The minister for finance presented the 2010 budget statement

Published:

This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

1.0 Introduction

On 22 February 2010, the Minister for Finance presented the 2010 Budget Statement. A year ago, Singapore was in the midst of the worst financial crisis ever facedand the budget delivered a "resilience package" to help Singaporeans tide through the difficult period. This year, the crisis has largely subsided and the latestbudget has been geared towards the long term sustainable growth of the Singaporean economy and its people.

The main aim of the 2010 budget with regard to individuals is to boost their productivity, confidence, resilience, employability and competitiveness. The 2010 budget aims to achieve this by providing supports for individual growth and upgrading among other measures.

2.0 Personal Income Tax Rate and Rebates

YA 2009

Income tax rates for Singapore tax residents range from 3.5% for the first S$30,000 of chargeable income to 20% for chargeable income exceeding S$320,000. A one-off personal income tax rebate of 20% (capped at S$2,000), was accorded to all resident taxpayers for YA 2008 and YA 2009.

Proposed changes

No change in income tax rate. Also, the one-off personal income tax rebate of 20% (capped at S$2,000) will not be given in YA 2010.

Effective date

YA2010

Comments

While Singapore's tax rates are one of the lowest in the region, its top marginal income tax rate is still 3% higher than that of Hong Kong at 17% (refer to Fig 1). However, due to differences in the rate of progression of Singapore's personal tax rate, income tax paid by Singaporean tax residents earning between S$89,000 and S$470,000 is lower than a tax resident of Hong Kong (refer to Fig 2). The implication is while some Singaporean tax residents may be exposed to higher tax than in Hong Kong, Singapore's income tax rates on a whole are still as competitive as Hong Kong's, particularly for professionals who would likely earn around S$100,000-S$200,000.

With the cessation of individual tax rebate, the tax burden on individuals will be higher; hence individuals would have incentive to take up more work to generate the same level of income for sustaining their current standards of living. Furthermore, individuals may also aim to improve their competitiveness to generate more income. This is in line with the government's initiatives to increase overall productivity of workers in Singapore.

The much anticipated issue of reducing personal income tax rates to match up with the current corporate income tax rate of 17% was left unaddressed. The 3% difference between the 20% top personal income tax rate and the 17% corporate tax rate might encourage highly successful entrepreneurs to corporatize their business rather than run it as asole proprietorship or partnership.

With significant expenditure on transforming Singapore into a highlyproductive, innovative, and knowledge-based economy, it may not be an appropriate time to cut income tax rates. However, given that inflation of consumer prices continues to reduce the spending power of households, we feel that the Finance Minister should reconsider adjusting the personal income tax rate in the near future.

3.0 Tax deduction for angel investors

YA 2009

No tax deduction for cost of equity investments by angel investors as it deemed to be capital in nature.

Proposed changes

  • Eligible angel investor has to commit a minimumof S$100,000 of equity investments in a qualifying start up in each YA
  • The approved angel investor would be eligible for a tax deduction of 50% of his investments at the end of two-year holding period
  • Tax deduction is subject to a cap of S$500,000 of equity investments in a qualifying start up for each YA
  • The incentive applies to qualifying investments in qualifying start-ups made during the effective period
  • The incentive would be administered by SPRING Singapore
  • More details on this scheme will be released by June 2010

Effective date

1 March 2010 to 31 March 2015 (both dates inclusive)

Comments

The most challenging period for a start-up company are the early stages where uncertainty puts them at adisadvantage in securing financing, leading to inadequate cash-flow. The 50% tax deduction for angel investors provides private individuals, who possess appropriate investment and business expertise, with incentive to provide financing to qualifying start-up companies. Furthermore, the two-year holding period requirement will ensure that angel investors take a long-term approach towards their investment and be actively involved in the nurturing of the start-up.

As investors are compensated regardless of the outcome of the investment, these tax incentives would foster greater entrepreneurial spirit and risk taking. However, this does not mean that individuals can now take excessive risks or invest based on speculations. In fact, the cap of S$500,000 tax deduction per year prompts investors to conduct careful research to understand the industry and make an informed decision so as to pick the right start-up.

While this scheme brings cheers to start-ups and individual investors, its ultimate success depends on the fine prints that would be announced by SPRING Singapore in July 2010. The definition of "approved angel investors", "qualifying investments" as well as "qualifying start-up" will need to be known before the full impact of the scheme can be ascertained. Individual investors may not be strictly better off because the 50% tax deduction would be restricted to investment income, such as interest or dividends. If this is the case, the tax deduction may be ineffective, since most investment incomes other than some types of interest are already fully tax free for individuals.

4.0 Tax reliefs

The before and after positions in respect of tax reliefs are summarised below:

4.1 Increase in Parent Relief

YA2009

A tax resident can claim parent/handicapped parent relief if he/she is supporting his/her own or his/her spouse's parents, grandparents or great-grandparents who must:

  • Be living in Singapore
  • Be 55 years old or above or physically/mentally handicapped; and
  • Have netincome of less than S$2,000 per dependent in the year

The parent/handicapped parent relief is as shown in Fig 4.

S$ Current rate (Proposed rate)

Parent Relief

Handicapped Parent Relief

Dependent not staying with taxpayer

3,500 (4,500)

6,500 (8,000)

Dependent staying with taxpayer

5,000 (7,000)

8,000 (11,000)

Proposed changes

Quantum of all categories is increased as in Fig 4.

All existing qualifying conditions (as mentioned above) for parent relief continue to apply, except for the current income threshold of S$2,000 that would be increased to S$4,000

The income threshold condition for handicapped dependent is removed.

Effective date

YA2010

Comments

This proposed change is aligned with the current social situation of declining birth rates and anaging population. More elderly dependents are being supported by fewer children. The overall quantum increase in parent relief recognises the contributions of individuals who look after their parents, grandparents and great-grandparents in their old age. The tax savings from the increase in relief could generate higher standards of living among the low to lower-middle income families.

The increase in income thresholds for each dependent from S$2,000 to S$4,000 encourages the elderly to work without worrying that they will exceed the income threshold.

4.2 Expansion of Wife Relief to Spouse Relief

YA2009

Male resident taxpayers may claim wife relief of S$2,000 if he was living with this wife or supporting her in the previous year so long as her income does not exceed S$2,000 in the previous year.

Proposed changes

The wife relief would now be known as spouse relief. It would be available to either husband or wife who supports their dependent spouse who has annual income not exceeding S$4,000.

Effective date

YA 2010

Comments

The proposed changes reflect the changes in Singaporean society where more married women are working than before and are sometimes the sole breadwinner for the family. This extension of the wife benefit to spouse benefitwill help such families where the wife is the breadwinner due to choice or perhaps due to the husband being retrenched.

This promotes a change in mindset that the husband must be the sole breadwinner. Furthermore, it encourages a change of roles between spouses when the husband is unable to work or when the wife is more capable. In addition, where there are children in the family, this scheme encourages the dependent spouse to remain at home to look after the children instead of leaving them in the care of the maid or grandparents, allowing more family bonding with the children during their formulative years. Furthermore, the increase in allowable annual income for the dependent spouse helps to alleviate some of the stress caused by rising prices and inflation.

The increase in threshold limit from S$2,000 to S$4,000 encourages both husband and wife to take up more incidental jobs, helping to increase worker productivity and also the resilience of families during future economic downturns.

4.3 Enhancing Income Threshold

YA2009

Resident taxpayers may claim the following dependent-related reliefs as long as the dependent income is not more than S$2,000 in the previous year:

  • Handicapped siblings relief
  • Wife relief
  • Handicapped spouse relief
  • Parent relief
  • Handicapped parent relief
  • Qualifying child relief
  • Working mother's child relief
  • CPF cash top up relief for top up to the CPF account of spouse or siblings

Proposed changes

The income threshold of S$2,000 will be increased to S$4,000. Further, for handicapped dependent related reliefs, the income threshold conditions will be removed.

Effective date

YA 2010 (except for CPF cash top-up relief for top-ups to CPF account of spouse or siblings, for which changes will be effective from YA 2011)

Comments

The current income threshold of S$2,000 has been in effect since YA 1998. Considering the inflation in wage rates and prices over the past 11 years, the proposed increase is very welcomed. It recognizes taxpayers' efforts in supporting dependent family members and encourages fairly able dependents to be engaged in some work to keep an active life. Increasing the threshold will enable more individuals to take incidental jobs without worrying about exceeding the limit. As such, these individuals can be more productive and competitive socially and individually. This also trains their resilience as they look into various avenues of generating additional income.

The removal of the income threshold for handicapped dependent related reliefs is in recognition of the extra time, effort and money needed to provide care for the disabled. This will also help encourage the disabled to try to lead a more fulfilling and active life, at the same time contributing towards household income to relieve some of the monetary burden.

The income threshold for the CPF top-up relief for top-ups to the CPF accounts of spouse or siblings will only effective from YA 2011. This allows advance planning for top-ups to be made in 2010 and at the same time, it would not disadvantage those who have already planned to top-up in 2009 based on the S$2,000 income threshold.

5.0 Increase in Course Fees Relief

YA 2009

A tax resident individual may deduct up to S$3,500 for course fees in a year provided:

  • The course, seminar or conference is related to his/her existing trade, business, profession or employment (TBPE)
  • Where the course, seminar or conference is not related to his/her existing trade, business, profession or employment at the time it was undertaken but is subsequently relevant due to a career change within prescribed periods; or
  • It leads to an approved academic, professional or vocational qualification

Allowable course fees include:

  • Registration or enrolment fees
  • Examination fees
  • Tuition fees
  • Aptitude test fees (for computer courses)

Living expenses, textbooks and travelling expenses are not allowed.

Proposed changes

The course fee relief is increased from S$3,500 to S$5,500.

Effective date

YA 2011

Comments

The increase in course fees relief encourages and supports life-long learning and training in order to maintain employability among workers as well as to improve their job quality. This is in line with the government's effort to raise productivity by enhancingthe skills and expertise in the workforce.

Through constant learning and skills upgrading, individuals can become more resilient during the economic downturn. Individuals will be more productive and versatile as they pick up new skills and learn new knowledge from taking up new courses. By attending courses, individuals will have greater opportunities to explore different career prospects and paths, and this can help improve job satisfaction among Singaporeans. Lastly,this also encourages individual growth and stretches their potentials as they develop themselves through learning and exploring of new job opportunities. This might benefit for instance lower income workers who may find higher paying jobs and improve the standard of living for their families.

6.0 Withholding Tax Rates for Non-Resident Public Entertainers

YA2009

Non-resident public entertainers are taxed at 15%.

Proposed changes

Tax rate for non-resident public entertainers is reduced to 10%.

Effective date

Remain in effect until 31 December 2015.

Comments

Singapore is rapidly making a name for itself on the world stage as an entertainment hub. Lowering the tax rate for non-resident public entertainers encourages the influx of more public entertainers, and should provide a helpful boost to the entertainment and tourism industries which are still in their relative infancy stages in Singapore. This is in line with the government's push to make Singapore a global arts hub, and also encourages more performers to perform in Singapore's new and upcoming Integrated Resorts.

With more public entertainment, individuals will have more choices in leisure. Through frequent exposure to arts, individuals may grow more creative and learn to appreciate the arts, hopefully leading to the birth of creative geniuses and new industries within Singapore. However, it is also possible that certain public entertainments may bringabout adverse influence to the populace; particularly the young if parental guidance is absent.

7.0 Enhancement of Tax Deduction on Donations

YA2009

All donations to IPCs and other approved recipients (such as approved museums and prescribed schools) qualify for double tax deduction under the ITA. These include both cash donations and approved donations-in-kind such as computers and artifacts.

However, due to the economic downturn, the double tax deduction (200%) was increased to an enhanced tax deduction rate of 250%. This temporary enhancement was applicable to donations made during YA2009.

Proposed changes

The 250% enhanced tax deduction has been extended for another year, applicable to all approved donations made from 1 January 2010 to 31 December 2010.

All existing rules for a donation to qualify for the enhanced tax deduction remain the same.

Effective date

YA 2010

Comments

In view of the current economic downturn, the 250% tax deduction would act as an added incentive for donors. This helps charities and non-profit organizations attract much needed donations during these difficult times and benefit the unfortunate individuals for whom these IPCs provide relief for.

Individual donors may benefit more from the tax deduction on donations than corporate donors. For a S$100 qualified donation, corporate donors enjoy an effective tax saving of $42.50 (S$100*17%*250%) while individual effective tax saving could reach a maximum of $50 (S$100*20%*250%), depending on the highest marginal income tax rate that applies to that individual. On a whole, this represents a significant tax-saving due to the changes.

8.0 Extension of Green Vehicle Rebate (GVR) to Imported Used Green Vehicles

YA2009

First introduced in January 2001 to encourage Singaporean drivers to be more environmentally friendly and to support clean emerging technologies, the GVR scheme narrows the cost difference between a green vehicle and the conventional equivalent model.

Under the GVR scheme, owners of brand new green vehicles can enjoy a rebate on the Additional Registration Fee (ARF) as follows:

  • For hybrid, electric and compressed natural gas (CNG) passenger vehicles, a rebate on the ARF equal to 40% of the vehicle's Open Market value (OMV) at registration;
  • For hybrid, electric and CNG buses and commercial vehicles, a rebate on the ARF equal to 5% of the vehicle's OMV at registration; and
  • For electric motorcycles, a rebate on the ARF equal to 10% of the vehicle's OMV at registration.

The GVR scheme is due to expire on 31 December 2011.

Proposed changes

The Minister has proposed to extend the scope of the GVR scheme to include imported used green vehicles following a review of the current scheme. However, the extension will not be applicable to imported used CNG vehicles and vehicles which are required to be brand new at the point of registration (e.g. taxis). The National Energy Agency and Land Transport Authority will announce more details by March 2010.

Effective date

1 July 2010

Comments

In recent years, the government has tried to shape Singapore into being more environmentally friendly. This change is a further effort by the government to make Singaporeans more environmentally conscious by encouraging ownership of green vehicles. Towards this end, the government may also wish to consider further reducing taxes on vehicles with zero or near-zero emissions. Taxes could be levied based on the level of pollutants emitted by a vehicle, further incentivizing Singaporeans to choose green vehicles over conventional ones.

However, with the increase of COE prices due to the reduced supply of COEs, the speed of success of this scheme will be impeded. The government has recently reduced the number of COEs issued each period based on a new method of calculation, not only driving up the prices of the COEs but also reducing the number of newly registered cars on the road. As such, the number of consumers who might benefit from this extension of the GVR scheme is reduced.

9.0 Changes in Property-Related Taxes

9.1 Review of Existing Property Tax Rebate for Owner-Occupied Residential Properties

YA2009

Owner-occupied residential properties are taxed at a concessionary 4% rate instead of 10% for all other properties. In addition, owner-occupied residential properties with Annual Values (AVs) below $10,000 can enjoy the on-going 1994 property tax rebates ranging from $25 to $150 per annum, depending on the AVs of their properties.

Proposed changes

The Minister has proposed that the 1994 property-tax rebates will be replaced by a progressive property tax schedule for owner-occupied residential properties for property tax payable from January 2011 as follows:

  • 0% on first $6,000 of AV;
  • 4% on next $59,000 of AV;
  • 6% on the balance of AV in excess of $65 000

Non-owner occupied residential properties and other properties will continue to be subject to property tax at the rate of 10% of AV

Effective date

January 2011

Comments

AV of property

$20,000

$60,000

$77,000

$100,000

$120,000

Property Tax Payable (Old)

$800

$2,400

$3,080

$4,000

$4,800

Property Tax Payable (New)

$560

$2,160

$3,080

$4.460

$5,660

Impact

-$240

-$240

0

+$460

+$860

Most owner-occupied property owners will enjoy a reduction in property tax due to the exemption applicable to the first $6,000 of AV which works up to a savings of $240. However, due to the higher 6% rate applied on AV in excess of $65,000, owners with homes that have AVs exceeding $77,000 will have zero savings and owners of homes with AVs higher than that will end up paying much more.

Moving to a progressive property tax ratebenefits the low and middle-income households whose homes are unlikely to exceed AVs of $77,000. This will help these households during the difficulties faced amid a recovering economy and rising inflation rates.

This progressive property tax is thus likely to hurts rich individuals since they are the ones living in residential properties with high AV. Through thisprogressive property and incometax system, together with a fixed GST rate, the government is likely hoping to form a system of taxes that is fair for Singaporeans.

9.2 Seller's Stamp Duty

YA2009

There is no seller's stamp duty payable on the sale of residential properties

Proposed changes

Unless otherwise exempted, seller's stamp duty will be payable by sellers of residential properties which are acquired on or after 20 February 2010 and disposed of within one year from the date of acquisition.

Comments

The government abolished the seller's stamp duty payable on residential properties sold within 3 years of purchase in 2003. This newer measure, in addition to changes announced in September 2009 such as the removal of the Interest Absorption Scheme and Interest-Only housing loans and non-extension of property-related measures which expired in January this year, is part of a comprehensive package designed to curb property speculation and stabilise the private and residential property market. By imposing the duty only on those disposing their properties within a year, this can discourage short-term speculation in properties. In addition, the Loan-to-Value limit has been reduced by 20% for all housing loans provided by financial institutions regulated by the Monetary Authority of Singapore.

10.0 Liquor Duty

YA 2009

Duties are applicable on the importation of intoxicating liquor into Singapore. However, travellers aged 18 years old and above arriving in Singapore from countries other than Malaysia, who have spent 48 hours or more outside Singapore immediately before arrival, are eligible to obtain duty-free concessions on liquor at the following maximum quantities:

  • One liter of spirits (brandy, whisky, gin, rum, vodka, etc.)
  • One liter of wine; and
  • One liter of beer or stout or ale or porter

Proposed changes

Starting from 1 April 2010, travellers will have the option to purchase one additional liter of duty-free wine or beer in lieu of one liter of duty-free spirits.

Comments

The proposed change will provide greater flexibility for travellers such that they are able to purchase a total of two liters wine and one liter of beer, two liters of beer and one liter of wine or one liter each of spirits, wine and beer, duty-free. As more and more Singaporeans are travelling nowadays for business or holiday, these individuals can benefit quite a bit from these changes and save more on GST and import duty on liquor upon returning from overseas. For example, if an individual drinks wine only, he can now buy an additional liter of wine without paying import duty and GST, but previously that individual can only buy 1 liter of wine tax free.

11.0 Conclusion

Overall, the proposed changes in the Singapore Budget 2010 benefit the lower and lower-middle income families and individuals, be it in tax reliefs or property-related taxes, in particular the increase of the income threshold cap for reliefs. These measures counter the problem of income inequality in Singapore. Although incomes have risen over the past few years, lower income workers have smaller raise than the average worker. Thus by providing greater financial support, they will better progress with the rest of the society. There is also an element of encouraging greater labour force participation and productivity, by increasing income thresholds for dependents and giving incentives for learning and training.

Comparing with YA2009, a female individual tax payer is able to claim a maximum additional relief of S$7000 (increase in handicapped parent relief = S$3000 + spouse relief for working husband = S$2000 + increase in course fee relief = S$2000, total increase = S$7000), while that of a male individual tax payer is S$5000 (no increase in spouse relief). There are various allowable deductions, e.g. deductions for angel investors, which individual tax payer can claim. Although, personal income tax rebate has been removed for YA2010, individual tax payers can claim more reliefs if they choose to increase their productivity, enhance their skills and take care of their older parents. However, this may not necessarily lower the net tax payable of individuals (see example below) but it certainly encourages individuals to embrace the policies and the direction set by the government in order to raise household income. Below is an example showing how tax computation would be affected by the new reliefs.

Assumptions:

  • Wife is the sole breadwinner, who derived S$84,000 taxable income for year 2008 and 2009, and ages below 55 years old.
  • Husband earned S$3000 for year 2008 and 2009
  • A qualified child earned S$3,000 of income for year 2008 and 2009. Conditions for qualified child relief are satisfied.
  • Both parents are dependent on and living with taxpayer for year 2008 and 2009. All conditions for parent relief are satisfied.
  • Has attended a course that is qualified under Course Fee Relief. The course fee is S$5,500 for year 2008 and 2009. All conditions for course fee relief are satisfied.
  • No donations for both years.

The tax computations are:

YA2009

Gross Income

84,000

Less: Personal Reliefs

Earned income Relief

(1,000)

Parent Relief

(10,000)

Spouse Relief

-

Child Relief

-

Working Mother Child Relief

-

Course Fees Relief

(3,500)

CPF Relief

(10,800)

Net chargeable income

58,700

Tax on first 40,000

900

Tax on next 18,700at8.5%

1,589.5

Tax Payable

2,489.5

Less: 20% one-off  rebate (capped at $2,000)

(2,000)

Net tax payable

489.5 

YA2010

Gross Income

84,000

Less: Personal Reliefs

Earned income Relief

(1,000)

Parent Relief

(14,000)

Spouse Relief

(2,000)

Child Relief

(4,000)

Working Mother Child Relief

(9,000)

Course Fees Relief

(5,500)

CPF Relief

(10,800)

Net chargeable income

37,700

Tax on first 30,000

350

Tax on next 7,700at5.5%

423.5

Net tax payable

609

12.0 Citations

1. Deloitte & Touche LLP. Singapore Budget Commentary 2010: The Road to Recovery.<http://www.deloitte.com/assets/DcomSingapore/Local%20Assets/Documents/Tax/2010/ Singapore%20Budget%20Commentary%202010.pdf>. Cited 24 March 2010.

2. Ernst & Young. Singapore Budget 2010 Synopsis. <http://www.ey.com/Publication/ vwLUAssets/Singapore_Budget_2010_synopsis/$FILE/Singapore_Budget_2010_synopsis .pdf>. Cited 24 March 2010.

3. PriceWaterhouse Coopers Singapore. Budget Commentary: Singapore - 22 February 2010. <http://www.pwc.com/en_SG/sg/budget-commentary/assets/bc2010.pdf>. Cited 24 March 2010.

4. Singapore Government. Singapore Budget 2010 Speech. <http://www.mof.gov.sg/budget_2010/downloads.html> Cited 24 March 2010

[1] The above table is based on latest tax rates as at December 2009.

[2] The income calculated above is based on a married man with two children, his spouse does not derive any income, and the only source of income is from his employment. Exchange rate used: S$1 : HK$5.3975

Writing Services

Essay Writing
Service

Find out how the very best essay writing service can help you accomplish more and achieve higher marks today.

Assignment Writing Service

From complicated assignments to tricky tasks, our experts can tackle virtually any question thrown at them.

Dissertation Writing Service

A dissertation (also known as a thesis or research project) is probably the most important piece of work for any student! From full dissertations to individual chapters, we’re on hand to support you.

Coursework Writing Service

Our expert qualified writers can help you get your coursework right first time, every time.

Dissertation Proposal Service

The first step to completing a dissertation is to create a proposal that talks about what you wish to do. Our experts can design suitable methodologies - perfect to help you get started with a dissertation.

Report Writing
Service

Reports for any audience. Perfectly structured, professionally written, and tailored to suit your exact requirements.

Essay Skeleton Answer Service

If you’re just looking for some help to get started on an essay, our outline service provides you with a perfect essay plan.

Marking & Proofreading Service

Not sure if your work is hitting the mark? Struggling to get feedback from your lecturer? Our premium marking service was created just for you - get the feedback you deserve now.

Exam Revision
Service

Exams can be one of the most stressful experiences you’ll ever have! Revision is key, and we’re here to help. With custom created revision notes and exam answers, you’ll never feel underprepared again.