Higher tax rates for top 5% of income-earners

Singapore

THE rich will have to pay more taxes under the redistributive Budget as Singapore continues to ensure a fair and equitable system of taxes and benefits.

The government will raise the marginal tax rates for the top 5 per cent of Singapore's income-earners though the impact is offset somewhat by the increase in CPF salary ceiling.

The top marginal rate will rise by two percentage points, from 20 per cent to 22 per cent for the highest income earners, with a chargeable income above S$320,000, said Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam on Monday.

There will also be smaller adjustments made to raise income tax for the others in the top 5 per cent bracket. These changes will apply starting with income earned in 2016 and on taxes to be paid in 2017. The move is expected to raise additional revenue of S$400 million a year when it comes into effect.

"This tax increase for high-income earners will enhance progressivity and strengthen future revenues. This is a calibrated move. We have assessed that it should not significantly dent Singapore's competitiveness," said Mr Tharman.

Tax rates are not the only way Singapore stays competitive, he said, noting that the country's other key strengths include a culturally diverse and cohesive society, a family friendly environment, clean air especially compared to other Asian cities, and a world-class healthcare system.

Singapore's tax philosophy is to keep the tax burden on the middle-income low, so that they get to keep what they earn, as much as possible.

"In several advanced countries, taxes on the middle-income are much higher than in Singapore, in order to fund higher social benefits: not just for the lower-income but often for everyone else including the upper-middle income and the rich.

"Our philosophy is to keep the burden on the middle-income low, and target benefits at the most important needs of the poor and middle-income groups. Taken overall, this is a better deal for middle-income households," said Mr Tharman.

"We have designed our system such that we have lower overall taxes than most countries, but nevertheless maintain a highly progressive regime," he said.

"The higher-income group makes a significant net contribution into the system, which enables the lower-income group in turn to get significantly more benefits than the taxes they pay."

In other words, when all the taxes - GST, income, property and other taxes - are added up and compared to benefits received, the low income group gets more benefits than the taxes they pay, while the high income tax pays more taxes than benefits received, he said.

Still, the higher income tax rate is far from punitive. And when the increase in CPF salary ceiling from the S$5,000 to S$6,000 is factored in, the net effect is an increase in total income for someone earning S$250,000.

According to Wu Soo Mee, EY tax partner, human capital, advisory services, for someone earning S$250,000 there is an increase of tax of S$145 under the new tax rate table, after reliefs. "The increase in tax would have been higher had it not been for the higher CPF relief due to the increase in CPF contributions (arising from the increase in CPF salary ceiling)," said Ms Wu.

As the annual employer's CPF contribution is S$2,040 higher, overall the employee has an increase of total income (net of tax salary plus employer's CPF) of S$1,895, she said.

Ms Wu calculated that the increase in CPF contributions is neutralised when income rises to S$400,000.

"The level of income at which the increase in employer's contributions will be wiped out by the increase in tax liability is S$403,136," she said.

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