Tax revenue, especially from the corporate sector, is likely to plunge this year amid the severe downturn stemming from the coronavirus pandemic, say analysts.
The Government's original projected operating revenue of $76 billion for this financial year has dropped to $70.4 billion after estimates were revised last month.
"This represents a $4.33 billion, or 5.8 per cent, reduction compared with 2019," said Mr Low Hwee Chua, tax and legal regional managing partner at Deloitte Singapore and South-east Asia.
Corporate tax revenue will likely take the biggest hit, much as it did during the global financial crisis in 2009 when it dropped 8.3 per cent year on year, while personal income tax collection stayed fairly constant. These two areas account for over half of total tax collections.
Mr Low expects a 6 per cent to 8 per cent drop in corporate tax revenue to between $15.4 billion and $15.9 billion this year, with a more modest reduction of 1 per cent to 2 per cent for personal income tax to $12 billion. These numbers could be lower if there is a prolonged recession.
Last year, the Inland Revenue Authority of Singapore collected $16.1 billion in corporate tax and $11.7 billion from personal income tax.
Mr Low said personal income tax revenue stays relatively stable because most "local employees whose jobs are retained should continue to contribute to personal income tax, whereas business revenue may be impacted by other factors such as a drop in global demand and supply chain disruptions".
The deteriorating situation caused by Covid-19 prompted the Government to announce last month an additional $5.1 billion to cushion the impact of the circuit breaker measures that have forced businesses and schools to shut until May 4.
The full range of Budget measures are providing $59.9 billion of assistance in areas such as jobs and wage support, payments to households and help for the self-employed. The country will chalk up its largest Budget deficit of $44.3 billion.
The full extent of the revenue decline will be clearer only next year, said CIMB Private Banking economist Song Seng Wun, as tax collections this year are based on company earnings and wages last year. "When the economy gets back on its feet, tax collections will follow."
Some say the impending GST (goods and services tax) hike - a rise of two percentage points some time between 2022 and 2025 - could come sooner rather than later to help bolster tax revenue.
Maybank Kim Eng senior economist Chua Hak Bin told The Straits Times: "A GST hike in 2022, if the economy is on a firmer footing, may be inevitable to help replenish fiscal reserves."
But DBS Bank senior economist Irvin Seah is not so sure. "The GST hike is to ensure long-term fiscal sustainability. Get growth up, and the fiscal concern will resolve by itself," he said.
It is difficult at this stage to predict the exact tax revenue shortfall, given the uncertainty over how long the circuit breaker will last and when travel restrictions will be lifted, said KPMG's deputy head of tax Ajay Kumar Sanganeria.
He added: "With Singapore's dependence on the global economy, the extent of the decline (in revenue) will depend very much not just on Singapore's recovery, but improvements in the global situation."
KPMG tax partner Harvey Koenig thinks revenue from indirect taxes such as GST will also be affected, given the lower level of spending and consumption: "The steep fall in visitor arrivals has had a tremendous impact on tourism and meetings, incentives, conventions and exhibitions (Mice), all of which reduce the collections from GST."
Other sources such as Electronic Road Pricing (ERP) charges - which have been suspended at all gantries since April 6 - will take a hit too.
"If the situation persists, revenue sources such as certificates of entitlement, ERP and stamp duties are likely to be negatively impacted as well, with reduced economic activity and continued low volume of property transactions," said Mr Koenig.