Singaporeans aged 21 and above are going to get a one-off bonus of S$100 to S$300, according to budget proposals unveiled by the city-state earlier this week. But accompanying the good news came the announcement of several new tax measures which could more than offset the cash handout.
Singapore has very similar industry structure to Hong Kong, so it benefited considerably from the robust financial industry and buoyant global trade last year.
The city expects an overall budget surplus of S$9.6 billion for the 2017 financial year, much higher than the initial forecast of S$1.9 billion. Singapore has total fiscal reserve of S$997.4 billion, including cash holdings, stakes in state-controlled entities, listed firms and development funds.
Given the strong financials, the government decided to offer a one-off bonus to the citizens.
Those with assessable income of S$28,000 and below will receive S$300 as one-time bonus, while those earn S$28,001 to S$100,000 will get S$200. Singaporeans with income above S$100,000 or own more than one property will only receive S$100.
But at the same time, the Singapore government announced three new tax measures. First is raising the goods and services tax (GST), second is the introduction of a carbon tax, and third is the introduction of an e-tax.
The city will hike GST from 7 percent to 9 percent from 2021. Meanwhile, all facilities producing 25,000 tons or more of greenhouse gas emissions in a year will have to pay a carbon tax of S$5 per ton from 2019.
Also, from 2020, consumers and businesses who buy imported e-services such as music streaming, video and games on the internet will have to pay goods and services tax (GST).
All these initiatives are expected to generate over S$10 billion fiscal revenue for the city, far exceeding the total cost of S$700 million of the one-time bonus.
Singapore’s new tax initiatives are mostly targeting local residents. Some economists believe the government is aiming to hike GST and roll out e-tax in order to expand the tax base, paving the way for cutting corporate tax in coming years.
Developed economies have embarked on a bout of tax cut competition in recent years. Singapore is among those that have been luring foreign investment with low tax rate.
Currently, the city-state maintains the corporate tax rate at 17 percent, close to the 16.5 percent levied by Hong Kong. That puts the two cities among the world’s top low-tax economies.
This article appeared in the Hong Kong Economic Journal on Feb 21
Translation by Julie Zhu
[Chinese version 中文版]
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