Reuters article about implicit taxes in SG

[Genie47]

http://www.reuters.com/article/2011/08/05/...E7740EP20110805

 

COLUMN-Singapore tax myths: David Cay Johnston

 

The author is a Reuters columnist. The opinions expressed are his own.

 

By David Cay Johnston

 

Aug 5 (Reuters) - This tropical city-state of 5 million people stands out as a model of low taxes, economic freedom and private property rights, or so say such U.S. organizations as the libertarian Cato Institute and the Heritage Foundation, which want to cut American tax rates and public benefits.

 

The reality is quite different, for beyond the posted official tax rates lies a much less visible array of what economists call implicit taxes. Singapore does not have the kind of government openness that many Americans take for granted. Add the obvious taxes to the implicit ones and you get a high tax society, especially for affluent wage-earners with no capital income.

 

On the surface Singapore is a beautiful and well-run city with clean and smooth streets. Public toilets are as spotless as automated subway cars. Beggars are as hard to find as uniformed police, who rely on cameras to survey the streets. But even though Singapore is widely perceived as moving toward a more open society, old ways persist and many people still look around and then speak sotto voce about economic, legal and business matters.

 

"There are many things here that are known, but not spoken of" is a phrase, with variations, spoken often here to those who ask probing questions about the public purse.

 

IMPLICIT TAXES

 

The implicit taxes are the result of an advanced and sophisticated form of corporate socialism. In the United States public access to how tax dollars are spent declines with each new official function outsourced to contractors. In Singapore, there are disclosures, but the details of public finance remain mostly hidden behind official walls because under Singaporean law the public has no rights to such information.

 

Singapore's published tax rates are low, to be sure. Singapore's top personal income tax rate is just 20 percent, with the first S$20,000 exempt from tax and the next S$10,000 taxed at 2 percent. Little or no tax applies to capital incomes and earnings abroad.

 

Buy a car, though, and you will see your tax bill soar. A Toyota Camry runs more than S$100,000, equal to US$81,500, because the government taxes cars directly and imposes a second levy, a certificate of entitlement to own a vehicle. Drive during commute hours and automated tolls are imposed under the Electronic Road Pricing system, or ERP, which cynics say is an acronym for "everyday rob people."

 

As one tax lawyer explained: "The statutory tax is very low so if you make a typical income, say $60,000, you will pay less than $2,000 in income tax, less than 3 percent, but then you buy a car that you can keep for maybe 10 years and you pay $70,000 to the government and now your real tax over the 10 years is $9,000 each year, which is 15 percent of your income."

 

Modest apartments sell for S$400,000 to S$500,000 (US$325,000 to US$406,000), while nice ones sell for three or more times as much. Buy a second unit and sell within a year and the government imposes a 16 percent stamp duty on the entire transaction, not just any gain. The charge is intended to tamp down real estate speculation, but is tantamount to a real estate wealth tax.

 

LEAST CORRUPT

 

The government builds 85 percent of the housing here, giving it vast influence over housing prices. People who live in their apartments, or hold second ones for more than four years, enjoy tax-free gains when they sell.

 

The government provides a vast array of tax incentives, one-time tax rebates and other programs for local residents, promoting itself as working to increase incomes by 30 percent in the next 10 years, a sharp contrast to the United States where average income in 2009 fell to the 1997 level.

 

In the annual budget address, parliament was told the government's tax-and-spend policies were designed to "enable Singapore to be a first-rate developed society a decade from now."

 

The country is perceived as one of the least corrupt in the world, ranking in 2010 at the top with Denmark and New Zealand and just ahead of Finland and Sweden, according to Transparency International. That officials are not on the take goes partly to draconian criminal laws and partly to salaries. The president is paid a multimillion dollar salary and even bus drivers and customs officers make a comfortable wage.

 

One indicator of the size of government is the small share of the economy attributable to consumption. In America it is around 70 percent and in much of Asia 60 percent. In Singapore it is around 40 percent with government finance explaining much of the difference.

 

With a central bank and a tax regime accommodating to international business, Singapore has attracted enough financial companies and regional corporate offices to build a rapidly expanding forest of modern skyscrapers in the financial district. When the markets close in the afternoon, the streets and the underground walkways become a frothy torrent of white-collar workers rushing to their apartments, many financed by a government authority.

 

The office towers, their air-conditioned interiors as cool as San Francisco in September, loom beside a gigantic casino-hotel-shopping complex on the waterfront. Three wavy hotel towers rise from it, supporting an entertainment complex the size and shape of an ocean liner that seems to ride on waves of steel.

 

PROFITABLE MONOPOLIES

 

Equities analysts expect gamblers to lose more money in the two casinos here in 2012 than in all of Las Vegas, even though local residents must pay S$100 just to get in, a fee that supposedly discourages those who live on the margins.

 

Most of the money the casinos win is imported, especially from mainland Chinese players, a net flow of money into Singapore. The Singapore government promotes this as a benefit that also holds down taxes, but it also is a detriment to countries whose players leave their money in Singapore.

 

The state licenses the casinos, but it owns many other enterprises. Through its Temasek Holdings [TEM.UL] investment fund, the government owns Singapore Power [sINTT.UL], which distributes natural gas and electricity.

 

Temasek also owns MediaCorp Pte Ltd, which in turn owns Singapore broadcast, print and online outlets galore. Temasek also owns 54 percent of SingTel, as the Singapore Telecommunications Limited (STEL.SI) phone company is known. It owns 55 percent of Singapore Airlines (SIAL.SI). It owns large parts of the subway, plus taxi companies, as well as banks, financial services companies, engineering firms and other enterprises.

 

The trade-off is that many of these firms are profitable local monopolies whose profits help hold down income tax rates. But would competitive, independent companies charge less and deliver more?

 

COMPULSORY SAVINGS

 

The government also runs a compulsory savings system. Workers must set aside up to 20 percent of their pay with employers adding up to 16 percent, which is just additional wages put into the plan. However, people do not get a high degree of clarity in disclosure statements because the mandatory savings scheme is not just for retirement, but also for medical care and for the most part housing.

 

One academic economic analysis of the S$185.8 billion Central Provident Fund calculated that over 21 years workers got a real annual return of just 1.2 percent on their mandatory savings, lagging both growth in wages and the overall economy. Over a similar period, returns were estimated around 5.3 percent annually. When the fund earns more than it credits to worker accounts the net difference, the economists wrote, "is a recurrent annual tax on CPF wealth. It is both large and regressive."

 

Visit such public buildings as schools, and you'll find government enterprises listed as donors, though it is really the taxpayers' money funding these seemingly philanthropic contributions. So while individual accounts grow slowly, at least the extra earnings go to public benefits.

 

The government publishes annual reports with limited information about its investments. Two local intellectuals who have tried for years to fathom the finances said asking the government for details is a waste of time. "They simply won't tell you," said one, pleading not to be identified.

 

So the next time you hear Capitol Hill regulars telling you that Singapore is the way to go, ask yourself if you like the idea of government as omnipresent investor. Ask yourself about how much you like the idea of implicit taxes like those that feed the Singapore government. (Editing by Howard Goller) ($1 = S$1.23) ([email protected])

[Kr_toy]

Well, this article has too many agendas and misfocus. The issue is not about implicit taxes, but no-transparency, but they twist it as like the problem is with the taxes.

In regards income taxes, the SG tax rate is great, only just with the last few years inflation, the real benefit taxpayer get from the tax is much less and most of it pocketed by government or people doing the govt project.

[Expertz]

Well, this article has too many agendas and misfocus. The issue is not about implicit taxes, but no-transparency, but they twist it as like the problem is with the taxes.

In regards income taxes, the SG tax rate is great, only just with the last few years inflation, the real benefit taxpayer get from the tax is much less and most of it pocketed by government or people doing the govt project.

 

it depends on how you read the article, they are saying that the no-transparency is used to cover up implicit taxes which i believe is rather true

however to be fair the article did point out that such implicit taxes do help lower income tax

[Tarzan666]

forgot mention few other tings like public housing which tied most of ur cpf to, high tobacco, liqour tax, gst etc.

[Kiadaw]

It forgot to mention we have no pension (except for the few top officials), & forgettable healthcare & welfare system.

[Good-Carbuyer]

http://www.reuters.com/article/2011/08/05/...E7740EP20110805

 

COLUMN-Singapore tax myths: David Cay Johnston

 

The author is a Reuters columnist. The opinions expressed are his own.

 

By David Cay Johnston

 

Aug 5 (Reuters) - This tropical city-state of 5 million people stands out as a model of low taxes, economic freedom and private property rights, or so say such U.S. organizations as the libertarian Cato Institute and the Heritage Foundation, which want to cut American tax rates and public benefits.

 

The reality is quite different, for beyond the posted official tax rates lies a much less visible array of what economists call implicit taxes. Singapore does not have the kind of government openness that many Americans take for granted. Add the obvious taxes to the implicit ones and you get a high tax society, especially for affluent wage-earners with no capital income.

 

On the surface Singapore is a beautiful and well-run city with clean and smooth streets. Public toilets are as spotless as automated subway cars. Beggars are as hard to find as uniformed police, who rely on cameras to survey the streets. But even though Singapore is widely perceived as moving toward a more open society, old ways persist and many people still look around and then speak sotto voce about economic, legal and business matters.

 

"There are many things here that are known, but not spoken of" is a phrase, with variations, spoken often here to those who ask probing questions about the public purse.

 

IMPLICIT TAXES

 

The implicit taxes are the result of an advanced and sophisticated form of corporate socialism. In the United States public access to how tax dollars are spent declines with each new official function outsourced to contractors. In Singapore, there are disclosures, but the details of public finance remain mostly hidden behind official walls because under Singaporean law the public has no rights to such information.

 

Singapore's published tax rates are low, to be sure. Singapore's top personal income tax rate is just 20 percent, with the first S$20,000 exempt from tax and the next S$10,000 taxed at 2 percent. Little or no tax applies to capital incomes and earnings abroad.

 

Buy a car, though, and you will see your tax bill soar. A Toyota Camry runs more than S$100,000, equal to US$81,500, because the government taxes cars directly and imposes a second levy, a certificate of entitlement to own a vehicle. Drive during commute hours and automated tolls are imposed under the Electronic Road Pricing system, or ERP, which cynics say is an acronym for "everyday rob people."

 

As one tax lawyer explained: "The statutory tax is very low so if you make a typical income, say $60,000, you will pay less than $2,000 in income tax, less than 3 percent, but then you buy a car that you can keep for maybe 10 years and you pay $70,000 to the government and now your real tax over the 10 years is $9,000 each year, which is 15 percent of your income."

 

Modest apartments sell for S$400,000 to S$500,000 (US$325,000 to US$406,000), while nice ones sell for three or more times as much. Buy a second unit and sell within a year and the government imposes a 16 percent stamp duty on the entire transaction, not just any gain. The charge is intended to tamp down real estate speculation, but is tantamount to a real estate wealth tax.

 

LEAST CORRUPT

 

The government builds 85 percent of the housing here, giving it vast influence over housing prices. People who live in their apartments, or hold second ones for more than four years, enjoy tax-free gains when they sell.

 

The government provides a vast array of tax incentives, one-time tax rebates and other programs for local residents, promoting itself as working to increase incomes by 30 percent in the next 10 years, a sharp contrast to the United States where average income in 2009 fell to the 1997 level.

 

In the annual budget address, parliament was told the government's tax-and-spend policies were designed to "enable Singapore to be a first-rate developed society a decade from now."

 

The country is perceived as one of the least corrupt in the world, ranking in 2010 at the top with Denmark and New Zealand and just ahead of Finland and Sweden, according to Transparency International. That officials are not on the take goes partly to draconian criminal laws and partly to salaries. The president is paid a multimillion dollar salary and even bus drivers and customs officers make a comfortable wage.

 

One indicator of the size of government is the small share of the economy attributable to consumption. In America it is around 70 percent and in much of Asia 60 percent. In Singapore it is around 40 percent with government finance explaining much of the difference.

 

With a central bank and a tax regime accommodating to international business, Singapore has attracted enough financial companies and regional corporate offices to build a rapidly expanding forest of modern skyscrapers in the financial district. When the markets close in the afternoon, the streets and the underground walkways become a frothy torrent of white-collar workers rushing to their apartments, many financed by a government authority.

 

The office towers, their air-conditioned interiors as cool as San Francisco in September, loom beside a gigantic casino-hotel-shopping complex on the waterfront. Three wavy hotel towers rise from it, supporting an entertainment complex the size and shape of an ocean liner that seems to ride on waves of steel.

 

PROFITABLE MONOPOLIES

 

Equities analysts expect gamblers to lose more money in the two casinos here in 2012 than in all of Las Vegas, even though local residents must pay S$100 just to get in, a fee that supposedly discourages those who live on the margins.

 

Most of the money the casinos win is imported, especially from mainland Chinese players, a net flow of money into Singapore. The Singapore government promotes this as a benefit that also holds down taxes, but it also is a detriment to countries whose players leave their money in Singapore.

 

The state licenses the casinos, but it owns many other enterprises. Through its Temasek Holdings [TEM.UL] investment fund, the government owns Singapore Power [sINTT.UL], which distributes natural gas and electricity.

 

Temasek also owns MediaCorp Pte Ltd, which in turn owns Singapore broadcast, print and online outlets galore. Temasek also owns 54 percent of SingTel, as the Singapore Telecommunications Limited (STEL.SI) phone company is known. It owns 55 percent of Singapore Airlines (SIAL.SI). It owns large parts of the subway, plus taxi companies, as well as banks, financial services companies, engineering firms and other enterprises.

 

The trade-off is that many of these firms are profitable local monopolies whose profits help hold down income tax rates. But would competitive, independent companies charge less and deliver more?

 

COMPULSORY SAVINGS

 

The government also runs a compulsory savings system. Workers must set aside up to 20 percent of their pay with employers adding up to 16 percent, which is just additional wages put into the plan. However, people do not get a high degree of clarity in disclosure statements because the mandatory savings scheme is not just for retirement, but also for medical care and for the most part housing.

 

One academic economic analysis of the S$185.8 billion Central Provident Fund calculated that over 21 years workers got a real annual return of just 1.2 percent on their mandatory savings, lagging both growth in wages and the overall economy. Over a similar period, returns were estimated around 5.3 percent annually. When the fund earns more than it credits to worker accounts the net difference, the economists wrote, "is a recurrent annual tax on CPF wealth. It is both large and regressive."

 

Visit such public buildings as schools, and you'll find government enterprises listed as donors, though it is really the taxpayers' money funding these seemingly philanthropic contributions. So while individual accounts grow slowly, at least the extra earnings go to public benefits.

 

The government publishes annual reports with limited information about its investments. Two local intellectuals who have tried for years to fathom the finances said asking the government for details is a waste of time. "They simply won't tell you," said one, pleading not to be identified.

 

So the next time you hear Capitol Hill regulars telling you that Singapore is the way to go, ask yourself if you like the idea of government as omnipresent investor. Ask yourself about how much you like the idea of implicit taxes like those that feed the Singapore government. (Editing by Howard Goller) ($1 = S$1.23) ([email protected])

I believe this article to be in order. I could not had written it any better.

[Good-Carbuyer]

it depends on how you read the article, they are saying that the no-transparency is used to cover up implicit taxes which i believe is rather true

however to be fair the article did point out that such implicit taxes do help lower income tax

I believe the writer meant otherwise. More could be done for the lower income instead.

[Good-Carbuyer]

It forgot to mention we have no pension (except for the few top officials), & forgettable healthcare & welfare system.

The poorer people usually donates to sponsor the richer people

[Leok777]

The poorer people usually donates to sponsor the richer people

Just like how we sponsor minister, mm, sm, pres salaries. And 60% voted for this.Incredible! The writer should have added that as well.

[Mllcg]

low income tax at the expense of higher other taxes. hmm. i dunno which is the better poison to drink

Edited August 7, 2011 by Mllcg

[Kiadaw]

Just some thoughts. (correct me if I am wrong in my statement).

 

Our lack of welfare (healthcare, pension, etc) means we are basically on our own, & need to be extra careful with our money. It demote risk & entrepreneurship.

 

We took up so much loan (housing, cars, education for kids), that many of us will be in deep trouble if our savings are wiped significantly, or lose our jobs for more than 6 months (some less).

 

How many here can say they lose their job & can still be decent living & pay their loans in due for more than 6 months?

 

In Germany, for instant, you get pay about 60% of your last drawn pay for a year, & less after, if you are jobless. Its not encouraging people to do this, but it does promote more daring venture & entrepreneurship, as there is more safety net.

 

I also heard some boss saying, you better don't live too long (in Singapore) after you retired, because, you will run out of money within 10-20 years. The CPF scheme is a saving, & like all saving, they can go dry if no input.

 

If you plan well, say rent an apartment out so you have money input every month (which is my 'retirement' plan btw), or have your children s to look after you, then good.

But otherwise, for many people, ...I don't even wanna think about it.

 

Not saying our system is very bad, but I do believe, you better have your own heath insurance plans (which is pretty much like tax for heathcare in other country, academically) & find some form of investment to last your lifetime, (basically, you are on your own in Sunny Singapore), otherwise, you are screwed.

 

I have seen a friend's family (average household) totally wipe of savings & in huge debt due to terminal illness of one member of the family.

Edited August 7, 2011 by Kiadaw

[Kiadaw]

low income tax at the expense of higher other taxes. hmm. i dunno which is the better poison to drink

 

You can think of taxes in other western countries like force savings, or insurance. Like insurance (say car insurance), you may pay a lot every year, but never get the benefit (not that you want) from it.

 

Say (touch-wood), you never lose your job, always healthy. but die in a freak accident young(say toilet bowl drop on your head while you are walking at bottom of your flat). Hence you never get to use the benefit of the system, that you spend so much time putting in. Yu never able to enjoy the 20-30% more disposable on a low income on an otherwise low tax country like Sunny Singapore.

 

However, like car insurance, if something goes wrong, like your heath fail, or lose your job, there is a minimal safety net.

 

 

In Singapore, you have low income tax (although some may consider CPF contribution some form of tax as well, since you cannot use it freely), but you are basically on your own if something goes wrong. You can use the extra disposable income for private healthcare plans, investment, set up business, or whatever. It will benefit those who are careful & invest wisely with their money. For people who don't, its very dangerous, even with saving, as inflation far exceed bank interest.

 

Thats my 2 cents

[Freestylers09]

You can think of taxes in other western countries like force savings, or insurance. Like insurance (say car insurance), you may pay a lot every year, but never get the benefit (not that you want) from it.

 

Say (touch-wood), you never lose your job, always healthy. but die in a freak accident young(say toilet bowl drop on your head while you are walking at bottom of your flat). Hence you never get to use the benefit of the system, that you spend so much time putting in. Yu never able to enjoy the 20-30% more disposable on a low income on an otherwise low tax country like Sunny Singapore.

 

However, like car insurance, if something goes wrong, like your heath fail, or lose your job, there is a minimal safety net.

 

 

In Singapore, you have low income tax (although some may consider CPF contribution some form of tax as well, since you cannot use it freely), but you are basically on your own if something goes wrong. You can use the extra disposable income for private healthcare plans, investment, set up business, or whatever. It will benefit those who are careful & invest wisely with their money. For people who don't, its very dangerous, even with saving, as inflation far exceed bank interest.

 

Thats my 2 cents

 

 

ya i agree what u said

 

btw car COE, it not everyone also wana buy car..so cannot said it's a hidden tax imho

 

coz i dun drive also..LOL

[Sosaria]

Actually all these ang mohs go around criticising, but secretly would LOVE their govts to be able to hike some taxes especially for the affluent in their society. But these are unpopular ideas that their govts will never have the courage to implement, becos they might be voted out!

 

And so their societies languish in a state of decline and all their much-vaunted welfare programmes are slowly crumbling away for lack of revenue. They'll eventually reach a state of little welfare, little income and little tax revenue, and realize that you can't have something for nothing...

 

The problem in the USA now is partly due to their govt being unable to raise tax revenues which are sorely needed. Instead they have to go for spending cuts which will ultimately hurt their society. I think their president would love to implement some kind of COE/ERP system also - with the number of cars there, it'll probably enough to support their defence bill alone... but might not survive re-election!

 

COE, ERP here are viewed as tax, but personally I think we can easily avoid this tax if we wish... just don't buy or use a personal vehicle, and avoid "feeding" the govt with this kind of tax. The main problem I see here is too much revenue, and unwise/unnecessary spending and wastage in some areas.

Edited August 7, 2011 by Sosaria

[D3badge]

It forgot to mention we have no pension (except for the few top officials), & forgettable healthcare & welfare system.

 

You also forget it is the welfare system that contribute to most of the US debt including the PIIGS countries

[Freestylers09]

You also forget it is the welfare system that contribute to most of the US debt including the PIIGS countries

 

 

Exactly!

[D3badge]

You can think of taxes in other western countries like force savings, or insurance. Like insurance (say car insurance), you may pay a lot every year, but never get the benefit (not that you want) from it.

 

Say (touch-wood), you never lose your job, always healthy. but die in a freak accident young(say toilet bowl drop on your head while you are walking at bottom of your flat). Hence you never get to use the benefit of the system, that you spend so much time putting in. Yu never able to enjoy the 20-30% more disposable on a low income on an otherwise low tax country like Sunny Singapore.

 

However, like car insurance, if something goes wrong, like your heath fail, or lose your job, there is a minimal safety net.

 

 

In Singapore, you have low income tax (although some may consider CPF contribution some form of tax as well, since you cannot use it freely), but you are basically on your own if something goes wrong. You can use the extra disposable income for private healthcare plans, investment, set up business, or whatever. It will benefit those who are careful & invest wisely with their money. For people who don't, its very dangerous, even with saving, as inflation far exceed bank interest.

 

Thats my 2 cents

 

You see this is many people problem with no discipline, but blame on others. I mention before one should always buy a private health insurance, still cost much much cheaper than having pay high percentage income taxes like UK, US, AUS and have "government" take care of you.

 

but every month, many people priority when receive pay cheque is to think how to finance a nice car or property all nice lux stuff "for faces" rather than build safety net for oneself or families. than s--t happen blames others rather than look into mirror and ask oneself why never prepare

Edited August 7, 2011 by D3badge

[Kiadaw]

You also forget it is the welfare system that contribute to most of the US debt including the PIIGS countries

 

I didn't forget. Just that the article left out this very important information. We pay less tax, but it's because you get nothing much in return as well, or much is provide for the poor or aging(not necessarily affecting yourself). This is a vital peace of information that was left out.

 

 

Its like trying to say that the same camera cost a lot less in shop A vs shop B, but did not mention that shop A have only 7 days warranty, but will charge you extra for memory cards & lens, while shop B have 3 years international warranty with free kit lens & memory cards. Just saying.

 

 

Whether you think Shop A or shop B is better value, is another argument, but vital information must be provided, IMO.