Do Rich People Actually Save Money Donating To Charities In Singapore?

Mark Zuckerberg announced last week that he would be committing 99% of his Facebook shares (approximate value of about US$45 billion based on current share price) to charitable causes to help build a better tomorrow. This philanthropic act quickly turned negative, as critics started pointing out the tax evasion intention behind such as a move.

It got us thinking about the act of donating to charities in Singapore. We sometimes hear people saying that the rich donate to charities because of the tax savings it gives them. But is there really any truth in such a statement? What do rich people really gain from donating to charities?

How Much Income Tax Do The Rich Pay?

1. Rich Person Who Earns $100,000 Per Annum

A person who earns $100,000 per annum will pay about $5,650 in income tax each year (assuming no other personal relief). If the person gives 10% of his income ($10,000) to charities, the person would get a 250% tax deductible ($25,000). Do note the entity donated to has to be a registered tax-deductible charity.

This would reduce his chargeable income to $75,000. With that, the person would pay an income tax of $3,000. This represents a reduction of $2,650 in income tax due to a donation of $10,000.

2. Super Rich Person Who Earns $1,000,000

A person who earns $1,000,000 will pay $178,350 per annum in income tax (assuming no other personal relief). Once again, the person gives 10% of his income ($100,000) to charities that are tax-deductible.

This would reduce his chargeable income to $750,000. The person would now be paying $128,350. This represents a hefty reduction of $50,000 in income tax.

Who Is Likely to Donate More?

Let’s compare the two. In the instance of the rich person, he saves $2,650 in income tax for every $10,000 he donates. For the super rich person, he saves $50,000 in income tax for every $100,000 he donates.

Here is what we can see. As a person becomes richer and their income tax becomes higher, the more incentive they have to donate to charity. A super rich donor who donates a $100,000 to a charity gets a saving of $50,000 in income tax.

A person who earns $30,000 a year and gives 10% ($3,000) will see his tax bill reduce by $150, or about 10 times lesser than what the super rich man would have received for giving the same amount.

So yes, the rich have more incentive to donate compared to the rest of us.

Even As They Donate, The Rich Still Gives More

Of course, giving $100,000 and getting back $50,000 doesn’t quite translate into actual savings. In other words, claiming that the super rich donate simply for tax-saving reasons is incorrect. No matter what, a person who donates will spend more than what they get back in tax savings. So set your skepticism aside

In our opinion, this is a deliberate move from the Government to encourage the super rich to give generously, and to provide an additional level of financial support to charities.

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