Singapore may have to change its tax system to wealth tax

SINGAPORE: Wealth tax has been a hot topic in Singapore lately.

Should the government demonetize revenue from income tax and GST to wealth tax?

Maybe the 2 per cent GST hike won t be needed if we can find new ways of collecting wealth taxes to generate a sustainable source of significant tax revenue, some have argued.

Few will dispute that wealth taxes conceptually contribute to a more progressive and fairer society. With increasing consciousness over inequality, it is no surprise the idea of taxing the rich more is gaining traction worldwide, with Singapore no different.

While recent interest in the topic has been ignited by Finance Minister Lawrence Wong s clear message at the 35th Singapore Economic Roundtable last Friday Oct 15 that the Government will study the options to expand our system of wealth taxes, his clarification this will be done in ways that add to our revenue resilience without undermining our overall competitiveness outlines useful trade-offs worth stewing over.

This public debate is expected to heat up in the run up to Budget 2022, as public feedback is solicited.

We know the Ministry of Finance MOF studies Singapore s overall tax system on an ongoing basis to ensure that it stays competitive and business-friendly yet remains fair, progressive, sustainable and hard to avoid.

When property taxes and stamp duty rates were raised to cool the commercial market and rein in speculation in the past decade, more expensive properties commanded higher rates while higher commercial and industrial properties were spared to preserve the private sector s competitiveness.

Wealth taxes, first raised in recent memory at Budget 2021 by Deputy Prime Minister Heng Swee Keat, have the potential to shore up Singapore s fiscal position for the long term as the country continues to seize international opportunities and rebound from the pandemic.

Singapore has primarily relied on taxing wealth through property-related taxes such as property taxes and stamp duties, which make a hefty chunk of government revenue.

The latest annual report of the Inland Revenue Authority of Singapore for the fiscal year 2020-2021 shows 14 per cent of the S $50 billion in taxes collected came from total stamp duties 8 per cent and property taxes 6 per cent Such takings from wealth taxes could generate significant government revenue, fourth only to corporate income tax 33 per cent personal income tax 26 per cent and GST 21 per cent if we leave out net investment returns contributions from the reserves.

Considering the residential property market has been surprisingly resilient despite the pandemic, an increase in taxes on residential properties may be palatable. This has the additional benefit of setting the property market on a stronger foundation for sustainable growth.

The widening wealth gap across the world has been driven by property investments mostly, with the substantial value appreciation less available to those with lower incomes, Monetary Authority of Singapore Chief Ravi Menon said in his Institute of Policy Studies lecture in July.