On February 18, 2022, Finance Minister Lawrence Wong delivered his first Budget speech, which involved several announcements connected to Singapore’s tax system. The primary goal of Budget 2022 is to enhance the country’s preparation for future challenges and opportunities and strengthen its social bond. It aims to help Singapore’s economy recover further from the impacts of the COVID-19 pandemic, global supply chain crises, inflationary pressures, and geopolitical tensions.
Aside from laying down the Government’s plans for the future of Singapore, Budget 2022 also ultimately outlines the highly anticipated tax proposals, particularly the GST, wealth taxes, carbon tax, and an update on the possible Minimum Effective Tax Rate (METR). To understand more about what to expect from Singapore’s tax system in the coming months, this article highlights the most significant tax changes included in Budget 2022.
Possible Introduction of the METR
The Base Erosion and Profit Sharing initiative (BEPS 2.0) is expected to come into force in the following year or two. Its main objective is to charge multinational corporations (MNCs) with profiteering off employees, communities, and the environment, and it comes in two pillars.
The first pillar concerns the reallocation of profit of the most thriving MNEs from the point where activities are performed to where consumers are placed. The second pillar introduces rules that include a global minimum effective tax rate of 15% for MNE groups with annual global revenues of at least S$1.15 billion.
In response to the rules to be laid down by the second pillar, the Inland Revenue of Singapore (IRAS) sees the need to adjust the country’s tax system. To this end, it will study and explore the METR regime further and consult industry stakeholders on the design of this top-up tax.
Two-Step GST Rate Hike In 2023 and 2024
Currently, the standard rate of Goods and Services Tax (GST) in Singapore is 7%. With the coming of Budget 2022, the said rate is expected to be increased to 8% from January 1, 2023, and further topped up to 9% from January 1, 2024.
The postponement of the GST rate increase to 2023 and its implementation in two steps are the ways found by the Government to help cushion the impact of the anticipated hike. This is in addition to the enhanced $6.6 billion Assurance Package already in place to provide Singaporeans with payouts over the next five years and soften the effects of the GST hike on lower-to-middle income households for up to 10 years.
Property Tax Adjustments for Owner-Occupied and Non-Owner-Occupied Residential Properties
Property tax is Singapore’s current primary means of taxing wealth, and it will likely remain so since the Government did not introduce a tax on an individual’s net wealth in Budget 2022. Instead, it will adjust the marginal property tax rates for both owner-occupied and non-owner-occupied residential properties from 2023.
For owner-occupied properties, the property tax rates will gradually increase to 6% to 32% for those properties with an annual value above S$30,000, increasing from the current rates of 4% to 16%.
On the other hand, for the non-owner-occupied properties like investment properties, higher property taxes of 12% to 36% will be put in place, with the hike more significant for high-end estates. This will increase from the current 10% to 20% progressive rates on annual property values.
According to the Finance Minister, the full implementation of this two-step increase in property tax rates will raise Singapore’s property tax revenue by around S$380 million each year.
Additional Registration Fee for Luxury Vehicles
As an additional means to tax wealth, Budget 2022 also includes taxing luxury vehicles in Singapore at a higher rate to make the country’s vehicle tax system more progressive. Notably, the Government will introduce a further Additional Registration Fee (ARF) tier at a rate of 220% for those vehicles with an Open Market Value (OMV) above S$80,000.
This new rate will apply to all vehicles, including imported used cars, registered with certificates of entitlement (COEs) acquired from the second COE bidding round in February 2022. It is expected to bring about an additional S$50 million in Singapore’s revenue each year.
Increased Personal Income Tax for Top Earners
When it comes to personal income tax (PIT), the Government aims to achieve greater progressivity to make those who earn more contribute more. In line with this, Budget 2022 enhances Singapore’s personal tax regime by raising the top marginal PIT rate starting from the Year of Assessment 2024.
Those resident taxpayers who have a chargeable income above S$500,000 to S$1 million will be taxed at a rate of 23%. On the other hand, the portion of chargeable income above S$1 million will be taxed at 24%. These rates are an increase from the current 22% tax on chargeable income above S$320,000.
The new rates are expected to affect the top 1.2% of personal income taxpayers in Singapore and will augment the country’s annual tax revenue with an additional S$170 million.
Raised Carbon Tax Rate Per Tonne By 2030
In 2020, the Government imposed a S$5 per tonne carbon tax on companies that generate at least 25,000 annual tonnes of taxable emissions. To strengthen the country’s efforts to promote eco-friendly business practices and net zero emissions by 2050, Budget 2022 introduces an increase of S$50 to S$80 per tonne of emissions in Singapore’s carbon tax by 2030.
The increase in carbon tax will be done in stages: the first stage will occur in 2024 and 2025 and will see a raise of S$25 per tonne. The second stage will be in 2026 and 2027, covering an increase of S$45 per tonne. The last phase will then occur in 2030. The Government will allow carbon tax-liable businesses to use carbon credits to make up for up to 5% of their taxable emissions from 2024.
All in all, Budget 2022 provides clear and solid directives in areas that will boost Singapore’s competitive edge and social bond and prepare it for a brighter future free from the impacts of several crises that have shackled the world in the past months. With the new tax proposals, Budget 2022 outlines an effective strategy for the country to navigate a new future that is more fast-paced and unstable but full of opportunities.
If you wonder how the new tax changes can affect your business and wish to get ready ahead of time, feel free to get expert advice from Max Lewis Consultants Pte Ltd. We provide GST assisted self-help kits that will help you meet all of your business’ GST-related needs.
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