Tax tweak will do more good than harm

Indirect taxes including GST, motor and property taxes accounted for about 65 per cent of our total operating revenue and direct taxes comprising corporate and personal income tax accounted for only 35 per cent.
Indirect taxes including GST, motor and property taxes accounted for about 65 per cent of our total operating revenue and direct taxes comprising corporate and personal income tax accounted for only 35 per cent.PHOTO: ST FILE

I can't agree more that over-taxing the rich is a bad thing (Beware 'class warfare' approach to taxes, April 11).

However, it is possible to tax the rich a little more given the current low level of taxes in Singapore.

First, the absence of the capital gains tax and estate duty allows the rich to not only take all the gains from asset price inflation, but also pass on those assets to the next generation at no cost.

This is a big advantage for them because asset value appreciation is the biggest contributor to wealth accumulation.

Allowing inter-generational transfer at no cost exacerbates the social inequality problem.

Second, the taxes on income are also very advantageous.

There is no tax on interest income and dividend is taxed only once based on an individual's personal tax rate.

This is different from most other countries, where income interest is taxable and dividend is taxed twice, once at the company level and again at the personal level.

This tax regime, which is completely in favour of the rich, started in 1994 when the goods and services tax was introduced at 3 per cent and was gradually raised to 7 per cent by 2007.

Over the same period, the highest personal income tax rate was reduced from 33 per cent to 20 per cent, and corporate income tax from 30 per cent to 20 per cent.

The corporate income tax rate was then further reduced to 17 per cent in 2010, although the personal income tax rate was raised to 22 per cent in 2017.

As a result, in this year's Budget, indirect taxes including GST, motor and property taxes accounted for about 65 per cent of our total operating revenue and direct taxes comprising corporate and personal income tax accounted for only 35 per cent.

To address the sentiment towards our social inequality problem, perhaps we could consider reducing the indirect tax ratio slightly by increasing personal income tax rate gradually back to 30 per cent and scrapping any further increases in the GST from the current 7 per cent.

Leong Mun Wai

A version of this article appeared in the print edition of The Straits Times on April 17, 2019, with the headline 'Tax tweak will do more good than harm'. Print Edition | Subscribe