If there was a common gripe to unite all Singaporeans, it would be the dreading of more taxes, whether it be GST, income tax or property tax.
If anything, COVID-19 highlighted the stratifications within our society and proved that the pandemic affects everyone differently. It is no surprise that, like many developed nations around the world, Singapore also faces the challenging issue of preventing the widening of income inequality within their society, while finding ways to avoid disincentivizing ambition.
Today we will dive into the existing forms of wealth taxes within Singapore and what they serve to achieve.
Wealth Tax At A Glance
Unlike many other developed nations, Singapore’s tax system does not impose a capital gains tax nor an inheritance tax. Instead, a progressive tax system is adopted such that the wealthy are subject to incrementally higher levels of tax. We see such an example in an article covering Buyer Stamp Duties.
Careful consideration is needed to be made before implementing a wealth tax. Some concerns are:
- Whether aggressive tax policies may result in businesses being turned away
- Creating a tax that can be easily calculated and collected, with minimal leeway for exploiting loopholes
- Will this be a sustainable tax policy in an evolving economy
- Is it effective in addressing income inequality
Ultimately, those who choose to consume more are taxed progressively more. The tax revenue can then be distributed into areas such as increased healthcare spending to support the growing ageing population, and to development schemes to assist lower-income families, especially during periods of high inflation.
1. Property Tax
With high homeownership rates in Singapore and an emphasis on creating wealth that can be passed on to future generations, it is no surprise that many choose to use real estate as a store of wealth. This is made possible with the constant increase in property prices within land-scarce Singapore.
However, it is exactly Singapore’s tight urban real estate situation that makes hoarding of real estate an increasingly divisive phenomenon. Those with higher incomes who can afford multiple properties can both contribute to and benefit from capital appreciation, widening the gap with those unable to purchase property.
As such, it is natural that the Government aims to curb excessive ownership of real estate. The tax on property is also easy to implement, since real estate is immovable and is directly linked to the owner as stated on the title. Property valuations are also easy to obtain and are stated in the property’s valuation list.
The distinction between owner-occupied and non-owner-occupied property taxes is an example of curbing excessive consumption. Recently, non-owner-occupied property taxes were adjusted upwards from 10-20% to 12-36% of the property’s annual value. Most noticeable were the increase in taxes for highly valued non-owner-occupied property.
Similarly, owner-occupied properties had their taxes increased from 4-16% to 6-32%, signifying a similar focus on higher taxes for the wealthy.
2. Stamp Duties
Stamp duties work in a similarly progressive manner, but aim to reduce transaction volatility within the real estate market. Prior to 20 Feb 2018, the top marginal BSD rate for both residential and non-residential properties was 3%. With effect from 20 Feb 2018, there are differentiated BSD rates between residential and non-residential properties. The top marginal BSD rate for acquisition of residential properties from 20 Feb 2018 to 14 Feb 2023 was 4%. From 15 Feb 2023, the top marginal BSD rate for residential properties is 6%, and the top marginal BSD rate for non-residential properties is 5%. (Source: IRAS)
Within the additional stamp duty regime, increasingly higher taxes are applied on buyers who purchase their 2nd and subsequent properties. Especially so with harsher tax rates on permanent residents, foreigners and entities. (Source: IRAS)
However, stamp duties serve to curtail speculation within the real estate market. It is therefore considered more of a cooling measure rather than a wealth tax. Its reliance on the volatility of the real estate market to generate tax revenue also makes it less reliable in supporting schemes to help lower-income families.
3. Personal Income Tax
Effective from year 2024 (assessable period from Jan-Dec 2023), the top marginal personal income tax rate will be further stratified and raised to 24%.
Formerly, income in excess of $320,000 will be charged a 22% tax. Following these new changes, income exceeding $320,000-$500,000 will be charged 22%. Income between $500,000 and $1 million will be levied a 23% income tax rate. Income above $1 million will now be taxed 24%.
These changes are expected to only affect the top 1.2% of taxpayers within Singapore, so it appears that most of us will remain unaffected.
It is often that the reactionary response to a widening wealth gap within a society would be to impose higher taxes of higher incomes. However, this may serve to disincentivize hard work, and may eventually cause more harm to middle income earners. It is also more likely that the few exceedingly wealthy individuals store generated wealth through capital assets, as opposed to through basic salary and income.
4. Motor Vehicle Tax
Singapore is known for being a notoriously expensive place to own a car. Cars typically represent big-ticket items which rank second to real estate for the wealthy.
Recently, the Additional Registration Fee (ARF) tier was implemented for vehicles having an Open Market Value (OMV) of above $80,000. Where formerly, vehicles above $50,000 were taxed at an ARF rate of 180%. Vehicles above $80,000 are now taxed at an ARF rate of 220%, highlighting greater progressivity on vehicle tax.
If public transportation continues getting more robust and reliable, it is likely that we will continue to see the decline of car ownership in tandem with increased pedestrianism in high-traffic areas.
Singapore does not currently tax households based on the number of cars that they own. However, it is another avenue to tighten down on excessive car ownership, similar to what is done with real estate.
I certainly do not live luxuriously, should I be concerned about wealth tax?
Wealth taxes serve to redistribute the wealth to sectors of society that require additional help. Most of the time, these fall outside the periphery of our daily interactions.
Countries which suffer from large wealth inequality are subject to an onslaught of secondary problems in a cycle that is hard to break.
More importantly, Singapore’s tax system aims to balance a sustainable support system. Especially for those who require it without disincentivizing the attitude that has made this country as prosperous as it is.