Roll the tapes (and your memory) to the recent MET Gala. If you recall, aside from Kim Kardashian grabbing the headlines with her outrageous all-black-no-face outfit, Alexandria Ocasio-Cortez strutted down the red carpet with a rather unique and controversial dress.
“TAX THE RICH” in red against her white gown.
Her point is clear – as an influential person, she felt the need to kickstart the conversation about fair tax codes and practices in the States.
Nicely summed up by Elgin Seah in his article on “Making The Case for a Wealth Tax in Singapore”, he brought up good pointers about how the tax system in Singapore favours the rich, further emphasising that this issue is not territorial, but rather, a global phenomenon.
FUN FACT: Did you know that Singapore is presented as a tax haven, attracting many ultra-high net worth individuals so that they are on the favourable side of taxation? Singapore’s personal income tax is capped at a maximum of 22%, with 0% for income from capital gains of stocks, dividends, or inheritance.
So, the question is – “Should we tax the rich more in Singapore?”
A TAXING SITUATION IN SINGAPORE
In our opinion, of course logically speaking, it makes sense that since the rich earns more they should be taxed more. This progressive tax system has already been implemented by the Singaporean government, but how effective is it really?
Going to the root of the problem, Singapore has always faced the issue of wealth inequality. The progressive tax system implemented does help to close this gap, however, questions have been raised to whether the government can do more to really bridge this gap.
We’re pretty sure that you’ve heard this phrase - “The rich are getting richer, and the poor are getting poorer”. This is a common phrase and sentiment we hear in conversations with everyday Singaporeans. The political oppositions have long called for new measures to support the less privileged, throwing the ideas of minimum wage and Progressive Wage Model.
Elgin made a great point – instead of focusing on these group of individuals, why not we shift the focus to the ultra-high net worth individuals instead? On the surface, this is a good idea for many reasons, such as:
Referencing the Maslow’s Hierarchy of Needs, self-actualisation sits at the very top. Many ultra-high net worth individuals have fulfilled the needs in the lower spectrum and is constantly looking for ways for self-actualisation. By pushing the agenda of being taxed more, they feel empowered that they can make a difference for the betterment of the Singapore society, with their moral compass pointing North.
Rise of cryptocurrencies
We’re sure many have heard of the crypto boom in recent years, with Bitcoin becoming a character in many portfolios. With more people in Singapore investing and trading in the digital crypto sphere, millionaires can or are born overnight (literally).
The result? The rich get richer, and the poor get poorer, the gap grows. So, tax the rich and help the poor – making the case for a wealth tax in Singapore.
THE FLIPSIDE: AN ECONOMIC TARIFF
Is it really that simple, though? Will taxing the rich help close the wealth gap? If that’s the case, why aren’t many countries implementing a wealth tax?
The answer: economic competitiveness. Sure, we can tax the rich, but at what cost?
The ultra-high net worth individuals hold a lot of power, and they know it. Every country looks to attract them for them to park their assets and cash in the country. So, if the Singapore government implements a wealth tax, their money moves as well. The rich will move to other countries, reducing the competitiveness in the economy.
The result of such a move can potentially be detrimental to the economy and society at large. As the ultra-high net worth individuals move out of the country, so does their 22% worth of tax dollars.
With lower tax income for the government, the capacity to drive innovation and spur change that will benefit the society will decrease as well – it’s some sort of an economic vicious cycle. If that’s the case, Singapore’s strong reputation as one of the most competitive economy will wither with time.
How do we solve this inequality? There’s no model answer for what happens if we impose a wealth tax, or if we don’t. The fact is there’s never going to be a black or white, clear-cut answer for this.
However, all we can do is to suggest solutions, analyse the pros and cons, and eventually make a case for our point of view.
Here are some of our takes and suggestions (feel free to agree to disagree!):
Optional wealth taxes
Who doesn’t love having a choice? The ultra-high net worth individuals certainly do. By offering them a choice to impose a set rate of a wealth tax that is aligned with the government, they have the opportunity to give back to society without leveraging on tax incentives from charitable donations or acts.
Alternative tax incentivising schemes
Aside from granting tax incentives on charitable acts, the government can incentivise through other means. This could in the form of first refusal rights for a new land or property, or any other non-monetary incentives.
When it comes to the moral compass for the ultra-high net worth individuals, they hold the aces in pointing it in the right direction. Some may go for philanthropy to fulfil their needs of self-actualisation, and in turn lower their taxes, while others really do have the heart to do good.
Quoted from Henning Wehn, a German stand-up comedian, “We don’t do charity in Germany. We pay taxes.”
Feel free to share your thoughts in our forum thread, and also share your opinions on having a wealth tax in Singapore! We’d love to take this discussion forward.
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Great insights! I think it's important to also look at the ultra-high net worth individuals' tax substance as a key consideration on whether we should be inviting and attracting this group of individuals into Singapore.
Agree on the wealth tax - feel it could be something that is not mandatory, but stated in the regulations for those who wish to contribute more to society.
Just another thought, how much do you think is reasonable for a wealth tax?