Moves to boost revenues, make tax system fairer

Singapore unveiled yesterday a slew of progressive tax measures aimed at not only generating revenues to fund major programmes needed over the next few years, but also at addressing social inequalities.

The much anticipated hike in the goods and services tax (GST) to fund the recurring social and healthcare needs of a rapidly ageing population will be implemented, although the timing was pushed to next year in response to concerns over rising prices.

The increase will be staggered over two steps - with GST rising from 7 per cent to 8 per cent on Jan 1 next year, and then to 9 per cent from Jan 1, 2024. The impact of the hike will be cushioned, especially for low-income households, through a $6.6 billion relief package.

In his first Budget since assuming the portfolio in May last year, Finance Minister Lawrence Wong also outlined increases in personal income, property, vehicle, and carbon taxes as part of an expansionary $109 billion Budget, including special transfers.

"Those who earn more, contribute more," he said.

He also announced a $6 billion draw on the reserves as part of Singapore's continuing fight against Covid-19 and over $1 billion in support for businesses, households and people hard-hit by the pandemic.

Mr Wong also tightened workforce policies, to ensure foreign hires of the "right calibre", by raising the minimum qualifying salaries of employment pass holders.

This year's Budget will run up an expected overall deficit of $3 billion, amid a tone of cautious optimism sounded by Mr Wong as Singapore enters a period of transition and recovery after two years of grappling with the pandemic.

"The global economy is still vulnerable to pandemic-related risks, and further supply-chain disruptions. Geopolitical and security risks loom," he warned at the start of his two-hour-long speech.

"We may also see a slowdown in external demand as the major economies scale back their pandemic support, and central banks tighten their accommodative monetary policies to deal with the threat of inflation."

But barring fresh disruptions, Mr Wong said he expects the Singapore economy to continue to grow by 3 per cent to 5 per cent this year.

Looking ahead, with government expenditures projected to increase significantly in the coming years - especially in healthcare - enhancements to Singapore's tax system would be needed to raise additional revenue, he added.

"That means everyone chips in and contributes to a vibrant economy and strengthened social compact, but those with greater means contribute a larger share," said Mr Wong.

To that end, personal income tax will be increased from 2024. The portion of chargeable income in excess of $500,000 up to $1 million will be taxed at 23 per cent, up from 22 per cent currently. Chargeable income in excess of $1 million will be taxed at 24 per cent.

Property tax rates will also be increased, with more significant hikes for high-end properties.

For non-owner-occupied residential properties, including investment properties, tax rates will go up from the current 10 per cent to 20 per cent range, to 12 per cent to 36 per cent.

For owner-occupied ones, the tax rates for the portion of annual value in excess of $30,000 will be increased from the present 4 per cent to 16 per cent, to 6 per cent to 32 per cent.

Luxury cars will be taxed at a higher rate, with a new additional registration fee tier for cars at a rate of 220 per cent for the portion of open market value in excess of $80,000.

The GST hike, pushed back to next year and staggered over two steps, will be heavily cushioned.

A previously announced $6 billion package to help soften the blow of the GST hike will be topped up with $640 million.

The permanent GST Voucher scheme - now comprising cash, utilities and medical rebates - has also been enhanced, with service and conservancy charges (S&CC) rebates becoming an additional permanent component.

Mr Wong also disclosed that the projected $6 billion draw on the reserves "to maintain a multi-layered public health defence" against Covid-19 has received in-principle support from President Halimah Yacob.

This will be the third year in a row that the reserves are being tapped, bringing the total expected drawdown for the three financial years of 2020 to 2022 to $42.9 billion - less than the initial sum of $52 billion the Government earmarked in 2020.

Environmental sustainability was also on the Budget agenda, with Mr Wong revealing that Singapore will now target net-zero emissions by or around 2050.

Its previous aim was to halve emissions by then, with a view to achieving net-zero "as soon as viable in the second half of the century".

To match these new ambitions, taxes on carbon emissions will be raised from the current $5 per tonne to $25 in 2024 and 2025 and $45 in 2026 and 2027, with a view to reaching $50 to $80 by 2030.

Prime Minister Lee Hsien Loong said in a Facebook post that this Budget would lay the basis for "sound and sustainable government finances, post-pandemic and beyond".

"We are building a greener and more sustainable city, transforming our economy to create good jobs for Singaporeans, expanding our healthcare system for an ageing society, and strengthening social programmes so that no one is left behind," he added.

Concluding his speech, Mr Wong said this Budget is a first step in "realising our vision of a fairer, more sustainable, and more inclusive society. We will chart a new way forward together. We will see through the pandemic today, and build a better Singapore tomorrow."