S'pore 'eyes' more progressive tax system

Economists are expecting an even more progressive tax system to emerge in Singapore in the next few years to give lower-income earners a leg up.

But they said the government would ensure higher-income earners are not excessively burdened.

The wheels were set in motion with measures unveiled in this year’s budget, and economists believe this trend will continue in next year’s edition.

Ideas being bandied about by the economists include a further adjustment in asset-related taxes and a cut in the income tax rate for lower-income brackets.

“They’ve started the ball rolling this year, and I won’t be surprised to see this continuing with the upcoming budget,” CIMB economist Song Seng Wun told The Straits Times.

“It’s about being fair to all. The whole idea is you don’t want to penalise higher-end taxpayers excessively.”

DBS economist Irvin Seah said factors such as increased social spending, higher outlays on public infrastructure, an ageing population and a still fairly wide income gap fuel the likelihood of an even more progressive tax regime.

He added: “While this implies more spending to help the lower-income groups, it will also mean a higher tax burden on the higher-income earners to fund the fiscal spending.”

The rising income gap here is a key reason that this move is likely, according to United Overseas Bank economist Francis Tan.

He added that a more progressive tax system will ensure that the Gini coefficient – a widely used measure of income inequality – here decreases or at least stabilises.

A progressive tax is one which takes a larger percentage from high-income earners than it does from low-income individuals.

Last week, Acting Minister for Culture, Community and Youth Lawrence Wong touched on the government’s move towards a more progressive tax system during a residents’ dialogue. Elaborating on the government’s thinking, Wong said that it is fair for “those with means” to pay more taxes, defining “means” in two ways: income and wealth.

“Those with more income ought to pay more, I think that’s fair. Those with more wealth, wealth in terms of assets, ought to pay a bit more than those with less,” he said.

To make the tax system more progressive, the government announced in this year’s budget that it is raising property tax rates for high-end residential properties.

The largest increases will apply to investment properties that are not occupied by their owners.

Possible measures in next year’s budget may include adjusting asset-related taxes on big-ticket items such as property and cars.

“Given the current asset-rich, cash-poor situation in Singapore, there could be further adjustments in property tax to make it even more progressive,” said DBS’ Seah.

One obvious measure could be a higher asset tax on the second and subsequent properties and cars, said CIMB’s Song.

“That’s a more direct measure of wealth, and those lower-income groups with fewer assets will benefit more,” he added.