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06-03-13, 17:19
http://www.businesstimes.com.sg/archive/thursday/premium/top-stories/its-sound-tax-wealth-over-income-analysts-20130228
Published February 28, 2013
REACTIONS TO BUDGET 2013
It's sound to tax wealth over income: analysts
But S'pore may have to raise income or consumption levies in the future
By kenneth lim
[SINGAPORE] The progressive tax measures unveiled in this year's Budget will raise duties on those who own a lot rather than those who earn a lot, a subtle distinction lauded by observers.
But there are limits to how far wealth can be taxed, and Singapore may eventually have to consider raising income or consumption levies in the future for additional revenue.
Described as a tax on wealth by Finance Minister Tharman Shanmugaratnam in his Budget speech on Monday, the Budget's progressive tax measures include tiered tax rates for property and vehicle ownership.
Those tax changes are not necessarily aimed at wealth gaps only.
"The underlying rationale behind these announcements may be seen in the wider context of the government's strong resolve to cool the hot property market here by discouraging investment in residential homes, and to dampen car growth rates on our increasingly crowded roads," said Alan Lau, KPMG's head of financial services, tax.
But the progressive aspect of the policies - the tiered impact of the higher taxes - has not been lost on observers.
"What's happening around the world is income disparity is becoming more severe," said Jimmy Koh, head of research and investor relations at United Overseas Bank. "That's why I think this Budget is quite interesting because it's quite innovative - whether it works or not is another thing, but at least they're trying."
But progressiveness can be a delicate tight rope. "It has to be a holistic and balanced approach, and you have to be very careful about taking progressiveness too far as you have seen in some Scandinavian countries where it acts as a constraint on incentives to work and doing business," said Leif Eskesen, an economist at HSBC Global Research.
Singapore's approach to revising property and vehicle taxes, rather than income tax, drew praise for seeking to distinguish between how much a person has versus how much a person works.
"Sometimes, wealth is not the result of hard work," UOB's Mr Koh explained. "It could be inherited, for example . . . Income is more directly correlated to working hard."
Poh Eng Hin of Nanyang Business School said that a property tax was less distortionary on the market.
"If you're very rich, I doubt you're going to give up your bungalow just because you're taxed more," Prof Poh added. "It shouldn't be as distortionary as an income tax, that's my gut feel. It's an existing tax, there's no need to put in a new administrative mechanism; and there's a high correlation between people's dwelling and their income or wealth status."
Assets were also probably one of the least sensitive areas to improve a more progressive tax regime, the observers said.
A capital gains tax, for example, would potentially be progressive because the affluent are more likely to have more capital gains, but to impose one would mean a sharp departure for Singapore, which has never taxed capital gains.
"A capital gains tax is really rewriting the Singapore economic model," Mr Koh said. "It's a city where it's capital gains tax free."
A revision of the Goods and Services Tax (GST) to exclude staples or to tax luxuries more heavily has been raised before as a possible way to make the consumption duty less regressive, but actual implementation can be problematic.
"Tweaking the GST system to increase its progressiveness may also be administratively difficult and undesirable," KPMG's Mr Lau said. "Other countries which have attempted to levy a higher GST rate on luxury groups consumed by the higher-income group have shared that such tweaks are often controversial and tedious to implement. This is largely because of the difficulty in determining which products should be categorised as luxury goods."
The experts also noted that the existing GST voucher for lower-income households is a progressive accessory to a regressive tax.
Reinstating the estate duty, which Singapore repealed in 2008, would also run counter to the country's drive to grow as a private wealth management hub.
"A lot of the wealth management centres around the world, they don't want to have that," Mr Koh said.
The analysts largely expected the government to hold off on further steps to make our tax system even more progressive, in order to gauge the impact of the latest measures.
Tax is also not the only avenue in which the government attacks wealth disparities.
"A tax is just to raise tax revenue," Prof Poh said. "You can have a regressive tax, but if you can redistribute handouts in a progressive way, it can still be progressive on the whole. You have to take into account the entire system."
But if the public expenditure were to continue rising - not far-fetched considering the current focus on improving infrastructure - increasing taxes on wealth assets may not be enough.
"At the end of the day, when you've done the low-lying fruits like property or cars, you either go for a capital gains tax or raise marginal tax rates for high-enders," said OCBC Bank economist Selena Ling. "Or in the past, you'd do the GST, which they say is regressive, but at least you don't hamper the work incentive."
Ms Ling noted that discussions about raising the GST rate may be put on the shelf for now given the pains of the current economic restructuring efforts.
"I think that will be hugely unpopular," she said.
Published February 28, 2013
REACTIONS TO BUDGET 2013
It's sound to tax wealth over income: analysts
But S'pore may have to raise income or consumption levies in the future
By kenneth lim
[SINGAPORE] The progressive tax measures unveiled in this year's Budget will raise duties on those who own a lot rather than those who earn a lot, a subtle distinction lauded by observers.
But there are limits to how far wealth can be taxed, and Singapore may eventually have to consider raising income or consumption levies in the future for additional revenue.
Described as a tax on wealth by Finance Minister Tharman Shanmugaratnam in his Budget speech on Monday, the Budget's progressive tax measures include tiered tax rates for property and vehicle ownership.
Those tax changes are not necessarily aimed at wealth gaps only.
"The underlying rationale behind these announcements may be seen in the wider context of the government's strong resolve to cool the hot property market here by discouraging investment in residential homes, and to dampen car growth rates on our increasingly crowded roads," said Alan Lau, KPMG's head of financial services, tax.
But the progressive aspect of the policies - the tiered impact of the higher taxes - has not been lost on observers.
"What's happening around the world is income disparity is becoming more severe," said Jimmy Koh, head of research and investor relations at United Overseas Bank. "That's why I think this Budget is quite interesting because it's quite innovative - whether it works or not is another thing, but at least they're trying."
But progressiveness can be a delicate tight rope. "It has to be a holistic and balanced approach, and you have to be very careful about taking progressiveness too far as you have seen in some Scandinavian countries where it acts as a constraint on incentives to work and doing business," said Leif Eskesen, an economist at HSBC Global Research.
Singapore's approach to revising property and vehicle taxes, rather than income tax, drew praise for seeking to distinguish between how much a person has versus how much a person works.
"Sometimes, wealth is not the result of hard work," UOB's Mr Koh explained. "It could be inherited, for example . . . Income is more directly correlated to working hard."
Poh Eng Hin of Nanyang Business School said that a property tax was less distortionary on the market.
"If you're very rich, I doubt you're going to give up your bungalow just because you're taxed more," Prof Poh added. "It shouldn't be as distortionary as an income tax, that's my gut feel. It's an existing tax, there's no need to put in a new administrative mechanism; and there's a high correlation between people's dwelling and their income or wealth status."
Assets were also probably one of the least sensitive areas to improve a more progressive tax regime, the observers said.
A capital gains tax, for example, would potentially be progressive because the affluent are more likely to have more capital gains, but to impose one would mean a sharp departure for Singapore, which has never taxed capital gains.
"A capital gains tax is really rewriting the Singapore economic model," Mr Koh said. "It's a city where it's capital gains tax free."
A revision of the Goods and Services Tax (GST) to exclude staples or to tax luxuries more heavily has been raised before as a possible way to make the consumption duty less regressive, but actual implementation can be problematic.
"Tweaking the GST system to increase its progressiveness may also be administratively difficult and undesirable," KPMG's Mr Lau said. "Other countries which have attempted to levy a higher GST rate on luxury groups consumed by the higher-income group have shared that such tweaks are often controversial and tedious to implement. This is largely because of the difficulty in determining which products should be categorised as luxury goods."
The experts also noted that the existing GST voucher for lower-income households is a progressive accessory to a regressive tax.
Reinstating the estate duty, which Singapore repealed in 2008, would also run counter to the country's drive to grow as a private wealth management hub.
"A lot of the wealth management centres around the world, they don't want to have that," Mr Koh said.
The analysts largely expected the government to hold off on further steps to make our tax system even more progressive, in order to gauge the impact of the latest measures.
Tax is also not the only avenue in which the government attacks wealth disparities.
"A tax is just to raise tax revenue," Prof Poh said. "You can have a regressive tax, but if you can redistribute handouts in a progressive way, it can still be progressive on the whole. You have to take into account the entire system."
But if the public expenditure were to continue rising - not far-fetched considering the current focus on improving infrastructure - increasing taxes on wealth assets may not be enough.
"At the end of the day, when you've done the low-lying fruits like property or cars, you either go for a capital gains tax or raise marginal tax rates for high-enders," said OCBC Bank economist Selena Ling. "Or in the past, you'd do the GST, which they say is regressive, but at least you don't hamper the work incentive."
Ms Ling noted that discussions about raising the GST rate may be put on the shelf for now given the pains of the current economic restructuring efforts.
"I think that will be hugely unpopular," she said.