The writing is on the wall. To live a comfortable and wealthy lifestyle in Singapore, you will have to be able to afford it.
Singapore is recognised as a country of wealth. According to investment migration consultancy Henley & Partners, there are 249,800 millionaires on the little red dot in 2022. This makes it the fifth wealthiest city in the world.
The figure also includes 336 centi-millionaires (those with a wealth of more than US$100 million) and 26 billionaires. Well known for its business-friendly policies and as one of the top destination for migrating millionaires, it was projected that the country will receive around 2,800 High Net Worth Individuals in 2022.
So, in line with the growing number of people who are getting affluent or are already rich and choose to reside in this tiny nation thanks to its low crime rates and positive business opportunities, the Budget 2023 announcements to tax the wealthy further was not a surprise.
In last year’s Budget 2022, there were already a couple of wealth taxes at play. The personal income tax for top income-earners rose, and property tax on non-owner-occupied residential property was raised to 12% – 36%, up from 10% – 20% previously. There was also higher property tax for owner-occupied residential homes on the portion of annual value in excess of S$30,000. Expensive cars also met with higher taxes, with an Additional Registration Fee (ARF) tier for cars at a rate of 220% for the portion of Open Market Value (OMV) in excess of S$80,000.
The adjustments this year were, in Deputy Prime Minister and Finance Minister Lawrence Wong’s words “further adjustments to our tax system”.
We will take a look at the tax changes and how it impacts those who fall within the spectrum.
Raising Property Taxes
During Budget 2023 it was announced that there will be higher marginal Buyer Stamp Duty rates for higher-value residential and non-residential properties.
For residential properties, the portion of the value of the property in excess of $1.5 million and up to $3 million will be taxed at 5%, while that in excess of $3 million will be taxed at 6%; up from the current rate of 4%.
The changes are expected to affect 15% of residential properties. Additional Conveyance Duties regime will also be adjusted.
For non-residential properties, the portion of the value of the property in excess of $1 million and up to $1.5 million will be taxed at 4%, while that in excess of $1.5 million will be taxed at 5%; up from the current rate of 3%. The changes are expected to affect 60% of non-residential properties.
When will this start: The changes to the Buyer’s Stamp Duty regime will apply to all properties acquired from 15 Feb 2023.
How much revenue will the changes generate: This is expected to generate an additional $500 million in revenue per year.
Raising Taxes On Luxury Cars
Luxury cars will also be taxed at a higher rate. The ARF rates will be adjusted to better differentiate higher-end cars.
Buyers of cars with OMV of more than $40,000 will pay higher marginal ARF rates. For the highest OMV tier, the revised ARF rates will be 320%, up from 220%.
Preferential ARF (PARF) rebates will also be capped at $60,000 to avoid providing excessive rebates to more expensive cars when they are deregistered.
What is OMV, ARF and PARF?
- OMV is essentially the value of the car before all relevant taxes and surcharges are applied in Singapore. OMV is assessed by the Singapore Customs, based on the price actually paid or payable for the goods when sold for export to the country of importation.
- The ARF is a tax imposed upon registration of a vehicle. It is calculated based on a percentage of the OMV of the vehicle.
- The ARF determines your PARF rebate which is a component of your de-registration value.
- At the end of 10 years you will get back the minimum PARF rebates, which is usually 50% of the ARF paid. The PARF rebate is computed based on the age of the car at de-registration.
These changes are expected to affect the top one-third of cars by OMV. Buyers of cars with an OMV of $40,000 or less will not be affected.
The moves come as part of a larger effort to implement what the authorities have called a “progressive vehicle tax system” in Singapore’s car market. Broadly aimed at tackling inequality, progressive tax systems set out to shift the incidence of taxes to those with a higher ability to pay.
For cars that do not need to bid for COEs (e.g. taxis, classic cars), the revised ARF structure will apply for those registered on or after 15 February 2023.
The new measures now include “mid-to-upper tier” luxury cars, whose OMVs fall within the $40,001 to $80,000 range.
To provide context, mass market models like a Toyota Corolla Altis Elegance have an OMV of $22,111, and a Honda CR-V 7-Seater have an OMV of $34,723.
Some branded cars can escape the changes and this includes the BMW 2 Series Gran Coupe with an OMV of $33,581.
But if you aim higher for a luxury car, a Mercedes E-Class Sedan (E200) will cost an OMV of around $55,000 and the ARF will rise by more than $6,000. BMW’s latest 7 Series with an OMV of $103,000 will see an ARF increase of more than $40,000.
|Car model||OMV||Will the car be affected by the new luxury car tax changes?|
|Toyota Corolla Altis Elegance||$22,111||NO|
|Honda CR-V 7-Seater||$34,723||NO|
|BMW 2 Series Gran Coupe||$33,581||NO|
|Mercedes E-Class Sedan (E200)||$55,000||YES|
|BMW 7 Series||$103,000||YES|
We can imagine that supercars will cost much, much, more with the new changes.
When will this start: The new ARF structure and the PARF cap will apply to all cars registered with COEs obtained from the next round of COE bidding.
How much revenue will the changes generate: The ARF change is expected to generate about $200 million in additional revenue per year.
The government will raise the excise duty on all tobacco products by 15% to discourage consumption.
This tax constitutes more as a “sin tax”, which are tax on goods and services deemed harmful to society. The benefits of raising the excise duty certainly outweigh the cons, since nearly three in four smokers come from lower-income communities, raising the prices of tobacco products may cause a smoker to cut down on the number of cigarettes per day to “save money”.
The drive to quit smoking could (hopefully) be triggered by the costlier puffs.
When will this start: With effect from 14 Feb 2023.
How much revenue will the changes generate: The increase is expected to generate about $100 million in additional revenue per year.
Why Is The Government Implementing More Taxes On The Wealthy
It is reasonable why the taxes are now directed at the rich, as finding ways to increase taxes on the masses are usually unpopular policies. There are also risks to raising taxes on corporate and personal income tax, given the uncertain economic climate.
There is even lesser room now to look at implementing taxes on the masses, as the Goods & Services Tax (GST) just got raised by 1% this year to 8%, with plans to increase by another 1% for next year to reach 9%.
Given the uncertain business outlook, it is also not wise to impose any form of increase on corporate taxes as businesses may feel the squeeze. There is also uncertainty on the impact of the implementation of the Pillar 2 of the Base Erosion and Profit Shifting (BEPS 2.0) initiative, aimed at fighting tax avoidance, from 2025.
As for income tax, any further upward revisions will hurt Singapore’s overall competitiveness. The government had also recently implemented an increase in personal income tax for top income earners.
How Much Of Tax Revenue Will The Government Get From This
Adding up the expected revenue generated from the latest increase in taxes for higher-value properties, luxury cars, and tobacco, the total amount is:
Total tax revenue expected from the changes (estimated)
|Higher marginal Buyer Stamp Duty rates for higher-value residential and non-residential properties||$500 million|
|The adjustment of Additional Registration Fee rates to better differentiate between the higher-end cars||$200 million|
|Raising the excise duty on all tobacco products by 15% to discourage consumption||$100 million|
These wealth and sin taxes will provide a much needed boost in tax revenue for the government to cope with increased expenditure. They are enhancements to the existing BSD and vehicle tax regimes and clearly, those who have more, have to contribute more.
We can continue to observe if these changes in taxes can put a pause on the relocation plans of the ultra-rich flocking to Singapore’s shores. But it is unlikely for most of the wealthy to look elsewhere to park their wealth, since the world is still dealing with geopolitical issues and economic uncertainty.
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