No major tax changes but fiscal prudence reiterated

Singapore

SOME observers had hoped to see more tax reforms and benefits in this year's Budget, but were disappointed that these did not materialise.

However, others whom The Business Times (BT) spoke to, welcomed the more targeted plans shared by Deputy Prime Minister and Finance Minister Heng Swee Keat after last year's sizeable draw on the country's past reserves.

David Sandison, Grant Thornton Singapore's practice leader and head of tax, noted that there was little on taxes and public revenue preservation or recovery.

"We had hoped for some significant changes to the ability to set off tax losses but none eventuated, other than a continuation of the limited loss carry-back provisions that were marginally extended last year," he said.

Economist Walter Theseira, an associate professor at the Singapore University of Social Sciences, said he had seen an opportunity in this year's Budget to make the tax system more progressive - by increasing taxes on high-income individuals.

"In the midst of the Covid-19 pandemic, we are now globally recognised as one of the most desirable places to be, and will probably continue to have that effect for the next couple of years," said Prof Theseira.

"In other words, this is not a situation where people are going to say, a tax increase means I want to move to Hong Kong or Malaysia instead.

"We do have a certain group of potentially mobile, very high-income individuals in Singapore. Can we find ways of getting a bit more tax revenues out of them to pay for all of these services we are providing, to ensure everyone is safe during Covid-19?"

Christopher Gee, a senior research fellow at the Institute of Policy Studies, has some sympathy for this view.

"Wealth taxes are a philosophical and moral matter," he said. "At the end of the day, people who come here to Singapore and park their wealth here are benefitting from the safe, stable society that we have got."

He added: "To some extent, they shouldn't just free-load on the benign environment that Singapore has created, but they should also contribute, right? You kind of need to pay your dues. You cannot be a free-loader."

However, Mr Gee stressed that while wealth taxes are conceptually compelling, they are fraught with practical difficulties.

"It has been discussed around the world, so it's on the agenda," he said, "But wealth taxes are notoriously difficult to levy, because wealth is mobile, and the reality is that it's not so easy to implement."

Instead, he hopes to see the government issue more bonds to cover its development expenditure.

He noted that the government's plans to issue new bonds totalling up to S$90 billion under the proposed Significant Infrastructure Government Loan Act - as announced by Mr Heng on Tuesday - are limited to financing major and long-term infrastructure that are deemed crucial to Singapore's sustainability.

On top of this, Mr Gee sees room for more government borrowing to fund other long-term assets, such as schools, kindergartens and hospitals.

This, he said, could free up significant fiscal room without the government having to raise taxes.

Otherwise, Mr Gee fears Singapore may struggle to fund more expansive social safety nets, or solutions for an ageing society.

"The reality is that a two percentage point hike in the GST (goods and services tax) is not sufficient," he said.

In his Budget speech, Mr Heng said the government will stick to its plan to raise the GST from 7 per cent to 9 per cent between 2022 and 2025, and to do so "sooner, rather than later".

And from Jan 1, 2023, low-value goods bought online and imported by air or post will also be subject to GST. The current GST import relief threshold is S$400.

Meanwhile, although not all saw their wish-lists ticked at this Budget, for others it was a case of "less is more".

Soh Pui Ming, head of tax at Ernst & Young Solutions, recalled Mr Heng disclosing last August that the government's S$52 billion draw on past reserves was equivalent to over 20 years of past Budget surpluses.

"From my perspective as a Singaporean, I am actually worried about our fiscal position," she said. "It's about how to build up that nest egg again. So I'm glad that this year, the Budget is quite targeted."

KEY POINTS

• Singapore will draw a further S$1.7 billion from past reserves.
• Expected deficit of S$11 billion, or 2.2 per cent of GDP this year.
• GST to rise from 7 to 9 per cent between 2022-2025; increase to happen sooner rather than later.
• GST will be imposed on imported low-value goods from Jan 1, 2023.