Budget 2022: A politically-safe step in the right direction
Overall feeling suggests that the measures are not enough to be regarded as avant garde or radical.
THE main body of the 2022 Budget is much the same as in previous years: Steady as she goes, emphasis on upskilling, training, and opening our borders to provide fresh access to foreign talent, more inclusive green society, etc. No real evidence of a country emerging from an economic crisis.
The later parts however, provided some ripples of interest. The long-awaited Goods and Services Tax (GST) increase will now happen in 2 stages rather than the generally expected one-off on Jul 1, 2022. The first increase from 7 per cent to 8 per cent will take place on Jan 1, 2023 - which will coincide with the introduction of GST on low-value items and remote services - followed by another one-point hike to 9 per cent on Jan 1, 2024. Christmas 2022 promises to be a boon for tax consultants.
The rate of change takes into account the impact on consumers, certain industries - F&B and tourism in particular - and the inflationary impact. Businesses in general will either have to like it or lump it, as far as dealing with two sets of transitional measures is concerned.
The other expectation around taxes on wealth was half met. There will be increases in property tax for owner-occupied residential property with a step-up in January 2023 and another in January 2024. There will be a corresponding increase in property tax on non-owner occupied residential property.
What was missing from our expectation was a separate band for property owned by non-residents - our beef being that non-residents wishing to park their money in the relative security of Singapore's real estate sector should be asked to pay a premium for the pleasure, particularly if the property they have bought is being left empty and contributing nothing to the economy. Also notable was the body-swerve given to the introduction of a capital gains tax for residential investment property, a clear proxy for wealth.
Having said that, it was acknowledged by the Finance Minister that the introduction of any pure "means tested" wealth tax would be impracticable, and so attention was directed towards another low hanging fruit - the luxury motor car. An extra Additional Registration Fee tier for cars with an Open Market Value in excess of S$80,000 will be imposed at a rate of 220 per cent for the portion over S$80,000.
The other change announced was to the rate of personal income tax. A new rate of 23 per cent will be introduced for income between S$500,000 and S$1 million and of 24 per cent for income in excess of that. This will kick in for income earned from Jan 1, 2023.
The overall feeling though was that the measures suggested were a politically safe step in the right direction, but not enough to be regarded as avant garde or radical.
Other areas of interest were what the minister said - or didn't say - around the pressure being put on the government to conform with certain OECD initiatives aimed at allocating tax revenues, or a portion of them, to countries where a business's customers are, rather than traditionally, until now, where the business is operated from and imposing a global minimum tax.
While the impact of these initiatives may be regarded as having low impact currently because of the high value of the qualifying conditions, there is no doubt that Singapore is getting itself ready for the day they may become the norm.
The general concern is around whether the global minimum tax will cause Singapore to have to dismantle its hitherto highly effective tax incentive regime. There is no point in foregoing tax just to hand it to another jurisdiction. The follow-on question being how that will affect its competitiveness as a destination for foreign direct investment dollars.
But probably the most alarming thought that the minister's comments brought to mind - although he largely kicked the can of details down the road - was whether the global minimum tax could end up turning Singapore's territorial basis of tax on its head.
Without going into detail for the layman, that, in our view, would be more of a concern to our competitive advantage. It would also open a whole can of worms of regulation, re-computation and administration that we thought we had grown out of. Let us hope the minister stands by his commitment to get the Iras to "study this further and consult the industry on the design of the Minimum Effective Tax Rate".
- The writer is Head of Tax and Singapore Practice Leader at Grant Thornton Singapore
