Singapore mulls over introduction of wealth tax to lower inequality

Bad news for rich global citizens who have made Singapore their choice of (tax) residence, and more so for Singapore’s indigenous wealthy: The city-state is mulling over the possibility of introducing a form wealth tax to counter rising inequality in the nation.

Ravi Menon, managing director of the Monetary Authority of Singapore, the country’s de-facto central bank, said there may be a need for a property gains tax or an inheritance tax to address wealth inequality which is expected to worsen over time, particularly if price increases in private housing would consistently outstrip that in public housing.

To promote an “inclusive society,” it might make sense to shift the balance in Singapore’s tax structure away from taxing income towards taxing wealth, Menon said at a speech on July 22.

So far, Singapore has always argued that it does not impose wealth taxes because its progressive income tax system would serve the purpose of creating a wealth balance.

Progressive income tax system not enough for wealth redistribution  

In this system, higher income earners already pay more taxes at higher tax rates, with the top ten per cent of individuals who pay personal income tax contribute about 80 per cent to this tax pool. The government also assumes that those with higher income are spending more and thus pay more good and services tax.

However, while income tax has been raised a few times in the past for the top income bracket in Singapore, with a cap of currently 22 per cent for the highest incomes it still remains one of the lowest in the world. At present, there is no capital gain or inheritance tax in Singapore, and individuals are taxed only on the income earned in Singapore.

Property investments a main reason for wealth gap

Menon pointed out that the widening wealth gap in the city-state has been driven most strongly by property investments as those with higher incomes could afford larger investments in real estate, and the substantial value appreciation they enjoy over time was not available to those with lower incomes and less funds for housing.

He further noted that it would appear that the wealth gap was widening despite the heavy subsidisation of public housing and the high rate of home ownership, which should have actually mitigated some of the divergence in housing wealth.

“In very few countries do most citizens have the opportunity to enjoy capital appreciation in housing assets as we do in Singapore. But if price increases in private housing consistently outstrip that in public housing, wealth inequality will worsen over time, even if not to the same extent as in many other countries, Menon said.

Designing a good wealth tax system with caution

He added that a wealth tax could take the form of either a property gains tax or an inheritance tax, but at the same time acknowledged that “taxing wealth has not worked well in many countries.”

Citing the example of 12 European countries which levied an annual tax on net wealth in 1990, he said that by 2018, eight out of these 12 countries had abandoned the tax, citing high administrative costs, risk of capital flight and, ironically, failure to meet redistribution goals.

This, in turn, would mean that a government should exercise strong caution in this issue because designing a good wealth tax was “not a trivial exercise,” he said.



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Bad news for rich global citizens who have made Singapore their choice of (tax) residence, and more so for Singapore’s indigenous wealthy: The city-state is mulling over the possibility of introducing a form wealth tax to counter rising inequality in the nation. Ravi Menon, managing director of the Monetary Authority of Singapore, the country’s de-facto central bank, said there may be a need for a property gains tax or an inheritance tax to address wealth inequality which is expected to worsen over time, particularly if price increases in private housing would consistently outstrip that in public housing. To promote an...

Bad news for rich global citizens who have made Singapore their choice of (tax) residence, and more so for Singapore’s indigenous wealthy: The city-state is mulling over the possibility of introducing a form wealth tax to counter rising inequality in the nation.

Ravi Menon, managing director of the Monetary Authority of Singapore, the country’s de-facto central bank, said there may be a need for a property gains tax or an inheritance tax to address wealth inequality which is expected to worsen over time, particularly if price increases in private housing would consistently outstrip that in public housing.

To promote an “inclusive society,” it might make sense to shift the balance in Singapore’s tax structure away from taxing income towards taxing wealth, Menon said at a speech on July 22.

So far, Singapore has always argued that it does not impose wealth taxes because its progressive income tax system would serve the purpose of creating a wealth balance.

Progressive income tax system not enough for wealth redistribution  

In this system, higher income earners already pay more taxes at higher tax rates, with the top ten per cent of individuals who pay personal income tax contribute about 80 per cent to this tax pool. The government also assumes that those with higher income are spending more and thus pay more good and services tax.

However, while income tax has been raised a few times in the past for the top income bracket in Singapore, with a cap of currently 22 per cent for the highest incomes it still remains one of the lowest in the world. At present, there is no capital gain or inheritance tax in Singapore, and individuals are taxed only on the income earned in Singapore.

Property investments a main reason for wealth gap

Menon pointed out that the widening wealth gap in the city-state has been driven most strongly by property investments as those with higher incomes could afford larger investments in real estate, and the substantial value appreciation they enjoy over time was not available to those with lower incomes and less funds for housing.

He further noted that it would appear that the wealth gap was widening despite the heavy subsidisation of public housing and the high rate of home ownership, which should have actually mitigated some of the divergence in housing wealth.

“In very few countries do most citizens have the opportunity to enjoy capital appreciation in housing assets as we do in Singapore. But if price increases in private housing consistently outstrip that in public housing, wealth inequality will worsen over time, even if not to the same extent as in many other countries, Menon said.

Designing a good wealth tax system with caution

He added that a wealth tax could take the form of either a property gains tax or an inheritance tax, but at the same time acknowledged that “taxing wealth has not worked well in many countries.”

Citing the example of 12 European countries which levied an annual tax on net wealth in 1990, he said that by 2018, eight out of these 12 countries had abandoned the tax, citing high administrative costs, risk of capital flight and, ironically, failure to meet redistribution goals.

This, in turn, would mean that a government should exercise strong caution in this issue because designing a good wealth tax was “not a trivial exercise,” he said.



Support ASEAN news

Investvine has been a consistent voice in ASEAN news for more than a decade. From breaking news to exclusive interviews with key ASEAN leaders, we have brought you factual and engaging reports – the stories that matter, free of charge.

Like many news organisations, we are striving to survive in an age of reduced advertising and biased journalism. Our mission is to rise above today’s challenges and chart tomorrow’s world with clear, dependable reporting.

Support us now with a donation of your choosing. Your contribution will help us shine a light on important ASEAN stories, reach more people and lift the manifold voices of this dynamic, influential region.

$
Personal Info

Donation Total: $10.00

 

 

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