Tax Evasion, and How Do I Avoid Committing it in Singapore?

What is Tax Evasion, and How Do I Avoid Committing it in Singapore?

Table of Contents

What Does Tax Evasion Mean in Singapore?

Tax Evasion Versus Tax Avoidance in Singapore — What Is the Difference?

What Are the Penalties for Not Paying Tax in Singapore?

How Companies Can Avoid Committing Tax Evasion in Singapore

Conclusion

For all of the red tape cutting and transparency that Singapore offers in its tax system, it takes tax compliance very seriously. Driven largely by a desire to cut out corruption and create an even playing field, penalties for tax evasion are harsh and should not be taken lightly. 

Thankfully, with the proper framework in place, it is quite a straightforward process to avoid committing tax evasion. With that being said, let’s go over the basics of what not to do, and what to do when it comes to meeting your tax responsibilities in Singapore.

What Does Tax Evasion Mean in Singapore?

Much like in most countries, the criminal act of tax evasion in Singapore is generally defined as purposefully using unlawful methods to avoid meeting one’s full tax obligations required by law.

Tax evasion occurs when an individual intentionally submits inaccurate or incomplete information to IRAS, aiming to decrease their tax obligation or gain unwarranted tax credits and refunds.

These unlawful methods include but are not limited to:

Under-reporting or not reporting income

Misrepresentation of tax reporting

Transferring profits without proper reason

Over-claiming of expenses

To prove the act of tax evasion, the Inland Revenue Authority of Singapore (IRAS) must have evidence that the intention of these actions is to avoid tax responsibilities. 

If it is found that an individual did not intend to pay less tax, that is considered negligence rather than avoidance.

Tax Evasion Versus Tax Avoidance in Singapore — What is the Difference?

While tax evasion and tax avoidance intend to reduce the tax one pays, the two concepts are quite different — tax evasion is illegal, while tax avoidance is legal.

Tax evasion remains a serious offence in Singapore, punishable by up to 400% of the undercharged tax and potentially severe fines or imprisonment, whereas tax avoidance is legal and involves using legitimate strategies to reduce tax liabilities​.

On the other hand, tax avoidance is all about using legal methods to lower your Singapore tax bill by employing legitimate methods, such as claiming deductions and exemptions that you are entitled to (while staying within the Singapore Income Tax Act).

What Are the Penalties for Not Paying Tax in Singapore?

As mentioned, Singapore takes tax avoidance very seriously, and so the penalties are appropriately severe. 

Companies and individuals found guilty of tax avoidance in Singapore may be subject to these consequences, depending on the evidence showing the intention to evade taxes:

As of 2024, companies and individuals guilty of tax evasion can face a penalty of up to 400% of the undercharged tax, a fine of up to S$50,000, and imprisonment of up to 7 years for serious fraudulent cases​.

With Intention to Evade Taxes Without Intention to Evade Taxes

Penalty of up to 400% of the undercharged tax Penalty of up to 200% of the amount of tax undercharged

Fine of up to S$50,000 Fine of up to S$5,000

Imprisonment of up to 5 years Imprisonment of up to 3 years

Severe cases of fraudulent tax evasion can result in penalties of up to 4 times the amount of tax evaded, fines of up to S$50,000, and imprisonment for up to 10 years, depending on the severity of the offence​.

How Companies Can Avoid Committing Tax Evasion in Singapore

The Singapore taxation system is designed to be fair and transparent, so companies who do not wish to face tax evasion penalties need only follow the Singapore tax rules.

To ensure Singapore follows through on its promises of transparency, they have made it compulsory for all Singapore businesses to keep adequate transaction records.

These records can be used in the event of an IRAS audit to prove transactions and Singapore business activities. These records must be kept for 5 years from the end of the Singapore accounting year in which that transaction or activity took place.

Beyond proper record keeping, we advise companies to make the following procedures standard practice within their operations:

Train your employees to recognise illegal or suspicious tax-related activity.

Create a culture where staff are encouraged to report any acts of suspicious tax-related activity

Conduct checks of financial records regularly to avoid criminal activity going unnoticed

Create documents to demonstrate the company has taken action to create a culture of discouraging tax evasion

Educate your staff to fully understand the penalties for tax evasion

Perform risk assessments of each client or partner you work with to avoid unintentionally being entangled with illegal tax activity

What’s Next for Avoiding Tax Problems in Singapore?

 

7 Ways to Legally Reduce Income Tax in Singapore (2023)

Who doesn’t dream of reducing their personal income tax in Singapore? Singapore has a variety of different tax relief initiatives that you can leverage to save some money. Utilising these tax advantages effectively can aid you in achieving your personal financial objectives, such as accumulating wealth, retiring early, and self-investment. We have put together a list of 7 different ways you can reduce your income tax.

Table of Contents

How to Reduce Singapore Income Tax

Upgrade Skills by Taking a Course

Make a Charitable Donation

Top up your CPF

NSman Relief

Life Insurance Relief

Business Expenses Tax Deductibles

Rental Expenses Deductions

How Reducing Your Singapore Income Tax Works

Singapore’s income tax system is progressive, which means that the more you earn, the more you will be taxed. The idea is to find things you can either write off or claim tax relief for. While there are various ways to do that, there is also a personal income tax relief cap. This limit is currently set at S$80,000 and is the total amount of your tax relief for any given year of assessment.

1. Do a Course and Upgrade Your Skills

This first point is unknown to many Singaporeans. However, it is possible to get tax relief on courses that you have attended in 2022 – as long as the course is relevant to your employment and you can prove that you have paid for it yourself. If that’s the case, you can get up to S$5,500 in tax relief.

If you have taken a course that will enable you to switch careers, you can still claim it. For example, if you are transitioning from an administrative role into finance, and you have taken a course that will help you in your new career, you can use it for your tax relief.

2. Make a Charitable Donation

Talk about killing two birds with one stone. In order to get tax relief, you can make a donation to any charity that is registered as an IPC (Institute of a Public Character) in Singapore. You can still claim 250% in tax deductions for donations made to IPCs. This deduction has been extended until 31 December 2026​. 

Read about how the different forms of donations can reduce your tax. 

3. Top Up Your CPF

This is another great way to help yourself – give yourself money and pay less taxes. Sounds great? Simply top up your CPF Special Account if you are below 55 years old. Once done, your tax will be automatically deducted. Bear in mind that the maximum CPF cash top-up is still capped at S$8,000 for yourself and an additional S$8,000 for your family members, allowing for a total tax relief of up to S$16,000 per year​.

You can also top up your parents’ CPF accounts as well (maximum value of S$8,000) and receive additional tax relief for that along with your Medisave and Supplementary Retirement Scheme (SRS) account. Thus the maximum tax relief is a total of S$16,000 per assessment year. 

4. National Service Gives Back: NSman Relief

The country is grateful for your service as an NSMan of the Singapore Armed Forces and will reward you through this tax relief.

Depending on whether you have performed NS duties in 2023, your tax relief as a key appointment holder (KAH) continues to range from S$3,500 to S$5,000. Non-KAHs receive tax reliefs up to S$3,000​. General population NSMan (Non-KAHs) can enjoy tax reliefs of up to S$3,000. 

As long as you are eligible for this tax relief, your spouse and parents will automatically receive S$750 in tax relief for that year of assessment. 

5. Life Insurance Relief

If you are unemployed or self-employed, then your CPF contributions for the past year may have probably been very low. If the total compulsory employee CPF contributions, self-employed Medisave/voluntary contributions, and voluntary contributions to your Medisave account are below S$5,000, You can qualify for life insurance tax relief if your CPF contributions, including voluntary contributions and Medisave payments, are below S$5,000 for the year​.

*Take note that premiums paid on accident and medical policies are not applicable.

6. Business Expenses Deductibles

Every business owner will know that there are always extra and operational costs – regardless of whether you run a small shop or a tech startup.

However, the good news is that you can claim these business expenses. Some examples of tax-deductible business expenses include accounting fees, advertising, CPF contributions, skills development levies, foreign worker levies, and many more.

7. Rental Expenses Deductions

Last but not least, you can also earn some tax relief on your rental expenses. This refers to the expenses you have generated in incurring the rental income. These expenses based on 15% of the gross rental income can be claimed.

Singapore Income Tax Deductibles In a Nutshell

Tip Tax Relief

1. Do a course Up to S$5,500

2. Make a charitable donation to IPC 250% of the amount you donated

3. Top up your CPF Up to S$14,000 per assessment year 

S$7,000 for personal CPF 

S$7,000 for family member’s CPF

4. NSman Relief

(Available for both wives and parents of an eligible NSman)

Up to S$5,000 for key appointment holders having performed NS duties in 2022

Up to S$750 for wives and parents of NSman

5. Life insurance relief 7% of the policy value

6. Business expenses deductibles Depending on your expenses

7. Rental expenses deductions 15% of your gross rental income

One of the most important aspects of applying for tax relief and deductions is documentation. Make sure to plan ahead and organise your receipts for everything. 

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Enjoy tax deductions of up to 2.5 times the qualifying donation amount during the next tax season when you donate to Community Chest or any approved Institution of a Public Character (IPC) before the year ends.

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What are tax deductible donations

What are tax deductible donations

These donations are tax deductible:

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1. Cash donations for local causes

Cash donations made to an approved Institution of a Public Character (IPC) for causes that benefit the local community, or the Singapore Government are tax deductible donations.

This donation scheme applies to both corporate and individual donors.

Not all registered charities are approved IPCs. Donations made to a charity without approved IPC status are not tax deductible.

Learn if an organisation is an approved IPC at the Charity Portal.

Cash donations with benefits

Only outright cash donations to approved IPC that do not give material benefit to the donor are fully tax deductible.

If a donor receives a benefit in return for the donation made, tax deduction is granted only on the difference between the donation and the value of benefit.

However if the benefits are treated as having no commercial value and the donation is made to IPCs on or after 1 May 2006, it will be deemed as pure donations although there are benefits given in return for the donation. 

 

What is a benefit with no commercial value

Before 19 Mar 2021

Benefits are treated as having no commercial value if:

The benefit is given in acknowledgement of the donation; and

The benefit has no resale value.

View details on the concessionary tax treatment and a list of common benefits given in return for donations and their tax treatment in "Tax Treatment on Donations with Benefits (Donations made before 19 March 2021)" (PDF, 83KB).

On or after 19 Mar 2021

Benefits are treated as having no commercial value if:

The benefit is given out in connection with a fundraising activity; and

The benefit falls within the list of benefits specified in paragraph 6.4 of the IRAS e-Tax Guide for Donations made on or after 19 March 2021.

View details on the concessionary tax treatment and a list of common benefits given in return for donations and their tax treatment in "Tax Treatment on Donations with Benefits (Donations made on or after 19 March 2021)" (PDF, 215KB).

2. Cash donations for overseas causes

Philanthropy Tax Incentive Scheme for Family Offices (PTIS) New

The PTIS is an incentive scheme administered by MAS which seeks to encourage greater philanthropic giving among Single Family Offices (“SFOs”) and the growth of philanthropic capabilities in Singapore. Qualifying Donors (“QDs”) approved under the scheme will be able to claim 100% tax deduction for their overseas donations made through Qualifying Local Intermediaries (“QLIs”) for a period of 5 years starting from an approved incentive commencement date within the period from 01 January 2024 to 31 December 2028. The tax deduction is capped at 40% of the Approved QD’s statutory income.

For more information, you may refer to the Monetary Authority of Singapore’s website.

 

Overseas Humanitarian Assistance Tax Deduction Scheme New

The Overseas Humanitarian Assistance Tax Deduction Scheme is a pilot scheme announced in Budget 2024 which seeks to encourage Singaporeans to support those in need overseas.

Under the scheme, corporate and individual donors will be able to claim 100% tax deduction for qualifying cash donations made towards approved overseas emergency humanitarian assistance causes through designated charities with a valid Fund-Raising for Foreign Charitable Purposes permit from the Commissioner of Charities during the period 1 January 2025 to 31 December 2028.

Details of the scheme

The tax deduction is capped at 40% of the donor’s statutory income. This cap is to be jointly shared with the Philanthropy Tax Incentive Scheme (PTIS) for Family Offices.

The Overseas Humanitarian Assistance Tax Deduction Scheme will be ranked behind PTIS tax deductions but ahead of the 250% tax deductions for qualifying donations.

Any unutilised tax deductions cannot be carried forward or transferred to another company under the Group Relief System.

The list of designated charities will be made available from 1 January 2025.

The Overseas Humanitarian Assistance Tax Deduction Scheme will be administered by IRAS. More details of the scheme will be released by 30 June 2024.

3. Shares donations

Donations of public shares listed on the Singapore Exchange (SGX) or of units in unit trusts traded in Singapore to approved IPCs are tax deductible. This is only applicable to donations from individual donors only.

Donations of options and shares with restriction on holding periods are not allowed under this donation scheme.

Value of the shares

The approved IPC will determine the value of the donated shares or units. The value of the shares will be based on the price of the same type of shares or units in the open market, at the last transaction of such shares or units on the date of donation.

Date of donation

The date of donation is the date that the legal title is transferred to the approved IPC.

4. Artefact donations

Donations to museums by individual or corporate donors are tax deductible donations if:

The museum has obtained the Approved Museum Status with the National Heritage Board (NHB) ; and

The artefact has been deemed worthy of collection by NHB.

This donation scheme applies to both corporate and individual donors.

Value of donation

Donors should apply to the museum or NHB to assess the worth of the donated artefact. 

Approved museum status

Museums owned by public organisations can apply to the NHB for the Approved Museum Status. Starting 1 Apr 2006, the Approved Museum Status may be given to non-profit institutions established to acquire artefacts and making them accessible to the public.

5. Donations under the public art tax incentive scheme (PATIS)

From 1 Apr 2006, companies or individuals who donate sculptures or works of art for public display to the National Heritage Board (NHB) or any of its approved recipients qualify for tax deductions.

This scheme is administered by NHB and applies to both corporate and individual donors.

Qualifying donations under PATIS include:

Donation of money or services given towards the installation or maintenance of the sculptures or work of art for public display;

Donation of a sculpture to an approved recipient for indoor public display; and

Public art works which are two or three dimensional with artistic and or heritage merits as desired by NHB.

Value of donation

Donors need to apply to NHB to assess the value of the donated sculpture or work of art. 

6. Land & building donations

From 1 Apr 2003, donations of land or buildings to approved IPCs are tax deductible donations.

This donation scheme applies to both corporate and individual donors.

Market value appraisal

Donors or the approved IPC need to arrange a market value appraisal of the donated property with a property valuer. The IPC should apply to IRAS for an endorsement of the market value of the donated property. 

The cost of valuation is not tax deductible.

Value of donation

The amount of donation is based on the market value of the property endorsed by IRAS. 

Date of donation

The date of donation, for the purposes of claiming the tax deduction, is the date that the property is legally transferred to the approved IPC.

7. Naming donations

From 1 Jan 2005, the following donations are tax deductible:

Donations to name IPCs, IPC facilities, events or programmes;

Donations to name facilities of approved beneficiaries (including artefacts and public sculptures) under any of the other approved donation programmes; and

Donations under any of the approved donation programmes where the IPC or approved beneficiary acknowledges the donation by including the donor's name or logo in the IPC's collaterals (e.g. banners, publications, advertisements).

What are non-tax deductible donations

The following types of donations are non-tax deductible:

Donations of goods that do not fall within the list of tax deductible donations.

Donations made to charities that are not approved IPCs.

 

When will contributions not be considered donations

A contribution will not qualify as a tax deductible donation if the contribution is governed by an agreement which includes any of the following attributes:

The contribution agreement contains a refund clause, where the recipient is obliged to refund (wholly or in part) the contribution or make other compensation arrangements to the contributor; or

The contribution agreement contains an ‘exclusivity’ clause which prevents the recipient from accepting funds/contributions from and/or acknowledging other contributors/donors, regardless of whether the latter are from the same industry as the contributor; or

The contribution arrangement is in substance a commercial arrangement or an exchange of monies for benefits. Such arrangements include outright sales of goods or services, instances where the contributor derives substantial commercial benefits from the contribution arrangement, or instances where the contributor retains contractual rights over the sum contributed.

View details on what contributions are considered donations and eligible for tax deduction in "Guidance on Tax Deductible Donations" (PDF, 295KB).

 

How much tax deduction can you get

Calculating tax deduction

How to claim tax deductible donations

Tax deduction is given for donations made in the preceding year. For example, if an individual makes a donation in 2023, tax deduction will be allowed in his tax assessment for the Year of Assessment (YA) 2024.

You do not need to declare the donation amount in your income tax return. Tax deductions for qualifying donations are automatically reflected in your tax assessments based on the information from the IPC (such as the donor's name, date and amount of donation on the tax deduction receipt).

IRAS does not accept claims for tax deduction based on donation receipts. 

From 1 Jan 2011, individuals and businesses are required to provide their identification number (e.g. NRIC/FIN/UEN) when making donations to the IPCs if they wish to receive tax deductions on the donations made.  

Donation receipts

When donations are tax deductible, the donation receipts issued by approved IPCs will indicate the words "Tax Deductible".

Donations made by individuals to IPCs via payroll

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Wealth Taxes in Singapore – the Present, and Glimmers of a Potential Future

January 12, 2022

Introduction

Implementing wealth taxes has been a topic of great interest in Singapore in the past year, with the debate on its merits having attained high prominence in local policy discourse. During the Singapore Economic Roundtable (Economic Roundtable) held in October 2021, Minister for Finance Lawrence Wong emphasised the need for Singapore to guard against rising inequality, and highlighted that the Ministry of Finance is presently studying options to expand Singapore’s system of wealth tax. The recent raising of Additional Buyer’s Stamp Duty Rates (ABSD) with effect from 16 December 2021 for owners of multiple properties is arguably a clear indication of such a focus. This comes as no surprise, as governments worldwide grapple with depleted public finances as well as rampant wealth inequality, both of which are a direct result of the COVID-19 pandemic. To put things into perspective, the aggregate wealth of the super-rich grew nearly four-fold from US$41.5 trillion in 2000 to US$191.6 trillion in 2021, and their share of global wealth rose from 35 per cent to 46 per cent over the same 20-year period.1

This article discusses how Singapore’s current tax system already encompasses certain features of a wealth tax, as well as how Singapore could explore further potential avenues of taxing wealth moving forward.

Wealth taxes in Singapore: at present

Wealth taxes can come in different forms, ranging from a pure wealth tax (i.e. a flat percentage tax on an individual’s total net worth) to other forms of indirect wealth tax, such as inheritance tax, capital gains tax and real-estate tax.

Unlike in many other countries, Singapore’s tax system at present does not employ any form of inheritance, estate, capital gains or net wealth tax. Instead, it mostly relies on the progressive nature of its existing tax base to ensure that the wealthy pay a greater proportion of tax. For example, the rates for personal income tax and buyer’s stamp duty depends on the personal income of the taxpayer and the market value of the property respectively. As a means to tax homeowners (who are generally perceived as being better off), Singapore also levies property tax, which is based on the annual value of the property. Notably, property tax on residential properties is also subject to progressive tax rates, depending on whether the property is owner-occupied or not. As a form of indirect wealth tax, the government levies an additional tax in the form of Additional Buyer’s Stamp Duty (ABSD) on homeowners who have the means to purchase multiple properties.

Moving forward: the options Singapore may consider in implementing wealth taxes

A balancing of factors

While few will dispute that in principle, wealth taxes contributes to a fairer and more progressive society, it cannot be over-emphasized that any government would need to have careful regard to the design and implementation of any proposed wealth tax. Particularly, in order for a wealth tax to be meaningful and consistent with Singapore’s existing social-economic background and policies, it would have to strike a balance between certain fundamental trade-offs, such as:

the imperative to stay competitive and business-friendly given Singapore’s regional status as a business and wealth management hub;

the ease of administration (in that its implementation and administration should be procedurally straightforward and cost-effective, whilst ensuring compliance with minimal scope for avoidance by taxpayers);

the sustainability of such a measure; and

the sufficiency of such a measure not just in terms of potential tax collectible, but in addressing the growing income inequality and wealth disparity in Singapore.

Such considerations were similarly echoed by Minister for Finance Lawrence Wong at the Economic Roundtable, where he noted that any expansion of Singapore’s system of wealth tax must be carried out in a manner that “add[s] to our revenue resilience without undermining our overall competitiveness”.

Crucially, any wealth tax proposal should not tip the scales as regards Singapore being an attractive destination for high net worth individuals and foreign investments. Put simply, it should not cause such parties to divert their capital out of Singapore. As a small and open city-state whose light-touch tax regime has for decades been a key competitive advantage in attracting foreign capital, a substantial capital flight would have clear knock-on effects on the Singapore economy.

The viability of reintroducing estate duty

Although Singapore repealed its estate duty regime in 2008, there has been growing talk in the past year of its reintroduction in order to address the growing wealth discrepancy. As an inheritance tax charged on the total market value of the assets of a deceased person on the date of his or her death, its design was previously intended to rebalance wealth and to prevent wealth from being concentrated within bloodlines across generations.

While conceptually attractive, any reintroduction of estate duty in Singapore would first need to address the design shortcomings of the previous regime, which had resulted in it being largely ineffective in taxing the wealthy.

Firstly, the Estate Duty Act (Chapter 96) had provided that lifetime gifts made more than five years before one’s death (provided that the donor was excluded from any benefit under the gift) would not be subject to estate duty. Effectively, a person possessing valuable assets who wanted to escape the imposition of estate duty upon his or her death could simply transfer the assets five or more years before his or her death. As such, the rule had a tendency to benefit those who were financially able to make large gifts early in their lives without reducing their standard of living, which would typically be the case for the wealthiest.

Further, a tax that was only levied on the assets owned by a person upon his or her death also meant that it was easily avoided through tax planning, a service that the wealthy would typically have greater access to. For example, an individual wishing to avoid estate duty could easily transfer his or her assets to a lifetime trust or to a holding company, thereby ensuring that the assets were no longer held in his or her personal name. As the individual no longer owned the assets upon death, no estate duty would apply.

These drawbacks in the previous estate duty regime resulted in the high costs of administering the tax, as a proportion of tax collected. To put things into perspective, it was noted in the 2008 Budget Statement by the then-Minister for Finance Tharman Shanmugaratnam that the estate duty regime had, prior to its abolishment in 2008, on average collected only S$75 million per year. It is thus understandable that many jurisdictions, including Australia, Hong Kong, Malaysia and New Zealand, have similarly proceeded to abolish estate duty from their respective tax systems.

In any case, we would highlight that even if reintroduction of estate duty is being seriously considered, it would be unlikely that Singapore would reinstate the generous exemptions that applied to the previous regime (specifically, the S$9 million exemption threshold for residential properties), given that Singapore’s policy with respect to residential ownership has clearly changed since then. This would mean that any newly introduced estate duty regime would, if at all, likely apply to a wider scope of assets (including not only residential property but extending potentially to digital assets, for example).

With the above in mind, any reintroduction of estate duty would undoubtedly need to take into account the real risk of jeopardizing Singapore’s vibrant wealth management and private banking industry, the growth of which has been supported at least in part by the abolishment of estate duty in 2008 in the first place. Implementing an estate duty could disincentivize and even drive away wealthy individuals and families from parking their wealth and assets in Singapore.

Real estate taxes: low hanging fruit

Utilising real estate-related tax (i.e. property tax, stamp duties) as a means to tax the wealthy has historically been very popular in countries worldwide. This is logical, given that a large proportion of the wealthy store their wealth in real estate and that, increasingly, the widening wealth gap worldwide has been driven by property investments. The reality is that those with higher incomes can afford larger investments in real estate, and that the substantial value appreciation they enjoy over time is not available to those with lower incomes and smaller outlays for housing.

Real estate taxes as a form of wealth tax is also highly attractive from the perspective of administrative implementation. Tax on property represents a more stable revenue mobiliser as real property cannot be moved around, its ownership is transparently documented, and its valuation is relatively straightforward. In addition, the fact that real estate is generally a big-ticket purchase means that the revenue collected from such taxes is substantial. It would also be administratively easier for Singapore to leverage on an existing tax regimes such as stamp duty and property tax as a means of implementing a wealth levy, as opposed to creating a new class of tax, which would inevitably create some degree of legal uncertainty as to its application.

Property Tax

Building on its existing progressive nature, there is scope to make property taxes even more progressive. In this regard, an additional surcharge on luxury and larger properties could be explored. Such a surcharge can be further defined based on a threshold assessed value. Further, given the low rate of property tax at present (in relation to the full value of property), there is potential for a significant increase in rates.

Stamp Duty

The approach taken in relation to property tax can similarly be adopted for stamp duty on property transfers, in that higher buyer stamp duty rates could be implemented for larger and more expensive properties. This ensures that such measures are targeted only at wealthier taxpayers. Such a move is not new to Singapore – in 2018, the highest marginal Buyer’s Stamp Duty rate was raised from 3 per cent to 4 per cent for residential property valued in excess of S$1 million. The latest hike in ABSD rates are clearly targeted at wealthier homeowners in the private housing market, as it only applies to purchasers who are acquiring additional residential properties (i.e. rates for first property purchases remain unchanged). Even so, notwithstanding that stamp duty remains an easy tax to administer and collect, raising stamp duty rates in itself would unlikely be a sufficient solution to taxing the wealthy. This is because the revenues collected are highly volatile as they depend purely on transaction volume. It is thus no surprise that the decision to increase stamp duty rates is traditionally seen as “part of a package of measures to cool the residential market”, rather than an exclusive tool to tax the wealthy.2

Alternative taxes: other possible avenues for wealth tax?

Income tax

In line with the current progressive nature of Singapore’s income tax regime, a common suggestion to address rising wealth inequality in Singapore is to increase the headline income tax rate for ultra-high income earners. By raising tax rates only for such individuals, this would address the concern that a tax on income would disincentivize hard work for the middle and upper middle income earners. Yet, such a proposal may not be effective in reducing the wealth gap, given that an income tax in itself does not operate as a tax on wealth, but only on accretions to wealth. It remains a truism that in many societies, including Singapore, the ultra-wealthy rely primarily on their capital assets (profits derived from financial proceeds of the sale of securities, properties and dividend income etc.) for wealth appreciation.

Goods & services tax (GST)

Given that Singapore has successfully designed its goods and services tax (GST) regime to align with its overall progressive tax system, another option for Singapore would be to leverage on GST as a means of taxing the wealthy. Under the current regime, lower and middle income households are able to rely on the permanent GST voucher scheme for cash support and utility rebates, effectively allowing these households to pay less GST as compared to higher income households. As a result, foreigners residing in Singapore, tourists and the top 20 per cent of resident households are estimated to bear more than 60 per cent of the net GST on households and individuals.

In addition to raising the GST rate, another possibility could be to further subject certain types of goods (i.e. luxury, high value goods etc.) to a higher rate of GST. Taxes based on consumption have been historically easy to administer and collect, and would provide a steady stream of revenue to the government coffers, to fund more social programs to tackle inequality.

Motor vehicle taxes

It may be worth exploring the possibility that wealth tax in Singapore could also take the form of a tax on vehicle ownership. This is especially since motor vehicles have traditionally been seen, particularly in Singapore, as a second big-ticket physical asset class owned by individuals. At present, Singapore does not distinguish between households based on the number of vehicles they own. A possible method may be to tweak the Certificate of Entitlement regime so as to impose a tax on households with multiple vehicles. Another possible approach could be to levy higher tax rates on more expensive luxury cars above a certain purchase threshold, reflecting a degree of progressivity in motor vehicle taxes.

Difficulties with a net wealth tax

At the international level, the concept of a net wealth tax is not new, with countries increasingly exploring the viability of taxing an individual based on a percentage of his or her taxable assets (i.e. the value of his or her assets minus any related liabilities). In Argentina, a one-off levy at rates up to 5.25 per cent was passed into law on 4 December 2020. At the same time, the UK Wealth Tax Commission published its Final Report proposing an annual one-off wealth tax applicable to UK residents with personal wealth above a set threshold. Member of Parliament Jamus Lim also recently proposed in his parliamentary speech that Singapore should impose a wealth tax of 0.5 per cent to 2 per cent on the most wealthy, as it could “help diversify Singapore’s revenue sources and also reduce income and wealth inequality”.

While a net wealth tax may be conceptually attractive in ensuring progressiveness by applying only to the very rich, it has equally been observed that such a tax is administratively inefficient and cumbersome to implement.

The first limitation relates to the issue of disclosure and the inherent mobility of assets. It is easy to “hide” wealth in assets that can be effortlessly moved from one location to another (such as having offshore bank accounts, art, jewelry etc.), which complicates the determination of the net wealth tax base. This difficulty has become increasingly severe given the rise of digital assets, such as bitcoin and non-fungible tokens, as a popular store of wealth. While digital assets are increasingly subject to regulation by governments worldwide, current laws on the transparency and beneficial ownership of such assets remain fledgling and undeveloped.

The next major concern relates to the difficulty in valuing a taxpayer’s assets for the purposes of administering the net wealth tax. This is especially the case if the value of the asset in question cannot be easily assessed due to the lack of an active market, such as assets including works of art, antiques and jewelry, or when the value of the asset has a tendency to fluctuate over time. Without an objective method to compute asset value, it is foreseeable that the application of such a tax would produce significant inefficiencies given the high likelihood of challenges by taxpayers as to the valuation of such assets.

It is thus of no surprise that Singapore has been very cautious in considering the introduction of such a tax, with Prime Minister Lee Hsien Loong acknowledging at the November 2021 Bloomberg New Economy Forum that a net wealth tax is “not so easy to implement”.