New personal relief cap makes tax system more progressive

A FRIEND recently lamented that she will be slapped with an "extra" income tax bill of about S$20,000 next year when the government imposes a new cap of S$80,000 on total personal income tax reliefs that a person can claim starting from the Year of Assessment 2018.

All things being equal, her tax bill is expected to jump to about S$25,000 in YA2018 from less than S$4,000 this year. With the cap and higher tax expense, she said she may stop making voluntary contributions to her Central Provident Fund (CPF) and Supplementary Retirement Scheme (SRS) accounts to conserve cash. She will also have less incentive to make cash top-ups to her own and her parent's CPF accounts under the CPF Retirement Sum Topping-Up Scheme as she will no longer enjoy relief on the top-ups. She is a self-employed person and a main breadwinner of three young children earning about S$300,000 a year.

I quipped that she is lucky to be among the privileged few who earn a high enough income to be affected by the S$80,000 cap. In fact, official figures show that 99 per cent of taxpayers are not affected by the cap and, among mothers claiming Working Mother's Child Relief (WMCR), only one in 10 will be affected by it.