How should Singapore raise more money without tax hike?

Learn many ways by which Singaporeans can be spared from paying more taxes.

Defence Minister Ng Eng Hen in a forum recently pointed the need for higher taxes to sustain increased social spending. He argued that Singapore’s ageing population necessitates higher social spending and thus a need for tax hike. This was also mentioned by Prime Minister Lee during the National Day Rally.

Experts interviewed by Singapore Business Review however pointed out that while it is indeed critical for government now to generate more revenues, especially that fertility rate of Singapore is now at its historical low, there are various means by which they can do so without raising tax rates.

Here are their views:

LEE Yoong Yoong,Research Associate, Institute of Policy Studies, Lee Kuan Yew School of Public Policy, National University of Singapore

I think the minister has pointed out a valid concern. He shared comprehensively on the need for the raise. Indeed, I believe that for a country with a population of only 5 million people, in which there are more than 3.5 million locals, coupled with the fact that Singapore is an aging society, it is only natural for the government to consider a stronger social security net. This is especially so when the total fertility rate (TFR) is an all-time low. With this as a backdrop, the increase in social spending looks inevitable, and the government has to find ways to support the growing needs. This was also mentioned by Prime Minister Lee during the National Day Rally, that money has to come from somewhere else.

Compared to the other advanced/developed economies, Singapore’s personal tax rates is actually one of the lowest. Are Singaporeans generally alright if the personal tax rate is to be adjusted upwards, but for a common societal goal i.e. to take care of the marginalized and needy in the society? I personally don’t foresee an immediate tax rate increase but one which might happen within the next generation (20-25 years).

I do however believe that there is a better way to address this issue. The government could continue to improvise the Goods and Services Tax (GST). Currently, GST rate is about 7%. The idea behind GST is that ‘The more you spend, the more you pay to GST. The basic assumption has always been the richer you are, the more likely that you will do more purchases. The rich ones have more disposable income. This is a better mean to collect money as it allows wealth redistribution. If need be, the government could probably consider raising the GST rate to up to 10% within a reasonable amount of time.

Tay Hong Beng, Head of Tax, KPMG in Singapore

Keeping corporate and income tax rates low is important to help Singapore remain competitive and relevant to an ever challenging global economy, encourage investment and generate jobs. Tax revenues generated from better economic performance of our country can then be used in a more targeted manner to help mid and lower income households which are affected by the forces of economic globalisation, which Singapore as an open economy may not have the ability in itself to prevent.

One way of looking at increasing tax revenue is to increase tax rates. However, we must not forget that tax revenue is a function of both income and tax rates. We can look at how we can prime the economy and strengthen the commercial relevance of Singapore in the regional economy. If we are able to grow the base of profit and income to be taxed, this will result in higher tax collections without tax rates being raised. In turn, these additional tax revenues can be used to fund future social spending.

Beyond generating revenue, taxes are used to encourage or discourage social behaviour. Tax revenues can thus be generated from more specific targeted objectives. One example would be the Additional Buyer's Stamp Duty (ABSD) of 3 percent and 10 percent for different group of buyers to moderate investment demand for private residential property and promote a more stable and sustainable market.

Edmund Leow, Managing Principal of Baker & McKenzie.Wong & Leow in Singapore and a Principal in ax practice.

It is clearly important for the government to maintain a healthy budget position. Fortunately, we have a government which has taken a prudent long term view, and Singapore is therefore in a very healthy budget position at a time when many other countries are having budget difficulties. If there is going to be increased social spending, this needs to be financed somehow. Revenue for such spending can be raised in many ways, and there are many other types of taxes, apart from income tax, which can be considered. What taxes to raise, and how much, is a decision for a future government when the time comes, but it will always need to bear in mind that Singapore’s success over the past few decades has been driven to some extent by our business friendly tax system and competitive tax rates. So the government will need to set rates that remain competitive, and can continue to attract the investment that can create the economic growth which we need.