Tax Write-up: Why Was Singapore Singled Out by the Oxfam Report?

By Joshua and Wayne (Research and Training Department)

Ever since the blockbuster “The Crazy Rich Asians”, much light has been shone unto Singapore’s income disparity. In the recent Oxfam report, Singapore has been ranked as the 149th among 157 countries based on efforts made to close the income gap between the rich and poor. Timor Leste, Vietnam, Bangladesh and Myanmar were among the countries that were ranked above Singapore. Quoting from the article, one of the main reasons attributing to the poor ranking is the lack of higher tax rates imposed on the higher income class in Singapore. In this short write-up, we would like to discuss and evaluate Singapore’s income inequality in relation to our personal tax rates.

As a country with no natural resources, it is only through high human capital that we grow our economy. Therefore, Singapore needs to keep its tax rates lower than other countries in order to stay competitive and attract foreign talent inflow and companies to set up operations. If Singapore were to adopt higher tax rates, companies might not set up operations here and many high-skilled jobs would not have been created, most likely resulting in a floundering economy, higher unemployment rates and higher costs to support these citizens. Furthermore, if there are high unemployment rates, tax collected might be less (although this may be offset by the higher tax collected from both individuals and remaining corporations), and coupled with high cost social security programs to preserve their citizens’ welfare, it may have the reverse effect of inequality.

In Singapore, the progressive tax rate system is adopted where workers earning less pay a smaller proportion of their income and workers earning more pay a higher proportion of their income. It is intuitive that citizens on high payrolls are contributing more towards Singapore’s nation building and funding of subsidy programmes for the poor, tackling inequality in an effective manner as the report highlighted. In contrast, citizens who earn little still pay a high proportion of their income in taxes for welfare states, and this disadvantages them financially as compared to Singapore’s tax system.
The progressive tax rate system adopted by Singapore achieves both horizontal and vertical equity. Horizontal equity is achieved because Singaporeans who have the same amount of wealth, or similar levels of income, are taxed at the same rate as others within that same income bracket. Vertical equity is also achieved because Singaporeans who have more economic resources or earn more money, are taxed higher than those who earn less. For individuals with an annual income above $40,000, the tax rate increases progressively for every $40,000 earned until a cap of $320,000.

By no means are we saying that income inequality does not exist in Singapore. Singapore is not a perfect nation and thus they are definitely not spared by income inequality. This is an issue that the government acknowledges and has been trying to address. Through the years, Singapore has been trying to find an optimal income tax level to ensure Singapore competitiveness and relevance. In the recent year 2017, the government revised the tax structure and raised the top marginal personal income tax in Singapore from 20 to 22%.
In conclusion, there is no one-size fits all approach in tackling inequality. As a small nation with prudent governance, it should not be necessary for Singapore to spend large amounts of money on social security programmes nor fund them through high tax rates as this could be detrimental to the economy instead. As such, it is suggestive that Singapore’s ranking in the Oxfam report is not the best reflection of the actual situation as it uses welfare state-esque indicators like high public expenditure and high taxation rates.


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