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Should We Switch To Taxing Current Income?

15 Sep 2004

The Ministry of Finance invites members of the public to give their views on whether payment of income tax should be changed from a previous year basis to a current year basis of assessment. Under a current year basis, if the income of a person or a business goes down in a year, the tax payment for that year will reflect the lower income. However, current year assessment will mean greater compliance costs.

2. Singapore is currently operating a preceding year basis of assessment. Income tax payable this year is based on income earned in the previous year. On the other hand, under the current year basis of assessment, tax is paid on current income rather than income earned in the previous year. For salaried individuals, the tax payable amount may be withheld by the employers on a monthly basis from their salaries and then paid over to the tax authority. For companies, tax may be paid in installments. This is typically known as a Pay-As-You-Earn (PAYE) system in many countries.

3. Taxing income earned in the current year means that there will be better matching of income and tax expenditure. For individuals, this helps to smooth out their disposable income and expenditure in the face of economic cycles. Unlike now, individuals who are retrenched or suffer a pay cut during the year will not have to pay tax on the higher income earned in the previous year.

4. For companies, taxing income earned in the current year will improve their cash flow. In particular, where companies make lower profits or even losses during a downturn, they need not be paying tax based on previous year's profits. Current year assessment would contribute towards a better matching of the company's income and tax expenditure.

5. If the better matching of incomes and tax expenditures leads to more stable consumption and investment spending, a current year basis of assessment could provide better stabilisation for the economy as a whole.

6. However, current year assessment will mean an increased frequency of filing and contact with IRAS, which in turn leads to increased compliance costs for taxpayers. Weighing the costs against the benefits will vary across different individuals and businesses. The consultation exercise seeks feedback on the merits and demerits of switching to a current year basis of assessment. The Ministry welcomes all interested parties to give feedback.

7. The consultation paper is available at the government's central consultation portal for all ongoing government consultations at, or MOF's website. Respondents may send their comments to MOF in the prescribed template via email, fax or post.

8. The consultation exercise is open for 6 weeks from 15 September 2004 to 30 October 2004.