Wealth tax 'has merit but may hurt hub status'

Analysts say a wealth tax could take many forms, ranging from further imposts on property to a capital gains tax or even the re-introduction of estate tax.
Analysts say a wealth tax could take many forms, ranging from further imposts on property to a capital gains tax or even the re-introduction of estate tax.ST FILE PHOTO

It could reap huge sums but tarnish S'pore's allure as wealth management hub: Analysts

Taxing private wealth could help tackle inequality and reap huge sums for government coffers, but Singapore's reputation as a hub for managing funds held by the well-heeled may take a hit, say analysts.

They were reacting to off-the-cuff remarks by Finance Minister Heng Swee Keat on Thursday.

He said he had been asked earlier in the week why government revenue has to be raised through taxes when there were huge reserves that could be tapped.

Mr Heng joked: "I don't know if the person who asked the question was someone from the wealth management industry who thought that I was thinking of taxing wealth and trying to divert me from doing that. Unfortunately he had the opposite effect."

That casual remark suddenly opened up the possibility of such a wealth tax and left analysts surprised, to say the least. They say it is a tricky tightrope to navigate as levies could take many forms, ranging from further imposts on property to a capital gains tax or even the re-introduction of estate tax, which was abolished in 2008.

Credit Suisse economist Michael Wan welcomed the idea of a wealth tax, saying: "My view is that higher wealth taxes should definitely be one of the options on the table, besides the oft-mentioned GST."

NOT GOING OVERBOARD

We want to make sure we are actually posing a wealth tax, rather than a transaction tax. You don't want to over-penalise people.

MR VISHNU VARATHAN, Mizuho Bank economist.


HARD TO IMPLEMENT

The concept of 'those who have more, should pay more' is easy to understand but hard to execute

MS GOH SIOW HUI, tax services partner at Ernst & Young Solutions LLP.

But analysts say it must be weighed against potential negative impact on Singapore's status as a major wealth management and financial hub.

"The concept of 'those who have more, should pay more' is easy to understand but hard to execute," said Ms Goh Siow Hui, a tax services partner at Ernst & Young Solutions LLP. She noted that estate duty was abolished in 2008 as it did not achieve the objective of taxing the wealthy more.

Then Finance Minister Tharman Shanmugaratnam said the duty affected the "middle and upper-middle-income estates disproportionately compared to wealthier ones".

Mizuho Bank economist Vishnu Varathan noted that this was partly because the truly wealthy would be able to set up trust structures to avoid estate duty, a levy he believes could be worth revisiting.

"We are an ageing population. You see a lot more inheritance taking place as it's a function of our age profile," he noted.

"(And) the value of the estate being bequeathed will also go up dramatically given that property prices have shot up in the last 20 years."

This means that if estate duty is re-introduced, it could potentially contribute 1.5 to 2 per cent of government operating revenue annually, up from an annual average of about 0.6 per cent between 2003 and 2007, Mr Varathan added.

Credit Suisse's Mr Wan suggested that property tax rates could be raised and made "even more progressive" to further raise revenues.

But with property cooling measures in place since 2009, analysts are divided on the need for more taxes in this area.

"We want to make sure we are actually posing a wealth tax, rather than a transaction tax. You don't want to over-penalise people," added Mr Varathan.

Analysts also suggested a capital gains tax, which is applied in countries such as the United States and Australia.

This involves imposing a levy on profits from the sale of investments such as equities or bonds, but some see this as the least compelling option.

They fear it could affect Singapore's competitive edge as a private wealth management centre by creating frictional costs in transactions, and even dissuade mergers and acquisitions.

EY's Ms Goh said: "Any tax solely targeted at personal or private wealth could be counter-intuitive to the efforts the Government has put in place to develop Singapore into the premier hub for wealth management, attracting foreign investors to work and live."

A version of this article appeared in the print edition of The Straits Times on December 09, 2017, with the headline 'Wealth tax 'has merit but may hurt hub status''. Print Edition | Subscribe