S’pore to raise taxes on the rich

GST, slew of increases aimed at higher income groups to be implemented in 2023

THE Republic of Singapore will begin implementing a long-flagged increase to its goods and services tax next year, its finance minister said in his budget speech, while also announcing a slew of tax hikes aimed at higher income groups.

The moves come as Singapore emerges from a pandemic-induced economic slump, but walks a tight rope in maintaining its attractiveness as a global financial hub while guarding against local concerns about rising wealth inequality and rising costs of living.

GST will rise to 8% from January next year and to 9% in 2024, Lawrence Wong said, from 7% now.

The government also plans to increase income taxes for high earners, hike taxes on residential properties and impose higher levies on luxury cars.

“These tax adjustments will help to raise additional revenue and also contribute to a fairer revenue structure,” Wong said.

Singapore has been seeking to raise revenues to fund future spending that it estimates could reach more than 20% of gross domestic product (GDP) by 2030, especially as it ramps up spending on healthcare in one of the fastest ageing countries.

Over the last two years, the government has committed close to S$100bil (Rm311bil) to cushion its people, businesses and the economy from the impact of the Covid-19 pandemic.

Wong announced a further S$500mil (Rm1.5bil) package to support jobs and businesses as part of his budget proposals and proposed to set aside S$560mil (Rm1.7bil) to help Singaporeans deal with the rising cost of living.

The government expects an overall deficit of S$5bil (Rm15bil) for 2021 and Wong unexpectedly forecast a deficit of S$3bil (Rm9bil) for 2022. Total expenditure for 2022 was forecast at S$102.4bil (Rm318bil) versus S$98.4bil (Rm306bil) the previous year.

The budget was more expansionary than expected, said MUFG analyst Jeff Ng, adding that the government was addressing the still uneven recovery of the economy.

Singapore’s economy, which is highly reliant on global trade, is expected to expand 3% to 5% this year as it continues to reopen its borders and ease Covid-19 restrictions.

The economy grew 7.6% in 2021 after a record contraction in 2020.

Still, recovery in some sectors such as those in aviation and tourism is expected to take longer as virus concerns linger.

Wong said the government will spend a total of about S$9bil (Rm28bil) over the next five years on measures to help its low-wage workers. It will also spend on schemes to build digital capabilities for businesses and workers.

The government will further tighten its foreign worker policy and increase salary thresholds for issuing work visas.

As part of its ambition to achieve net zero emissions, the government will also increase carbon taxes from 2024.

Wong said the corporate tax system would need to be updated, following a global agreement on a minimum corporate tax rate, and is considering a move that would increase multinational companies’ effective tax rate to 15%.

Singapore, a low-tax jurisdiction where several multinationals including Alphabet’s Google, Microsoft and Facebook have regional headquarters, has a rate of 17% but provides incentives and schemes which reduce the effective rate.

Wong said the government is closely monitoring the risk of rising inflation, which has been driven by a recovery in global demand, continuing supply chain disruptions, and especially by rising energy prices.

The government has set aside a S$6.6bil (Rm20bil) package to help cushion the impact of the GST hike.

The Monetary Authority of Singapore tightened its policy settings in January in its first out-of-cycle move in seven years as the economic recovery gained traction and price rose. It is widely expected to tighten again at its scheduled policy meeting in April.