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Introduction

Implementing wealth taxes has been a subject of nice curiosity in Singapore prior to now yr, with the talk on its deserves having attained excessive prominence in native coverage discourse. In the course of the Singapore Financial Roundtable (Financial Roundtable) held in October 2021, Minister for Finance Lawrence Wong emphasised the necessity for Singapore to protect towards rising inequality, and highlighted that the Ministry of Finance is presently finding out choices to develop Singapore’s system of wealth tax. The current elevating of Extra Purchaser’s Stamp Obligation Charges (ABSD) with impact from 16 December 2021 for homeowners of a number of properties is arguably a transparent indication of such a spotlight. This comes as no shock, as governments worldwide grapple with depleted public funds in addition to rampant wealth inequality, each of that are a direct results of the COVID-19 pandemic. To place issues into perspective, the mixture wealth of the super-rich grew practically four-fold from US$41.5 trillion in 2000 to US$191.6 trillion in 2021, and their share of world wealth rose from 35 per cent to 46 per cent over the identical 20-year interval.1

This text discusses how Singapore’s present tax system already encompasses sure options of a wealth tax, in addition to how Singapore might discover additional potential avenues of taxing wealth shifting ahead.

Wealth taxes in Singapore: at current

Wealth taxes can come in numerous kinds, starting from a pure wealth tax (i.e. a flat share tax on a person’s complete internet price) to different types of oblique wealth tax, similar to inheritance tax, capital beneficial properties tax and real-estate tax.

In contrast to in lots of different nations, Singapore’s tax system at current doesn’t make use of any type of inheritance, property, capital beneficial properties or internet wealth tax. As a substitute, it largely depends on the progressive nature of its current tax base to make sure that the rich pay a higher proportion of tax. For instance, the charges for private earnings tax and purchaser’s stamp responsibility will depend on the non-public earnings of the taxpayer and the market worth of the property respectively. As a way to tax householders (who’re usually perceived as being higher off), Singapore additionally levies property tax, which relies on the annual worth of the property. Notably, property tax on residential properties can be topic to progressive tax charges, relying on whether or not the property is owner-occupied or not. As a type of oblique wealth tax, the federal government levies an extra tax within the type of Extra Purchaser’s Stamp Obligation (ABSD) on householders who’ve the means to buy a number of properties.

Transferring ahead: the choices Singapore could contemplate in implementing wealth taxes

A balancing of things

Whereas few will dispute that in precept, wealth taxes contributes to a fairer and extra progressive society, it can’t be over-emphasized that any authorities would want to have cautious regard to the design and implementation of any proposed wealth tax. Significantly, to ensure that a wealth tax to be significant and in keeping with Singapore’s current social-economic background and insurance policies, it must strike a steadiness between sure basic trade-offs, similar to:

  1. the crucial to remain aggressive and business-friendly given Singapore’s regional standing as a enterprise and wealth administration hub;
  2. the benefit of administration (in that its implementation and administration must be procedurally easy and cost-effective, while guaranteeing compliance with minimal scope for avoidance by taxpayers);
  3. the sustainability of such a measure; and
  4. the sufficiency of such a measure not simply by way of potential tax collectible, however in addressing the rising earnings inequality and wealth disparity in Singapore.

Such concerns have been equally echoed by Minister for Finance Lawrence Wong on the Financial Roundtable, the place he famous that any growth of Singapore’s system of wealth tax should be carried out in a way that “add[s] to our income resilience with out undermining our general competitiveness”.

Crucially, any wealth tax proposal mustn’t tip the scales as regards Singapore being a beautiful vacation spot for top internet price people and international investments. Put merely, it mustn’t trigger such events to divert their capital out of Singapore. As a small and open city-state whose light-touch tax regime has for many years been a key aggressive benefit in attracting international capital, a considerable capital flight would have clear knock-on results on the Singapore economic system.

The viability of reintroducing property responsibility

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Though Singapore repealed its property responsibility regime in 2008, there was rising speak prior to now yr of its reintroduction as a way to handle the rising wealth discrepancy. As an inheritance tax charged on the entire market worth of the property of a deceased particular person on the date of his or her dying, its design was beforehand meant to rebalance wealth and to forestall wealth from being concentrated inside bloodlines throughout generations.

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Whereas conceptually enticing, any reintroduction of property responsibility in Singapore would first want to deal with the design shortcomings of the earlier regime, which had resulted in it being largely ineffective in taxing the rich.

Firstly, the Property Obligation Act (Chapter 96) had offered that lifetime presents made greater than 5 years earlier than one’s dying (offered that the donor was excluded from any profit beneath the reward) wouldn’t be topic to property responsibility. Successfully, an individual possessing useful property who wished to flee the imposition of property responsibility upon his or her dying might merely switch the property 5 or extra years earlier than his or her dying. As such, the rule had a bent to learn those that have been financially capable of make giant presents early of their lives with out lowering their lifestyle, which might sometimes be the case for the wealthiest.

Additional, a tax that was solely levied on the property owned by an individual upon his or her dying additionally meant that it was simply prevented via tax planning, a service that the rich would sometimes have higher entry to. For instance, a person wishing to keep away from property responsibility might simply switch his or her property to a lifetime belief or to a holding firm, thereby guaranteeing that the property have been not held in his or her private title. As the person not owned the property upon dying, no property responsibility would apply.

These drawbacks within the earlier property responsibility regime resulted within the excessive prices of administering the tax, as a proportion of tax collected. To place issues into perspective, it was famous within the 2008 Funds Assertion by the then-Minister for Finance Tharman Shanmugaratnam that the property responsibility regime had, previous to its abolishment in 2008, on common collected solely S$75 million per yr. It’s thus comprehensible that many jurisdictions, together with Australia, Hong Kong, Malaysia and New Zealand, have equally proceeded to abolish property responsibility from their respective tax methods.

In any case, we might spotlight that even when reintroduction of property responsibility is being significantly thought of, it could be unlikely that Singapore would reinstate the beneficiant exemptions that utilized to the earlier regime (particularly, the S$9 million exemption threshold for residential properties), on condition that Singapore’s coverage with respect to residential possession has clearly modified since then. This might imply that any newly launched property responsibility regime would, if in any respect, doubtless apply to a wider scope of property (together with not solely residential property however extending probably to digital property, for instance).

With the above in thoughts, any reintroduction of property responsibility would undoubtedly must bear in mind the true danger of jeopardizing Singapore’s vibrant wealth administration and personal banking business, the expansion of which has been supported at the least partially by the abolishment of property responsibility in 2008 within the first place. Implementing an property responsibility might disincentivize and even drive away rich people and households from parking their wealth and property in Singapore.

Actual property taxes: low hanging fruit

Utilising actual estate-related tax (i.e. property tax, stamp duties) as a way to tax the rich has traditionally been highly regarded in nations worldwide. That is logical, on condition that a big proportion of the rich retailer their wealth in actual property and that, more and more, the widening wealth hole worldwide has been pushed by property investments. The fact is that these with increased incomes can afford bigger investments in actual property, and that the substantial worth appreciation they take pleasure in over time isn’t out there to these with decrease incomes and smaller outlays for housing.

Actual property taxes as a type of wealth tax can be extremely enticing from the attitude of administrative implementation. Tax on property represents a extra steady income mobiliser as actual property can’t be moved round, its possession is transparently documented, and its valuation is comparatively easy. As well as, the truth that actual property is usually a big-ticket buy implies that the income collected from such taxes is substantial. It will even be administratively simpler for Singapore to leverage on an current tax regimes similar to stamp responsibility and property tax as a way of implementing a wealth levy, versus creating a brand new class of tax, which might inevitably create some extent of authorized uncertainty as to its utility.

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Property Tax

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Constructing on its current progressive nature, there’s scope to make property taxes much more progressive. On this regard, an extra surcharge on luxurious and bigger properties might be explored. Such a surcharge will be additional outlined primarily based on a threshold assessed worth. Additional, given the low charge of property tax at current (in relation to the complete worth of property), there’s potential for a big enhance in charges.

Stamp Obligation

The strategy taken in relation to property tax can equally be adopted for stamp responsibility on property transfers, in that increased purchaser stamp responsibility charges might be applied for bigger and costlier properties. This ensures that such measures are focused solely at wealthier taxpayers. Such a transfer isn’t new to Singapore – in 2018, the very best marginal Purchaser’s Stamp Obligation charge was raised from 3 per cent to 4 per cent for residential property valued in extra of S$1 million. The newest hike in ABSD charges are clearly focused at wealthier householders within the non-public housing market, because it solely applies to purchasers who’re buying further residential properties (i.e. charges for first property purchases stay unchanged). Even so, however that stamp responsibility stays a simple tax to manage and gather, elevating stamp responsibility charges in itself would unlikely be a adequate resolution to taxing the rich. It is because the revenues collected are extremely unstable as they rely purely on transaction quantity. It’s thus no shock that the choice to extend stamp responsibility charges is historically seen as “a part of a bundle of measures to chill the residential market”, reasonably than an unique device to tax the rich.2

Different taxes: different attainable avenues for wealth tax?

Revenue tax

Consistent with the present progressive nature of Singapore’s earnings tax regime, a typical suggestion to deal with rising wealth inequality in Singapore is to extend the headline earnings tax charge for ultra-high earnings earners. By elevating tax charges just for such people, this is able to handle the priority {that a} tax on earnings would disincentivize exhausting work for the center and higher center earnings earners. But, such a proposal is probably not efficient in lowering the wealth hole, on condition that an earnings tax in itself doesn’t function as a tax on wealth, however solely on accretions to wealth. It stays a truism that in lots of societies, together with Singapore, the ultra-wealthy rely totally on their capital property (earnings derived from monetary proceeds of the sale of securities, properties and dividend earnings and so forth.) for wealth appreciation.

Items & providers tax (GST)

On condition that Singapore has efficiently designed its items and providers tax (GST) regime to align with its general progressive tax system, an alternative choice for Singapore can be to leverage on GST as a way of taxing the rich. Beneath the present regime, decrease and center earnings households are capable of depend on the everlasting GST voucher scheme for money assist and utility rebates, successfully permitting these households to pay much less GST as in comparison with increased earnings households. Because of this, foreigners residing in Singapore, vacationers and the highest 20 per cent of resident households are estimated to bear greater than 60 per cent of the web GST on households and people.3

Along with elevating the GST charge, one other chance might be to additional topic sure sorts of items (i.e. luxurious, excessive worth items and so forth.) to a better charge of GST. Taxes primarily based on consumption have been traditionally straightforward to manage and gather, and would supply a gentle stream of income to the federal government coffers, to fund extra social packages to deal with inequality.

Motorcar taxes

It might be price exploring the chance that wealth tax in Singapore might additionally take the type of a tax on automobile possession. That is particularly since motor autos have historically been seen, notably in Singapore, as a second big-ticket bodily asset class owned by people. At current, Singapore doesn’t distinguish between households primarily based on the variety of autos they personal. A attainable technique could also be to tweak the Certificates of Entitlement regime in order to impose a tax on households with a number of autos. One other attainable strategy might be to levy increased tax charges on costlier luxurious vehicles above a sure buy threshold, reflecting a level of progressivity in motorcar taxes.

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Difficulties with a internet wealth tax

On the worldwide stage, the idea of a internet wealth tax isn’t new, with nations more and more exploring the viability of taxing a person primarily based on a share of his or her taxable property (i.e. the worth of his or her property minus any associated liabilities). In Argentina, a one-off levy at charges as much as 5.25 per cent was handed into regulation on 4 December 2020. On the identical time, the UK Wealth Tax Fee printed its Closing Report proposing an annual one-off wealth tax relevant to UK residents with private wealth above a set threshold.4 Member of Parliament Jamus Lim additionally just lately proposed in his parliamentary speech that Singapore ought to impose a wealth tax of 0.5 per cent to 2 per cent on essentially the most rich, because it might “assist diversify Singapore’s income sources and likewise scale back earnings and wealth inequality”.5

Whereas a internet wealth tax could also be conceptually enticing in guaranteeing progressiveness by making use of solely to the very wealthy, it has equally been noticed that such a tax is administratively inefficient and cumbersome to implement.

The primary limitation pertains to the problem of disclosure and the inherent mobility of property. It’s straightforward to “disguise” wealth in property that may be effortlessly moved from one location to a different (similar to having offshore financial institution accounts, artwork, jewellery and so forth.), which complicates the dedication of the web wealth tax base. This issue has change into more and more extreme given the rise of digital property, similar to bitcoin and non-fungible tokens, as a well-liked retailer of wealth. Whereas digital property are more and more topic to regulation by governments worldwide, present legal guidelines on the transparency and useful possession of such property stay fledgling and undeveloped.

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The subsequent main concern pertains to the problem in valuing a taxpayer’s property for the needs of administering the web wealth tax. That is particularly the case if the worth of the asset in query can’t be simply assessed because of the lack of an energetic market, similar to property together with artworks, antiques and jewellery, or when the worth of the asset tends to fluctuate over time. With out an goal technique to compute asset worth, it’s foreseeable that the applying of such a tax would produce important inefficiencies given the excessive chance of challenges by taxpayers as to the valuation of such property.

It’s thus of no shock that Singapore has been very cautious in contemplating the introduction of such a tax, with Prime Minister Lee Hsien Loong acknowledging on the November 2021 Bloomberg New Economic system Discussion board {that a} internet wealth tax is “not really easy to implement”. In the same vein, Minister for Finance Lawrence Wong just lately famous that the Singapore authorities “won’t give attention to taxing people primarily based on their internet wealth, however will take a look at all the system of taxes right here and establish areas which will be strengthened as an alternative”.6

Conclusion: a cautious stance warranted

Given the hovering wealth inequality and the depletion of presidency reserves on account of the COVID-19 pandemic, the case for a wealth tax in Singapore has by no means been extra compelling. Even assuming a conclusion is reached that non-fiscal initiatives are inadequate to deal with the inequality difficulty—an evaluation of which in itself, is extremely complicated and never the topic of this text—the query that has stumped policymakers is the shape during which the wealth tax ought to take, and what classes will be learnt from the experiences of different jurisdictions worldwide, in order that Singapore’s tax system will be designed to make sure that the dual targets of equity and financial sustainability are met with out compromising financial dynamism and investor confidence. Though it’s unclear at this level which course the federal government will soak up relation to this difficulty, it’s sure that utmost warning must be exercised in designing a wealth tax system, as wealth levies could in the end find yourself as a blunt instrument, which yielded carelessly, might inflict long-term collateral harm on Singapore’s economic system and its attract for funding and asset administration.

1 https://www.businesstimes.com.sg/opinion/the-taxing-problem-of-implementing-wealth-tax-in-singapore

2 https://www.iras.gov.sg/taxes/stamp-duty/for-property/buying-or-acquiring-property/additional-buyer’s-stamp-duty-(absd)

3 https://www.straitstimes.com/politics/budget-debate-heng-swee-keat-on-why-the-gst-hike-cannot-be-scrapped

4 https://www.wealthandpolicy.com/wp/WealthTaxFinalReport.pdf

5 https://www.straitstimes.com/singapore/politics/parliament-wp-mp-jamus-lim-proposes-wealth-tax-of-05-to-2-per-cent-on-the-richest

6 https://www.businesstimes.com.sg/government-economy/government-will-not-focus-on-taxing-individuals-based-on-their-net-wealth

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Source: https://www.jdsupra.com/legalnews/wealth-taxes-in-singapore-the-present-1182861/

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