The move by the Government in this year's Budget to cap personal income tax relief at $80,000 has got many working mums hot under the collar. Some mothers have told The Straits Times that it is a bitter pill to swallow after having enjoyed generous tax savings in past years.
The change will take effect from the Year of Assessment (YA) 2018 and tax experts estimate that it could affect about 20,000 people, of which most are likely to be working mothers.
Tax experts say that it is those working mothers earning above $150,000 with at least two children who will end up paying more tax, particularly if their chargeable income jumps to a higher tax bracket because of the new cap.
Ms Elizabeth Chan (not her real name), 54, who earns about $250,000 a year and has two children, worked out that her personal income tax will jump 50 per cent to about $15,588 from her current $10,000.
This translates to an additional $500 a month in payable tax. Her total reliefs amounted to about $114,000 last year, of which the lion's share of about $83,000 came from the Working Mother Child Relief (WMCR).
Assuming her reliefs and income remain unchanged, an amount of about $34,000 will be added to her chargeable income when the new cap is imposed. It will push her chargeable income to the higher tax bracket, which attracts 17 per cent of tax, up from her current 15 per cent tax bracket.
With the cap, her overall effective tax would still be considered low at 6.2 per cent, up from the current 4.1 per cent.
But Ms Chan said: "Why target us, working mothers, who have worked hard both in our careers and at raising our children? I belong to the sandwiched generation, taking care of ageing parents and our children. Every cent counts."
The Ministry of Finance (MOF) has said that the new cap is expected to raise an additional tax revenue of $100 million a year. The cap only affects 1 per cent of tax-resident individuals, which means many can still continue to claim reliefs.
According to MOF, there were about 2.2 million individuals assessed to tax in the 2014 year of assessment and that most of these would be tax-resident individuals. This translates to about 20,000 individuals who would be affected by the new tax relief cap.
And even with the new cap, nine in 10 women can continue to claim the WMCR fully.
There are 15 personal income tax reliefs in the current tax system for eligible individuals. They include reliefs for course fees, CPF cash top- ups, earned income and for those who care for parents, grandparents, disabled family members, and who save for their own retirement.
The most substantial relief is the WMCR, which aims to encourage married women to remain in the workforce after having children. To be eligible for WMCR, the working mother can be married, divorced or widowed. It is calculated on the child order and pegged to the working mother's earned income.
Under the WMCR, working mothers can claim up to $50,000 per child in total child reliefs. The WMCR is tiered: 15 per cent of earned income for the first child, 20 per cent for the second and 25 per cent for the third and up. The cumulative WMCR for all children is capped at 100 per cent of the mother's earned income.
Finance Minister Heng Swee Keat had said that while this cap would make Singapore's personal income tax system "more progressive", the personal income tax burden remains low.
Ms Wu Soo Mee, partner at Ernst & Young Solutions, believes that the new tax relief cap is a move in the right direction to make Singapore's tax system more progressive. After all, in a progressive tax system, higher tax is collected from taxpayers who earn more and lower tax from taxpayers earning less.
This is not the case currently, she said. "The current WMCR is inconsistent with the Government's aim to make the tax rate system a progressive one. WMCR increases with a working mother's earned income as it is based on a percentage of her earned income up to a cap of $50,000 per child."
She added that there are other child-related cash subsidies and grants for parents such as the Baby Bonus, First Step grant and reduced Foreign Domestic Worker Levy Concession, as well as other work-life support measures such as extended maternity leave, paternity leave and child and infant care leave.