SINGAPORE - Workers' Party MP Jamus Lim (Sengkang GRC) has proposed imposing a wealth tax of 0.5 per cent to 2 per cent on the most wealthy here, saying that it could help diversify Singapore's revenue sources and also reduce income and wealth inequality.
While Singapore's overall tax system may be progressive - with the rich taxed much more than the poor - a quarter of the taxes imposed are regressive, noted the Essec Business School Associate Professor of Economics.
He cited the goods and services tax (GST), which he said affects lower-middle and middle-income families disproportionately, even after taking into account the current GST voucher scheme. The rich account for about 11 per cent of revenue from GST, he added.
Urging Parliament on Monday (Nov 1) not to be "content that the system happens to be progressive overall", he said introducing a wealth tax could help minimise the number of regressive components in the overall tax regime.
Prof Lim proposed a tax of 0.5 per cent on net wealth in excess of $10 million, rising to 1 per cent for wealth above $50 million and 2 per cent for wealth above $1 billion, during a motion titled "Taxation for a Dynamic and Fair 21st Century Economy".
He said this tax may be designated to a special purpose foundation mandated to spend a fixed amount of the endowment each year until it is depleted, with the money going towards uses that are consistent with national priorities.
Addressing the common objections to such taxes - such as that it entails a double taxation of income since capital holdings are saved income that has already incurred tax - Prof Lim suggested that taxes should be due since income is derived from such savings.
He said: "In such instances, taxes reflect a host of indirect benefits, such as a well-functioning legal system and financial infrastructure, or initial tax breaks that individuals and firms receive when they first invest.
"Since the risks of providing such benefits are borne by society, it is reasonable to recoup these, after gains are realised."
Prof Lim added that Singapore can restrict such taxation to only instances when net wealth gains are positive.
He also said that the returns on wealth in any given year would typically significantly exceed the tax rates he proposed, so the ultra-rich should generally not expect any decrease in the principal of their assets.
"Otherwise, they should get rid of their wealth manager," he quipped.
Also, events in the past year, such as the recent geopolitical developments in Hong Kong and the Covid-19 pandemic, have underscored that political stability and respect for property rights are far more important determinants for the wealthy when deciding where to site their mobile wealth.
Most importantly, introducing such wealth taxes could offer an additional potential benefit of bringing down the overall level of inequality in society, which is a "real and pressing issue", Prof Lim said.
He pointed to how Singapore's Gini coefficient - a measure of income inequality - prior to taxes and transfers compares favourably to many major developed economies, including those considered the most egalitarian such as Denmark, Sweden and Norway.
But the picture changes after redistribution is taken into account, taking Singapore closer to more unequal countries such as Britain and the United States, he said.
At the same time, despite the drop of close to 6 per cent of gross domestic product growth last year, household wealth increased, bringing the share of total wealth held by the top 1 per cent to around 34 per cent, and the number of high-net-worth individuals with at least $40 million in assets grew to 3,700.
"Now, taken together, these facts suggest that inequality is a real and pressing issue. And our nation's efforts at redistribution have been far more restrained than in other advanced economies, including that of our immediate neighbours. We can do more to address our inequality problem," he said.
"My heartfelt belief is that all of us, the ultra-wealthy included, want to live in a world where we can all contribute our fair share to make it a better place, both today and for our children. That is how I view wealth taxes."