This article was written in collaboration with the Ministry of Finance. All views expressed in the article are the independent opinion of DollarsAndSense.sg
“In this world, nothing can be said to be certain, except for death and taxes”
This famous quote attributed to Benjamin Franklin focuses on two permanent aspects of life that most of us shun. Death is well understood. Taxes, however, is sometimes misunderstood.
What Are Taxes?
Taxes refers to the revenue collected by the government on behalf of the country. Put simply, if a country does not collect taxes, it would not be able to pay for public services, spend on securing and improving the country’s future or even afford its government.
Why Taxes Are Important
When you look at a country’s expenditure, the extensive list of items on it that requires public spending can quickly leave you confused. At the risk of oversimplifying a country’s national budget, we will broadly classify public spending into six key areas.
(1) Infrastructure: These include roads and buildings and facilities.
(2) Defense: These include military, police and civil defense assets.
(3) Education: These include schools and tertiary learning institutions, as well as any education-related subsidies.
(4) Healthcare: These include hospitals, healthcare facilities and any healthcare-related subsidies.
(5) Welfare Benefits: These include government transfers, unemployment benefits and training provisions (e.g. SkillsFuture)
(6) Public Service Workers: Of course, we need a capable public service workforce to help manage these and keep the country going.
There are also other areas of spending beyond what we have highlighted. However, the list above should give you a quick snapshot on the importance of taxes, for without it, all these public services will not be available.
How Are Taxes Collected?
Using information provided by IRAS tax collection in Singapore for FY2016/2017, we are able to understand the different types of taxes collected that forms the revenue for the country.
# 1 Corporate Income Tax – $13.6 billion (29%)
Unless you are a business owner, most of us wouldn’t care too much about corporate income tax since we are not the ones paying it. However, corporate income tax is actually the biggest contributor of tax revenue collected in Singapore, amounting to 29% of all tax collected.
From this, it’s easy to see why companies, both local and foreign, are critical for the continuous success of Singapore. These companies, be it SMEs or MNCs, not only ensure that Singaporeans remain gainfully employed, but that our country’s coffers remain healthy.
Here is a quick comparison of corporate income tax rates between Singapore and other developed countries around the world.
|Country||Corporate Income Tax (%)|
When a country wants to increase its revenue, it’s easy to suggest raising corporate income tax, since companies, unlike individuals, do not get to vote. However, we must be mindful that in the global economy that we live in today, many companies have the flexibility to relocate their business in any country of their choice.
Raising corporate income tax requires a fine balance between juggling how much revenue we can raise from companies without losing them altogether. Otherwise, both jobs and tax revenue could be lost.
# 2 Goods & Service Tax (GST) – $11.1 billion (24%)
Also known as Value-added tax (VAT), GST is a broad-based consumption tax levied on goods and services consumed within Singapore, as well as the import of goods into Singapore. For most items that we buy, GST is typically included in the quoted/advertised price.
Here is a comparison of GST/VAT tax with other popular travel destinations among Singaporeans.
# 3 Personal Income Tax – $10.5 billion (22%)
Similar to corporate income tax, personal income tax is levied on your earnings as an individual.
The table below is a non-exhaustive list of some taxable and non-taxable income that you may receive.
Unlike corporate income tax, personal income tax is taxed at a progressive level. For example, the first $20,000 of your chargeable income in Singapore is tax-free, with the next $10,000 taxed at 2%. This becomes progressively higher, up to 22% for chargeable income above $320,000, as of YA2017.
For example, a person who has a chargeable income of $30,000 will pay $200 in income tax. Another person who has a chargeable income of $500,000 will pay $84,150. In other words, the more you earn, the higher your income tax.
It may be of interest to note that in a country with a population of 5.6 million, about 1.7 million (or about 30% of the population) contribute to income tax.
Here’s a quick look at the personal income tax level across Asian countries. Do note that the figure shown represent the tax rate at the highest income bracket.
|Country||Corporate Income Tax (%)|
# 4 Property Tax – $4.4 billion (9%)
In Singapore, all properties, be it residential, industrial or commercial, are subject to property tax. For residential property, the tax rate differs, depending on whether it’s an owner-occupied or non-owner-occupied property.
With Singapore being a densely populated country with a big interest in property investments among its people, it’s of no surprise that property tax provides close to 10% of total revenue collected. You can find out the property tax rate on the IRAS website.
Taxes Collected Determines How Much Can Spend As A Country
When it comes to personal finance, we are always reminded that while our needs and wants are infinite, but our budget is not. The same can be said when it comes to budgeting on a national level. Like it or not, a country can only spend what it has.
The government will also need to decide on what it should spend its revenue on. As a country, we can choose to 1) spend more on people on its people today, 2) invest in its future generation by allocating more funds to education and training or 3) seek continuous improvements by investing in our country’s infrastructure.
A prudent country will take into consideration the importance of all of these key areas, and more, without neglecting one at the expense of another.