F. Build A Fairer And More Resilient Tax System

 

F. Build A Fairer And More Resilient Tax System

  1. 255 To bring all the plans I have just laid out to fruition, we will need more revenues. I will therefore make major enhancements to strengthen our tax structure.

Corporate Tax

  1. 256 Our corporate tax system will need to be updated due to global tax developments relating to the Base Erosion and Profit Shifting initiative, or BEPS 2.0.
  2. 257 There are two pillars in BEPS 2.0:
    1. a. Pillar 1 re-allocates the profit of the largest and most profitable Multi-National Enterprises, or MNEs, from where activities are conducted to where consumers are located. There are ongoing international discussions on how to determine the jurisdictions which will surrender profits for re-allocation to the markets under Pillar 1 and how much each will have to surrender. Given our small domestic market and the extent of activities conducted here by MNEs, Singapore will lose tax revenue under Pillar 1.
    2. b. Pillar 2 introduces, amongst other things, a global minimum effective tax rate of 15% for MNE groups with annual global revenues of 750 million euros or more, under its Global Anti-Base Erosion (or GloBE) Model Rules. What this means is that if such an MNE were to have an effective tax rate of less than 15% in Singapore at the group level, other jurisdictions such as its home jurisdiction can collect the difference up to 15%.
  3. 258 We will adjust our tax system in response to Pillar 2 GloBE rules. We are exploring a top-up tax called the Minimum Effective Tax Rate, or “METR”. The METR will top up the MNE group’s effective tax rate in Singapore to 15%. IRAS will study this further and consult the industry on the design of METR. We will also continue to closely monitor international developments before making any decisions on the METR.
  4. 259 At this stage, it is premature and difficult to determine the eventual fiscal impact of both pillars. As I mentioned just now, there will be a negative revenue impact under Pillar 1. METR might yield some additional tax revenue in the short term, but the eventual impact of Pillar 2 on our revenue will depend on how governments and companies respond. The net impact of both Pillars depends on the rules and details, which are still being developed by the Inclusive Framework on BEPS.
  5. 260 While BEPS 2.0 may have reduced the scope for tax competition, it has not reduced global competition for investments. In fact, competition is likely to intensify as governments worldwide seek to restore and rebuild their economies after the effects of the pandemic. So there may be less tax competition but there will be other forms of competition. We will have to take this into consideration and ensure that Singapore remains one of the best places in the world for business.
  6. 261 We will therefore need more time to study these issues thoroughly, and will announce changes in the corporate tax system when we are ready.

Personal Income Tax

  1. 262 Where personal income tax is concerned, there is room for greater progressivity, so that those who earn more, contribute more.
  2. 263 I will therefore increase the top marginal personal income tax, or PIT rate with effect from the Year of Assessment 2024. The portion of chargeable income in excess of $500,000 up to $1 million will be taxed at 23%, while that in excess of $1 million will be taxed at 24%; both up from 22% today. (See Annex C-2.)
  3. 264 This increase is expected to affect the top 1.2% of personal income taxpayers and will raise $170 million of additional tax revenue per year.

Wealth Taxes

  1. 265 Next, wealth taxes. This is an important part of our tax system. Apart from generating revenue, they also help to recirculate a portion of the wealth stock into our economy and in so doing, mitigate social inequalities. Wealth taxes are therefore needed to build a fairer society where everyone can aspire to succeed regardless of their backgrounds.
  2. 266 Currently, we tax wealth in several ways – through property tax, stamp duties, and the Additional Registration Fee or ARF for motor vehicles. The higher value the residential property or motor vehicle, the higher the tax rate.
  3. 267 Ideally, we would want to tax the net wealth of individuals. But such a tax is not easy to implement effectively. Estimating wealth accurately and fairly is a more complex exercise than estimating incomes. Further, many forms of wealth are mobile, and as long as there are differences in wealth taxes across jurisdictions, such wealth can and will move.
  4. 268 Singapore is not alone in facing such challenges. Countries like Germany, France, and Denmark have stopped levying taxes on individuals’ net wealth. The number of OECD countries that levy net wealth taxes has dropped from 12 in 1990 to only three in 2020. And this is partly because of the difficulties in effectively implementing net wealth taxes.
  5. 269 We will continue to study the experiences of other countries and explore options to tax wealth effectively. In the meantime, we will strengthen our current system of taxes.
  6. 270 In particular, I will make several adjustments to property tax, which is currently our principal means of taxing wealth.
  7. 271 I will increase the property tax rates for non-owner-occupied residential properties, which includes investment properties. For such properties, I will increase the property tax rates from 10% to 20% which is the current range, to 12% to 36%. All non-owner-occupied residential properties will face higher property taxes, and the increase will be more significant for properties at the higher end. With these changes, a large non-owner-occupied detached house in the central area with Annual Value of $150,000 will see an annual property tax bill of about $43,000 per year. (See Annex C-2.)
  8. 272 For owner-occupied residential properties, I will increase the property tax rates for the portion of Annual Value in excess of $30,000, from today’s 4% to 16%, to 6% to 32%. This increase will impact the top 7% of owner-occupied residential properties. The increase will be higher for properties at the top end. So to illustrate with the same landed property with Annual Value of $150,000, if this is owner-occupied, the new property tax bill will be about $28,000 a year. (See Annex C-2.)
  9. 273 The increases in property tax rates will be implemented in two steps, starting with the tax payable in 2023. When fully implemented, they will raise our property tax revenue by about $380 million per year.
  10. 274 I will also tax luxury cars at a higher rate to make our vehicle tax system more progressive. I will introduce an additional ARF tier for cars at a rate of 220% for the portion of Open Market Value in excess of $80,000.
  11. 275 The new rates will apply to all cars registered with COEs obtained from the second COE bidding round this month. And the additional ARF is expected to generate an additional $50 million in revenue per year. (See Annex C-2.)

Goods and Services Tax

  1. 276 Finally, the GST. The revenue from the increase in GST will go towards supporting our healthcare expenditure, and to take care of our seniors. In fact, the GST revenue by itself will not be sufficient to cover our additional healthcare spending. Further, as I shared earlier, other areas of social spending are rising too. This is why we need not only the GST increase but also the changes to personal income tax, property tax, and vehicle tax which I have just announced.
  2. 277 Where the timing of GST is concerned, I have carefully considered the overall situation – the ongoing pandemic, the state of our economy, and the outlook for inflation. Our revenue needs are pressing. But I also understand the concerns that Singaporeans have about the GST increase taking place at the same time as rising prices.
  3. 278 I have therefore decided to delay the GST increase to 2023 and stagger the increase over two steps. The first increase will take place on 1 January 2023, from 7% to 8%, and the second increase on 1 January 2024 from 8% to 9%.
  4. 279 I want to assure all Singaporeans that we will continue to implement the GST in our unique Singaporean way, with features and schemes that support the less well-off.
  5. 280 I will continue to absorb GST on publicly-subsidised healthcare and education.
  6. 281 I will provide Town Councils with an additional $15 million per year to absorb the additional GST payable on Service and Conservancy Charges.
  7. 282 I will not increase Government fees and charges for one year from 1 January 2023. This will apply to license fees, as well as fees charged by Government agencies for the provision of services. This includes school fees, ITE and Polytechnic fees, and charges in public carparks. (See Annex F-1.)
  8. 283 To address concerns that businesses could use GST as a cover to raise prices, the Government will stand up a Committee Against Profiteering. The Committee will be chaired by Minister of State for Trade and Industry Ms Low Yen Ling.
  9. 284 We had earlier announced a $6 billion Assurance Package to cushion the impact of the GST increase for all Singaporeans. I will provide an additional top-up of $640 million to the Assurance Package.
  10. 285 The enhanced Assurance Package will provide significant payouts to Singaporeans over the next five years:
    1. a. Every adult Singaporean will receive cash payouts totalling $700 to $1,600.
    2. b. Eligible seniors will receive a special GSTV – Cash (Seniors’ Bonus) totalling $600 to $900.
    3. c. Eligible HDB households will receive additional U-Save rebates totalling $330 to $570 depending on flat type.
    4. d. All Singaporean children and seniors will receive MediSave top-ups totalling $450.
    5. e. All Singaporean households will receive two tranches of CDC vouchers worth $200 each in 2023 and 2024. The vouchers can be used at all participating heartland merchants and hawkers, as well as major supermarkets.
    6. f. Details are in the Annex. (See Annex F-2.)
  11. 286 For the majority of Singaporean households, the offsets from the Assurance Package will cover at least five years of additional GST expenses. And for lower-income households, they will receive more – with offsets covering about ten years’ worth of additional GST expenses.
  12. 287 For example, take a middle-income family of four in a 4-room flat, with two school-going children and a household income of about $8,000 a month. They will receive a total of around $4,000 in benefits, around five times the additional GST they are expected to incur a year.
  13. 288 If I were to choose a lower-income family, the benefits they receive will be larger and the offsets will cover more years of additional GST expenses. Seniors will also get more benefits. Take the example of a retired couple in a 3-room flat. They will receive even more support from the Assurance Package, at around $6,800. This far exceeds ten times the additional GST they are expected to incur a year. (See Annex F-3.)
  14. 289 Even with these offsets, some vulnerable households may require more support. These households with urgent needs can approach their Citizens’ Consultative Committees (CCC) for assistance. To further support vulnerable households, I will top up the CCC ComCare Fund by $5 million over five years. I will also provide a total of $12 million over four years to our Self-Help Groups.
  15. 290 In addition, businesses may need to adjust to the GST increase. So, I will set aside close to $40 million under the Productivity Solutions Grant for businesses to apply for subsidised accounting and point of sale solutions.
  16. 291 Over and above the transitional support provided by the Assurance Package, I will enhance the GST Voucher or GSTV scheme which is a permanent feature of our system.
  17. 292 The permanent GSTV scheme currently has three components – a cash payout, MediSave top-up and utilities rebates. I will enhance it in three ways:
    1. a. First, the Service and Conservancy Charges (S&CC) Rebate will be made a permanent component of the GSTV scheme.
    2. b. Second, the Assessable Income threshold for GSTV – Cash will increase from $28,000 to $34,000. This will cover more Singaporeans.
    3. c. Third, I will increase the quantum of the GSTV – Cash payout to $500 for those residing in homes with Annual Values of $13,000 and below; and to $250, for those residing in homes with Annual Values of between $13,000 and $21,000.
    4. d. And the details will be provided in the Annex. (See Annex F-4.)
  18. 293 The enhanced permanent GSTV scheme will provide continuing offsets for the GST expenses of lower-to middle-income households, and most retiree households, beyond the transitional period covered by the Assurance Package.
  19. 294 The enhanced GSTV will fully offset the total GST that retiree households living in 1 to 4-room HDB flats have to pay. Many retiree households in bigger flats will also have their GST offset by a significant amount.
  20. 295 For low-income households (who do not have elderly members), the GSTV will offset about half their total GST expenses every year.
  21. 296 Both the Assurance Package and the enhanced permanent GSTV scheme will be implemented together, before the GST rate increase, so that Singaporeans can benefit from both schemes at the same time. (See Annex F-3.)
  22. 297 Low-income households, in particular, will be well looked after. Besides the offsets in the Assurance Package, the permanent GSTV ensures that they will receive significant support on a continuing basis. This is why the GST increase will not hurt low-income households – for them the impact of the increase in GST will be neutralised.
  23. 298 Mr Deputy Speaker, the Budget is about using our collective resources to build our nation and to improve the lives of all Singaporeans. The budget supports spending on programmes for all, in areas such as security, housing, education, health. Every dollar collected flows back to our taxpayers in one way or another.
  24. 299 The benefits show up in many ways:
    1. a. In our seniors’ Silver Support payments;
    2. b. In our lower-wage workers’ Workfare payouts;
    3. c. In the subsidies for our loved ones for healthcare;
    4. d. In the childcare subsidies that parents enjoy;
    5. e. In the quality education every child receives.
  25. 300 We are reminded of them every day when we look around – our roads, MRT lines, hospitals, schools, the beautiful parks. In the safety and security our families enjoy.
  26. 301 But when it comes to paying for these benefits, we should not shirk from our responsibilities. No one likes to talk about taxes. But there are no painless solutions. Ultimately, every need must be paid by someone – every dollar not paid by one person will have to be made up by someone else, either today or in the future.
  27. 302 But what we can and will always do is to ensure that we have a fair and progressive system in Singapore. And this means that those with more will contribute more taxes than the benefits they receive. Those with less will still contribute, but a lesser amount, and they will receive more benefits in return. This reflects our values and who we are as a society. This is how we strengthen our social compact. This is how we will fund our common aspirations for tomorrow.