Singapore will raise the tax on rich as it settles the cost of COVID-19
Singapore will raise the tax on rich as it settles the cost of COVID-19

Singapore will raise the tax on rich as it settles the cost of COVID-19

View of Singapore Central Business District Skyline March 26, 2021. REUTERS / Edgar Su

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SINGAPORE, Feb. 18 (Reuters) – Singapore will begin implementing a long-term marked increase in its excise duty next year, its finance minister said in his budget speech on Friday, while also announcing a series of tax increases targeting higher-income groups.

The movements come as Singapore emerges from a pandemic-induced economic downturn, but goes a tight rope in maintaining its appeal as a global financial hub, while guarding against local concerns about rising wealth inequality and rising cost of living.

GST will rise to 8% from January next year and to 9% by 2024, said Lawrence Wong, from 7% now. The government also plans to raise income taxes for high-wage earners, raise taxes on residential properties and impose higher taxes on luxury cars.

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“These tax adjustments will help raise additional revenue and also contribute to a fairer revenue structure,” Wong said.

Singapore has sought to raise revenue to fund future spending, which it estimates could reach more than 20% of gross domestic product (GDP) by 2030, especially as it increases healthcare spending in one of the fastest aging countries.

Over the past two years, the government has committed close to S $ 100 billion to mitigate its people, businesses and economy against the impact of the COVID-19 pandemic.

Wong announced an additional S $ 500 million ($ 372 million) package to support jobs and businesses as part of his budget proposal and proposed setting aside S $ 560 million to help Singaporeans cope with rising living costs.

The government expects a total deficit of S $ 5 billion for 2021, and Wong unexpectedly expects a deficit of S $ 3 billion for 2022. Total expenditure for 2022 was forecast at S $ 102.4 billion against S $ 98.4 billion the year before.

Analysts had expected a return to a profit.

The budget was more expansive than expected, said MUFG analyst Jeff Ng, adding that the government was addressing the still uneven recovery in the economy.

Singapore’s economy, which is heavily dependent on global trade, is expected to grow 3-5% this year as it continues to reopen its borders and ease COVID-19 restrictions.

The economy grew 7.6% in 2021 after a record decline in 2020.

Nevertheless, the recovery in some sectors, such as those in aviation and tourism, is expected to take longer as virus problems continue.

Wong said the government will spend a total of about $ 9 billion ($ 6.70 billion) over the next five years on measures to help its low-wage workers. It will also spend on schemes to build digital opportunities for businesses and workers.

The government will further tighten its foreign workers’ policy and increase the wage thresholds for issuing work visas.

As part of its ambition to achieve net zero emissions, the government will also raise carbon taxes from 2024. Read more

Wong said the corporate tax system needed to be updated following a global agreement on a minimum corporate tax rate, and considered a move that would increase the effective tax rate for multinationals to 15%.

Singapore, a low-tax jurisdiction in which several multinational corporations, including Alphabet’s (GOOGL.O) Google, Microsoft (MSFT.O) and Facebook (FB.O) has regional headquarters, has a rate of 17%, but provides incentives and schemes that reduce the effective rate.

Wong said the government was closely monitoring the risk of rising inflation, driven by a recovery in global demand, continued supply chain disruptions and, in particular, rising energy prices.

The government has set aside a $ 6.6 billion package to help mitigate the impact of the GST increase.

The monetary authority in Singapore tightened its policy options in January in its first out-of-cycle move in seven years as the economic recovery won out and the price rose. It is generally expected to tighten again at the scheduled political meeting in April.

The city state’s core inflation in 2022 is expected to be 2-3% and total inflation at 2.5-3.5%.

($ 1 = 1.3431 Singapore dollars)

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Reporting by Aradhana Aravindan and Chen Lin; Edited by Martin Petty and Kim Coghill

Our standards: Thomson Reuters trust principles.

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