SINGAPORE: Low tax rates, 'benign system'

PHOTO: SINGAPORE: Low tax rates, 'benign system'

In Asia, Hong Kong and India have mooted ways to make taxes more progressive. Even in China, there are discussions about how the tax system can narrow the social gap. In Singapore, the recent Budget laid out ways in which the tax system aims to be more progressive. The Straits Times looks at what some economies around the world are doing to tackle this divide.

Is Singapore's tax system progressive enough? Finance Minister Tharman Shanmugaratnam has pronounced taxes "highly progressive". More than 55 per cent of Singaporeans do not pay any income tax at all, he noted.

Singaporeans earning below $20,000 a year, after counting tax reliefs and deductions, are exempted from paying income taxes.

Last year, more than 600,000 people paid no personal tax, said Mr Grahame Wright, human capital partner at Ernst & Young Solutions, citing Inland Revenue Authority of Singapore figures.

Including this group, more than a million taxpayers paid a marginal tax rate of 5.5 per cent or less, contributing less than 1 per cent of the personal income tax takings, he added.

With these statistics excluding social transfers, they would suggest "a high degree of progressivity in Singapore's personal income tax regime", Mr Wright said.

At the other end of the spectrum, he noted that 40,000 taxpayers paid the top marginal tax rate of 20 per cent and contributed half of total personal income tax revenue.

Given that Workfare payouts act as a negative income tax for low-wage workers, Singapore's tax schedule actually spans "minus 30 per cent to plus 20 per cent", or 50 percentage points, as Mr Tharman noted last week.

New asset taxes on luxury items, introduced in last month's Budget, make the system even more progressive, said CIMB regional economist Song Seng Wun.

But some MPs, notably the Workers' Party's Ms Sylvia Lim, recently called for an even steeper tax slope that extends a higher top rate to the richest workers.

The top rate of 20 per cent has remained the same for a decade even as the incomes at the higher end have shot up, Ms Lim said.

Mr B.J. Ooi, KPMG partner and head of international executive services, noted that Singapore remains "one of the lowest tax countries in the world" (see table).

"Its relatively benign system has not experienced the level of changes or reforms as compared to what has happened in advanced nations such as the US," he said.

The United States recently raised its top tax rate from 35 per cent to 39.6 per cent.

In fact, Singapore's individual tax rates have progressively been lowered over the past 10 years, said Ms Jill Lim, tax partner at Deloitte Singapore.

But income tax brackets were restructured in 2011 to reduce taxes for middle- and upper-middle- income taxpayers and make the system more progressive.