Singapore’s corporate tax takings in first 9 months of FY23 almost at full-year estimate

IN THE first nine months of the fiscal year, Singapore’s corporate income tax receipts have almost reached the full-year estimate, with overall operating revenue also ahead of the pace, data from the Accountant-General’s Department indicated.

Personal income tax receipts, the next-largest components of operating revenue, have reached about 80 per cent of the full-year target, but goods and services tax (GST) takings are falling short.

“Operating revenue collection has been robust, even considering the uncertain economic environment,” said DBS economist Chua Han Teng in a Wednesday (Jan 31) note.

For April through December 2023, total operating revenue was S$77.3 billion, close to 80 per cent of the full-year projection of S$96.7 billion. This has also exceeded the S$66.8 billion takings in the first nine months of FY22.

Maybank analysts Chua Hak Bin and Brian Lee noted in a Thursday report that the increase in operating revenue has far outstripped nominal gross domestic product (GDP) growth.

They said: “Pockets of strength may have helped support tax revenues, such as in hospitality, construction and banks.”

High income tax takings

Corporate income tax revenue reached S$23.9 billion for the nine-month period, close to the full-year estimate of S$24.3 billion.

This was higher than the year-ago period’s S$18.9 billion, and the FY22 revised full-year figure of S$22.7 billion.

OCBC chief economist Selena Ling noted that recession fears in early 2023 did not materialise, with Singapore achieving slightly better-than-expected GDP growth of 1.2 per cent, based on advance estimates.

DBS’ Chua said: “Corporate and personal income tax revenues have been supported by resilient nominal corporate earnings and wage growth.”

Personal income tax receipts in the first three quarters amounted to S$13.5 billion, more than on track for the expected S$16.8 billion full-year total. This was also higher than the year-ago period’s S$12 billion.

UOB senior economist Alvin Liew and associate economist Jester Koh highlighted that both corporate and income tax takings currently exceed historical collections.

At 98.4 per cent of full-year projections, corporate income tax receipts for the first nine months are “significantly higher than the historical (FY16 to FY18 and FY21 to FY22) share of 82.6 per cent, implying a high possibility of overshooting”, they said. The pandemic years of FY19 and FY20 were omitted because they may be unrepresentative.

Personal income tax takings, at 80.3 per cent of estimates, were “a tad above” the 78.1 per cent historical level.

Poorer GST performance

Yet GST takings have not matched this pace, despite the one-percentage-point hike in January 2023. Receipts for April to December were S$11.9 billion, just 68.6 per cent of the full-year S$17.4 billion estimate.

This is also “markedly below” the historical 74.7 per cent level reached in the first nine months, said the UOB team.

“Some retailers may have decided to absorb the GST increase and kept prices unchanged in order to maintain competitiveness and customer goodwill, thus resulting in a lower GST payable.” They added that this corroborates the weaker-than-expected pass-through from GST to core inflation in 2023.

Still, revenue from GST was up 13.7 per cent from S$10.5 billion in the year-ago period, which economists attributed to the January hike.

Calling December’s GST takings “disappointing”, OCBC’s Ling suggested that Singaporeans may have been travelling over the school holidays.

On whether receipts will eventually reach estimates, she said this depends on whether consumers front-loaded spending before January’s GST hike, and how much they spend this Chinese New Year. GST collections can be quite high in February – S$2 billion to S$3 billion – possibly due to the festive season, she added.

A small surplus?

Considering the strong revenues, some economists expect a small overall surplus for FY23, instead of the budgeted S$0.4 billion deficit, or minus 0.1 per cent of GDP.

This is even as expenditure may be slightly higher than expected, particularly due to cost-of-living support announced late in 2023.

UOB expects 2023 full-year operating revenue to be about S$5 billion higher than government projections. Both UOB and DBS expect a surplus of about 0.2 per cent of GDP, at S$1.5 billion and S$1.6 billion, respectively. Maybank sees a likely surplus of 0.5 per cent of GDP.

Noting trends such as labour market tightness and sustained private consumption, Ling said that barring “a big unwind” of these in the final quarter, she expects a balanced Budget or a modest surplus for FY23.

Expectations were more mixed for the new fiscal year, which starts Apr 1.

UOB’s team expects a small surplus of 0.4 per cent of GDP, balancing continued recovery against still-elevated inflation.

Maybank’s economists expect more spending on social programmes, as well as measures to defray costs and improve business competitiveness. But as revenues should remain robust – given the expected recovery and tax hikes – they see a small deficit of 0.5 per cent of GDP.

OCBC’s Ling added: “The timing of the next general election may also be a consideration.”

Singapore’s next general election is due by November 2025. Whether Budget 2024 is the last one of this government’s term may affect whether it posts a surplus or deficit, as the Constitution requires a balanced Budget over the full electoral term.

By Maybank’s estimates, the cumulative net fiscal position for the first four years of this term is a S$5.6 billion deficit, after offsetting the pandemic-era drawdown on reserves.

But this includes S$40.4 billion of top-ups to endowments and trust funds – monies set aside that may not be fully spent during the current term, they noted. “The government may thus have leeway to run a modest FY24 deficit, while still maintaining a balanced Budget over the electoral term.”