SINGAPORE, Oct 17 — About 2.1 per cent more tax went to the state’s coffers in the 2019-2020 financial year compared with the previous year, with more corporate and individual income tax collected. This was disclosed in the annual report of the Inland Revenue Authority of Singapore (Iras) that was released yesterday.
In total, S$53.5 billion (RM163.3 billion) in taxes were collected in the financial year ended March 31. The money go to pay for various government social, economic and security programmes for Singapore.
Breaking it down
Income taxes made up a bulk of the tax revenue, comprising 57 per cent of Iras’ collection. This includes corporate tax (S$16.7 billion), individual income tax (S$12.4 billion), and withholding tax (S$1.6 billion).
Individual income tax grew the most, by 5.7 per cent compared with the previous year, while corporate income taxes grew by 4.3 per cent.
Withholding taxes are taxes on payments such as interests, royalties and service fees made to foreign individuals and companies. They increased by 3 per cent in the latest fiscal year.
Another large component of tax revenue is Goods and Services Tax (GST) — S$11.2 billion — making up 21 per cent of Iras’ tax collection. This source of revenue grew slightly by 0.2 per cent.
Property tax collection was S$4.8 billion, 2.4 per cent higher than a year earlier. Due to a drop in property transactions, stamp duty revenue fell by 8.9 per cent to S$4.2 billion in the latest fiscal year.
The smallest component is betting taxes, which comprises betting duty, casino tax and private lotteries duty. This category fell by 1.6 per cent to S$2.6 billion in financial year 2019-2020.
Why it matters
Against the backdrop of the Covid-19 pandemic, there are wide expectations that overall tax collection could slow down, or even shrink, in the years ahead.
Economist Song Seng Wun from CIMB Private Banking said: “Businesses are still struggling, many have closed, and others are bleeding. In turn, you have a softening labour market, people losing jobs and there are also wage cuts for some. And, plenty of foreigners are also losing their jobs and leaving Singapore. All this will impact tax collection.”
The last time Iras’ tax collection fell was in the 2003-2004 fiscal year, when revenues dropped by around 4 per cent from the previous year.
This period coincided with the 2003 severe acute respiratory syndrome (Sars) outbreak, and also the period when GST was sequentially raised from 3 to 4 per cent in 2003, and to 5 per cent in 2004.
With the deeper recession and long-term economic impact caused by Covid-19, Song expects the economy to fare far worse than during past crises — which also has a bearing on tax revenue.
He said: “Tax collection will only go up if businesses start investing and hiring, and when consumers start to invest and spend. All these will only happen when the economy rebounds, which is still quite uncertain.”
In Parliament on Thursday, Deputy Prime Minister Heng Swee Keat warned that Singapore’s revenues in the medium term are expected to be “subdued and uncertain”. Heng, who is also Finance Minister, gave three downside risks to revenues:
Weak global economic growth
Global competition for tax is also expected to intensify, since governments are borrowing more to fund their Covid-19 responses
There is a global push for the “re-allocation” of taxing rights under the Base Erosion and Profit Shifting (Beps) project, a global framework to put an end to tax avoidance by removing international mismatches in tax rules
To aid businesses during the Covid-19 crisis, the Singapore government has doled out property tax rebates as well, which will have an impact on overall tax revenue this fiscal year.
The big picture
If tax collection falls, it could affect the Singapore government’s recurrent revenues — revenues earned from the current generation.
Iras’ tax collection is not the only source of operating income for the state. It can also come from statutory boards’ contributions, vehicle tax, customs duties, and others.
The Singapore government has adopted the discipline of using recurrent revenues to pay for recurrent expenses, such as healthcare and education, which are expected to go up in future.
In his speech, Heng also said that GST collections are projected to drop by 14 per cent from the original estimate before the start of the year, and will continue to be lower than usual for at least a couple of years.
This is due to travel disruptions and the stay-home measures implemented earlier this year.
Although the upcoming GST rate increase from the current 7 per cent to 9 per cent was deferred earlier this year, the hike cannot be held back indefinitely, he said.
If tax income falls, more of the funding for government programmes will have to depend on the other major component of spendable government revenue — the investment returns from Singapore’s past reserves, also known as the Net Investment Returns Contribution. — TODAY