On 23 September 2015, the Inland Revenue Authority of Singapore (IRAS) released news on their record high tax collections. What was interesting was individual tax collections increased by a significant 16%.
We wonder how can IRAS achieve a record high tax collection despite Singapore being one of the lowest taxation systems globally. Are they really making us pay too much in taxes?
A straight answer is probably not. Hence, you might be wondering how they grew the individual tax collection by a staggering 16%?
Increase in labour force
IRAS collected a total of $8.9 billion in terms of individual income tax from all taxable individuals in its 14/15 fiscal year. This is a large increase from its 13/14 fiscal year that amounted to $7.7 billion.
Exhibit 1: Rising Labour Force Resulted In High Taxes Collected
Note: LHS – Left hand side, RHS – Right hand side
Source: Accountant General’s Department and Ministry of Manpower
Total labour force in Singapore at FY2014 was 3.5 million, an increase of 820,500 people since 2007. The average taxes paid by individuals are at $2,528 per annum.
Fret not, this amount is just an average, and a median wageworker is not paying such high taxes. This average taxes are at >$2,500 because the rich are paying way more than the average joe.
With a larger labour force, this would mean that there are more people paying taxes. However, are we earning more as a nation to be paying these taxes?
Increased in taxable income as a whole
To know how much you might be taxed, you have to know what is your assessable income first. The total assessable income provides us a good indicator whether everyone in Singapore made more income as a whole.
Exhibit 2: Increases Total Assessable Income For Singapore
Source: Accountant General’s Department and IRAS
The total assessable income of the taxable group in 2014 was $137.6 billion. This amount has almost doubled since 2007.
The average individual tax would be about 6.5% ($8.9b/$137.6b) of your total assessable income. That does not sound too bad, taking account that we have a strong-armed force, uncorrupted police, great transportation, affordable education, high-paid quality ministers and many other things that we can be proud of.
In totality, everyone in Singapore supposedly should be making more money from the total increase in assessable income. However, some of us might be thinking that the total assessable income for Singaporeans (citizens & PRs) is not increasing.
Increased in income for Singaporeans across all income groups
Everyone in Singapore has had his or her real wages (after taking income account inflation) increased over the passed few years.
Read also: Less Than 1% Real Growth In Wages For The Bottom 10 Percentile
Exhibit 3: Increasing Median Wage For Singaporeans 
Sources: Accountant General’s Department and Ministry of Manpower
The median wage for Singaporeans, inclusive of employer CPF contributions, is $3,770 per month. Therefore, gross wage is $3,222, and take home pay is $2,578 per month.
As Singaporeans’ median wage increased by 48% to $3,770 in 2014, from $2,543 in 2007, this gives us the ability to pay more taxes.
Just how much tax do I need to pay next year?
As mentioned above, the median gross wage is $3,222. Therefore, total gross annual wage is $38,666 ($3,222 x 12). After subtracting CPF (CPF income is non-taxable) of $7733, total taxable income is $30,933.
Exhibit 4: Low Tax Rates For The Lower Income Bracket
Source: IRAS
Total taxes payable amount is $233. Furthermore, for 2015, we are all getting 50% tax reduction (max of $1,000) to celebrate SG50, resulting in tax payable of $116.50
The tax of $116.50 is not accounting that you might be able to further reduce taxes by reporting obligations such as having children, looking after aged parents, serving the military service, buying insurance, etc. The person earning median wage might not even need to pay taxes after reporting all of his/her obligations.
With taxes at $116.50, it amounts to 0.3% (116.50/38,666) of the total gross income. This also meant that GST is more expensive than our income tax.
Therefore, we are definitely not paying too much in taxes.
Read also: Will GST In Singapore Be Raised To 10%?
Listen to our podcast, where we have in-depth discussions on finance topics that matter to you.
