Blackbox Research surveyed 764 people on Singapore’s Budget 2022. The results showed that two in five respondents “highly favored” tax hikes for top income earners and higher duties for luxury cars.
The poll didn’t mention the type of home or personal income of the respondents. But those who “highly favored” raise in taxes are probably not targeted in the new round of wealth taxes. Because I have yet to know a Singaporean who highly favors higher taxes and loves to pay more to IRAS.
Don’t get me wrong. I fully embrace the idea of taxing the rich to support the poor. The grand motive simply unleashes my sense of righteous. After all, Robinhood who robs the rich to give to the poor is my childhood hero.
However, like a child who can’t stop asking why, I have four big question marks in mind.
Question #1: Taxing the rich can mitigate social inequality?
1. Social inequality in Singapore
The new tax measures are meant to generate revenues to fund initiatives over the next few years and to address social inequalities.
What is social inequality?
According to Wiki, social inequality occurs when resources in society are distributed unevenly. It implies the lack of equality of outcomes or access to opportunities. They can include employment, income, education, healthcare, and political representation and participation. Social inequality can be brought about by power, religion, kinship, prestige, race, ethnicity, gender, age, sexual orientation and social class.
How serious is social inequality in Singapore? As Singaporeans, do we have equal opportunities in education, employment, healthcare and rights, regardless of our race, gender, age, religion and sexual orientation?
2. The rich poorer and the poor richer = social equality?
When we have the rich to pay more in taxes, theoretically they will have higher expenses and lower net worth. The wealth gap between the rich and the poor will be narrowed. The society is now fairer. Those who think they are not rich feel better.
Now the rich are poorer. Will the poor be richer? Can the rich paying higher taxes solve the poor’s problems or alleviate their sufferings? Will they have more equal opportunities or higher chances in upward mobility in the society?
If the rich pay more taxes but the poor remain poor, do we manage to “build a fairer society where everyone can aspire to succeed regardless of their backgrounds”?
If the answers are “No”, how can we say taxing the rich can tackle the problem of social inequality?
3. Supporting the poor
The rich become rich for a reason. They know how to grow and protect their wealth. This is precisely the reason why they are rich in the first place. They can easily make up for the higher taxes and continue to grow their wealth. So we can assume that they don’t mind helping the poor.
Last February, Deputy Prime Minister Heng Swee Keat told the media that income inequality in Singapore fell to a historic low in 2020 due to “massive transfers and schemes tilted towards supporting lower income groups”.
Is taxing the rich to provide monetary support to lower-income residents the best way to help the latter?
We cannot help low-income families once and for all by giving them a one-time cash payout or subsidizing them to buy an HDB flat. We need to think long-term. For instance, we can show them how to manage their finances better or to upgrade their skills so that they can secure higher pay and more stable jobs. As the saying goes: Give a man a fish, and you feed him for a day. Teach a man to fish, and you feed him for a lifetime.
– Vina Ip, Behind The Scenes of The Property Market
Question #2: Are we really taxing the wealthiest?
1. Property taxes
Singapore is already taxing private home buyers with stamp duties, ABSD and property taxes. The amount of property taxes will increase if rents go up. Why do we still have to raise the property tax rate?
Raising property taxes won’t affect the well-to-do. But it will hurt owners who bought their investment properties at the peak of the property market. These landlords are already suffering from no or negative net return, Singapore’s loss of foreigners during Covid-19, a weak rental market in CCR, and the rise of interest rates. Do we still have to rub salt into their wound?
If we really want to tax the wealthiest, why are we not implementing capital gain tax? Those who make a tidy sum from flipping properties is tax-free. And we go tax landlords who are in troubles?
The same for those who make a profit after selling their first-hand BTO flats. Isn’t it more reasonable to ask them to pay capital gain tax? After all, their HDB subsidies are contributed by our taxpayers.
Besides, investors who made money from properties don’t mind sharing their profit with IRAS. Capital gain tax won’t dampen the property market. But ABSD and property taxes will. Because the former is paid upfront and the latter is an ongoing operating cost.
2. Top earners
If we only tax the top earners, are we already taxing the wealthiest?
Top earners are not necessarily the richest in the country. For instance, company bosses can receive a nominal pay or zero salary but have a high net worth.
On the other hand, investors don’t have to sell their time to work for somebody to make money. There are many professional traders and savvy investors of different asset classes who work for themselves. George Soros is arguably the most profitable trader in history who almost broke the Bank of England. Nonetheless, Soros paid zero federal income taxes between 2016 and 2018.
And what about those who won millions from cryptocurrency bets but pay no tax for their windfall?
What message is our new wealth taxes sending?
It doesn’t matter you make the most in Singapore in the fiscal year. As long as you are not an income earner, you rent and don’t buy or own private residential properties or luxury cars, you pay zero wealth tax.
Ideally, we would want to tax the net wealth of individuals. But such a tax is not easy to implement effectively. Estimating wealth accurately and fairly is a more complex exercise than estimating incomes. Further, many forms of wealth are mobile, and as long as there are differences in wealth taxes across jurisdictions, such wealth can and will move.
Countries like Germany, France, and Denmark have stopped levying taxes on individuals’ net wealth. The number of OECD countries that levy net wealth taxes has dropped from 12 in 1990 to only three in 2020. And this is partly because of the difficulties in effectively implementing net wealth taxes.
– Singapore Budget 2020 speech by Lawrence Wong, Minister for Finance
Question #3: Taxing the wealthiest can benefit Singapore?
1. Top earners pay highest taxes but receive least benefits
Why are more countries ditching than adopting wealth taxes? Why did 9 out of 12 OECD countries give up wealth taxes? Implementation difficulties and high administrative costs are only superficial explanations.
The question these countries are asking is: Do we really want to tax the rich?
We all know that the better-off pay a lot more taxes but get much less benefits from the government. The reverse is true. In fact, many low income-earners are not even paying personal income taxes but receive the most in rebates and reliefs. This is especially true when the economy in bad.
Once we upgrade to private homes, the sympathy, grants and subsidies we take for granted are gone. We can no longer depend on the government for upgrade, redevelopment or en bloc …
Unlike HDB flat owners, they don’t quality for service and conservancy charges rebate. They are ineligible for the Covid-19 Recovery Grant because they own more than one property. Many are living in a property with annual value over $21,000.
– “5 miseries that unfortunate owners are facing”, PropertySoul.com
The fact is: High-income earners and the rich pay more taxes than the average people. The country depends on their tax contributions to support expenditures in public housing, education and healthcare. The economy needs their spendings too. We want the rich to buy more, spend more, and consume more so the country can collect more taxes from them.
What happen if we ask them to pay higher car registration, property, sales and income taxes that escalate prices of what they want to own? Will they spend their money with second thoughts? Will they consider working somewhere?
2. What if the rich don’t buy any more
Let’s assume the HNWIs and top earners are of reasonably high intelligence. Just because they have money doesn’t mean that they are willing to pay more for the same thing. They know what value-for-money is and where to get the same thing at a better price. Mind you, many of them are CFOs, or banking, finance, accounting, audit and tax professionals. Very often, the rich are rich because they know how to make the most but pay the least, including taxes.
Our world has changed. Covid-19 makes companies realize that their employees can be located anywhere in the world. The talents can have a choice to work remotely in a country that is livable, affordable and tax-friendly.
The wealthy keep their wealth in Singapore because we are considered a tax haven. We have low income and corporate taxes, no wealth tax, no inheritance tax, and no capital gain tax (theoretically).
Expansions in family offices and private wealth management are only “feel good” article headlines in local papers. There is low loyalty in the business. The savvy knows where the hot money goes and where fellow HNWIs park their money. In the digital age, the rich can transfer their money out of a country within minutes.
Question #4: Is this the right time to introduce wealth taxes?
I must have been brainwashed by those Bloomberg articles reposted in The Straits Times that have a thing about comparing Singapore to Hong Kong. Never mind the fact that most of the time they are comparing apples to oranges.
By the way, on Wednesday (Feb 23) the Hong Kong 2022-23 budget introduced a list of measures to relieve people’s hardships in a pandemic. These concessions are applicable to all regardless of their wealth:
• Distribute HK$10,000 (S$1,730) electronic consumption vouchers to all PRs and new immigrants aged 18 or above from this April
• Reduce 2021/22 personal income tax by 100 percent up to $10,000
• Provide residential property tax concessions in 2022/23 up to $1,500 for first two quarters and $1,000 for remaining two quarters
• Allow 100 percent tax deduction for private property rental expenses in 2022/23
• Grant every eligible residential electricity account a subsidy of $1,000
• Offer public transport subsidies from May to October
Recently, Bloomberg reported that key executives from JPMorgan, Bank of America and Mandarin Oriental are planning to relocate from Hong Kong to Singapore due to the SAR’s zero case policy. Anyway, the new Hong Kong budget concessions may sound trivial to these top earners. We are more than happy to welcome them to Singapore. Hopefully,, they will stay or work here for at least 183 days in a year to be eligible for income tax assessment and pay 23 to 24 percent as top earners. And our agents can’t wait to sell them luxury cars, high end condos and Good Class Bungalows.
Food for thought
I am not an economist or sociologist. The four big questions above are trying to find out whether wealth taxes will be beneficial to Singapore in the next few years and in the long term.
Despite the uncertainties, we can’t deny the “feel good” factor of their announcement of wealth taxes in Budget 2022.
For a long time, our media crave for stories about the super-rich snapping up Good Class Bungalows or the most luxurious properties in Singapore. For some reason there is no anonymity in their purchase. True or not, it is not in their best interests to come out to clarify or defend themselves.
Never mind the fact that they are only a handful in a population of 5.7 million. But few readers can truly be happy for the newly wealthy or the suddenly rich. Many feel uncomfortable, or even bitter, especially when comparing with their own hand-to-mouth situation in a pandemic.
Now the government is taxing the rich. Serve them right!
And we are secretly happy that we are not the target of wealth taxes. As the Japanese saying goes, others’ misfortunes are as sweet as honey.
If you need advice on property matters or residential properties in Singapore, you can check out my personal consultation service.
My new book Behind The Scenes of The Property Market is now available for preview and order online. You can also check out my online courses.
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