of Assessment, where IRAS collected almost S$10 billion from the top 20 per cent of income tax payers. When it comes to wealth taxes, an increase in property tax for high-end properties could net an additional S$10 or S$20 million, based on the total property tax collection of about S$4.4 billion for the 2016/2017 financial year, said Prof Poh, who noted that a quarter of the FY2016/2017 property tax revenue came from private residential properties. Prof Poh said his estimates are based on several assumptions such as the effect of the improved market sentiment and that half of the private residential properties that are assessd by the taxmen fall into the highest property tax brackets.
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. Experts had previously said bringing back the “death tax”, as estate duty is known colloquially, would do more harm than good. Nevertheless, should it be resurrected, it could bring in an estimated S$75 million a year the average annual amount collected before it was scrapped. Citing the global trend towards lower corporate tax rates, experts were unanimous in saying that Singapore should not raise its rate, which is among the lowest in the world at 17 per cent. Last month, United States President Donald Trump signed the Republicans’ massive US$1.5 trillion (RM5.9 trillion) tax overhaul into law. The tax package, the largest such overhaul since the 1980s, slashed the corporate rate from 35 per cent to 21 per cent and temporarily reduced the tax burden for most individuals as well.
