TL;DR – What are Singapore’s main sources of revenue? Enlighten me as well, why are we raising GST and not other taxes?
Singapore’s total revenue is S$74.73 billion in FY2019. As with most governments, the bulk of our revenue comes from taxes – income, property, excise and customs duties, as well as goods and services tax. Licence fees, government property rental, fines make up part of the other income sources for the government.
A peek into our revenue and expenditure
If our revenue seems like a lot, wait till you see our expenditure… Total expenditure is expected to rise to S$106 billion in FY2020. President Halimah Yacob has recently given her in-principle support to draw up to $17 billion from the country’s past reserves for partial funding of the landmark Resilience Package unveiled on 27 March 2020.
In the days ahead, the ongoing Covid-19 crisis, the funds set aside to help enterprises and households in these unsettling times, higher amounts set aside for healthcare, national development and public transport will continue to put pressure on our expenditure. Did you know that even before the outbreak, Singapore’s budget spending has been higher than operating revenues since the 2015 financial year? Where will the $$$ come from?
A curious at where our moolah comes from
The data provided by IRAS tax collection for FY2018/2019 can help us understand the different types of taxes collected as revenue for Singapore.
As seen above, the 4 main sources of Singapore’s tax revenue are Corporate Income Tax (31%), Personal Income Tax (22%), Goods & Service Tax (GST) (21%), and Property Tax (9%).
4 main sources of Singapore’s tax revenue
Corporate Income Tax
The biggest contributor of tax revenue collected in Singapore is corporate income tax. This amounts to 31% of all tax revenue collected, a total of $16.1 billion. Given that this is our biggest source of income, one often hears calls to raise corporate income tax when it comes to raising revenue. Sounds good doesn’t it – tax the big companies?
At what cost though? With increased global mobility, mind you, many companies have the flexibility to relocate their business to other countries. Their packing up and leaving = loss of jobs for Singapore! Not something we cannot risk!
Personal Income Tax
Do you know that in Singapore with our population of 5.61 million, only about 30% of the population contribute to income tax?
Singapore’s progressive tax rates mean that the more you earn, the more you pay in personal income taxes. Singapore also boasts one of the world’s lowest tiered tax rates for a country with such a high standard of living. If that is the case, is raising personal income taxes something we can do to raise revenue for Singapore?
Well, the move needs to be well-thought out. Raising personal income tax might create a disincentive to work harder and earn more. Makes no economic sense?
Furthermore, it seems rather unfair for the burden of funding the nation’s expenditures to fall mainly on the top income earners. Food for thought!
Due to a lower number of property transactions, property tax collection for fiscal year 2018/2019 was S$4.6 billion, down from S$4.4 billion the year before.
Will raising property tax to increase our revenue be a possibility then? Well, definitely, but do you know that the Buyer’s Stamp Duty rate for residential properties in excess of $1 million in value was increased just 2 years ago? Then there is the Additional Buyer’s Stamp Duty (ABSD) that has caused quite an uproar for those affected. Is this the best way to pay for our expenditures in the next decade? In countries where property tax rates are rocket high, property investors might move to other places with lower tax rates. This can then lead to a downward spiral, negatively impacting property values for everyone.
Goods & Service Tax (GST)
Another source of tax revenue for Singapore is the GST – a broad-based tax on goods and services consumed within Singapore, as well as the import of goods into Singapore. The current GST rate is 7% and DPM Heng has announced that it will be increased to 9% sometime from 2022 – 2025. While this has been a sore point for many Singaporeans, there is good reason why the Government has chosen a GST hike this time round to raise revenue.
Government spending on healthcare and education form significant chunks of the annual Budget. Moving forward, expenditure on these areas will continue to rise rapidly. Just take the ongoing COVID-19 situation for example, the outbreak reinforced the importance of continued investment in our healthcare system that will boost our ability to deal with unexpected outbreaks.
The bulk of our expenditure over the next decade will be on healthcare, developing our infrastructure, national defence, education, and social transfer programmes among others. Ultimately, somebody has to pay for the rising expenditures. There needs to be a mindset shift – funding our national budget should be a shared responsibility.
Why GST then? The truth remains that there is a need to have recurrent revenue to meet Singapore’s growing recurrent spending. A broad-based tax like the GST is a responsible way to pay for critical societal needs like healthcare spending. It has enabled Singapore to sustain a lower income tax rate. Being a tax on consumption, and not income, GST also encourages savings.
Fine, but how much more do I have to pay?
Deputy Prime Minister and Minister for Finance Heng Swee Keat had announced that the GST hike to 9% will not take effect in 2021, but will still be raised by 2025. However, Singaporeans are assured that the right time for the increase will be assessed carefully. When GST is increased, a S$6 billion Assurance Package for Singaporeans will be introduced to cushion the impact of the hike.
While nobody likes tax… A quick calculation with average household spending figures from the latest SingStats’ Household Expenditure Survey reveals that the additional amount in GST paid works out to be less than $31 for most of us. Of course, these are based on average expenditure and household size figures. Not convinced? For a more accurate assessment, track your expenses and see how much more in GST you’ll be spending when the time comes for the hike! My personal favourite apps for expense tracking include Spendee and Wally!
GST paid is very much within your control, unlike income tax. The less you spend, the less you pay!