A progressive tax is a tax in which the tax rate increases as the taxable amount increases. The term “progressive” refers to the way the tax rate progresses from low to high, with the result that a taxpayer’s average tax rate is less than the person’s marginal tax rate.The term can be applied to individual taxes or to a tax system as a whole; a year, multi-year, or lifetime. Progressive taxes are imposed in an attempt to reduce the tax incidence of people with a lower ability to pay, as such taxes shift the incidence increasingly to those with a higher ability-to-pay. The opposite of a progressive tax is a regressive tax, where the relative tax rate or burden decreases as an individual’s ability to pay increases.
The term is frequently applied in reference to personal income taxes, in which people with lower income pay a lower percentage of that income in tax than do those with higher income. It can also apply to adjustments of the tax base by using tax exemptions, tax credits, or selective taxation that creates progressive distribution effects. For example, a wealth or property tax,a sales tax on luxury goods, or the exemption of sales taxes on basic necessities, may be described as having progressive effects as it increases the tax burden of higher income families and reduces it on lower income families.
Progressive taxation is often suggested as a way to mitigate the societal ills associated with higher income inequality,as the tax structure reduces inequality, but economists disagree on the tax policy’s economic and long-term effects. Progressive taxation has also been positively associated with happiness, the subjective well-being of nations and citizen satisfaction with public goods, such as education and transportation.
Progressive taxation has a direct effect on reducing income inequality. This is especially true if taxation is used to fund progressive government spending such as transfer payments and social safety nets.However, the effect may be muted if the higher rates cause increased tax evasion.When income inequality is low, aggregate demand will be relatively high, because more people who want ordinary consumer goods and services will be able to afford them, while the labor force will not be as relatively monopolized by the wealthy.High levels of income inequality can have negative effects on long-term economic growth, employment, and class conflict. Progressive taxation is often suggested as a way to mitigate the societal ills associated with higher income inequality. The difference between the Gini index for an income distribution before taxation and the Gini index after taxation is an indicator for the effects of such taxation.
The economists Thomas Piketty and Emmanuel Saez wrote that decreased progressiveness in US tax policy in the post World War II era has increased income inequality by enabling the wealthy greater access to capital.
According to economist Robert H. Frank, tax cuts for the wealthy are largely spent on positional goods such as larger houses and more expensive cars. Frank argues that these funds could instead pay for things like improving public education and conducting medical research,and suggests progressive taxation as an instrument for attacking positional externalities.
Taxes generally fall into the following broad categories:
- Income tax
- Payroll tax
- Property tax
- Consumption tax
- Tariff (taxes on international trade)
- Capitation, a fixed tax charged per person
- Fees and tolls
- Effective taxes, government policies that aren’t explicitly taxes, but result in income to the government through losses to the public
Types of Taxes in Singapore
- Income Tax is chargeable on income of individuals and companies.
- Property Tax is imposed on owners of properties based on the expected rental values of the properties.
- Estate Duty has been abolished since February 15, 2008.
- Motor Vehicle Taxes are taxes, other than import duties, that are imposed on motor vehicles. These taxes are imposed to curb car ownership and road congestion.
- Customs & Excise Duties – Singapore is a free port and has relatively few excise and import duties. Excise duties are imposed principally on tobacco, petroleum products and liquors. Also, very few products are subject to import duties. The duties are mainly on motor vehicles, tobacco, liquor and petroleum products.
- Goods & Services Tax (GST) is a tax on consumption. The tax is paid when money is spent on goods or services, including imports. This kind of indirect tax is also known as Value Added Tax (VAT) in many other countries.
- Betting Taxes are duties on private lottery, betting & sweep-stake.
- Stamp Duty is imposed on commercial and legal documents relating to stock & shares and immovable property.
- Others – The two main taxes are the foreign worker levy and the airport passenger service charge. The foreign worker levy is imposed to regulate the employment of foreign workers in Singapore.
Individual Income Tax in Singapore
Individual income tax is imposed on the personal income of the individual. In most of the cases, the individual income tax is levied on the total income of the individual. The amount of payable individual income tax, depends on his resident status in Singapore. At the time of assessing individual income tax, the Government of Singapore considers two factors, which are as follows:
- Tax resident or non-resident status in Singapore
- The amount of earned income by the individual
Resident Status: Singapore
Resident Individual: An individual will be treated as a tax resident in Singapore, if he has been staying in Singapore for not less than 183 days in a calender year. For being a tax resident, the government of Singapore will impose tax on the income earned by the individual in Singapore. The government of Singapore also imposes tax on the individual’s overseas income that is brought in Singapore. The individual will also get personal reliefs.
Not Ordinarily Resident (NOR): A person will be treated as a not ordinarily resident, if he is a resident of Singapore for a specific tax assessment year and concurrently, he is not a resident of Singapore for 3 successive years of tax assessment, immediately before that specific year of tax assessment.
Once an individual got the status of Not Ordinarily Resident, he will be eligible of enjoying tax exemptions on social security plans, employer’s contribution and non-compulsory overseas pension fund.
An individual in Singapore will be regarded as a non-resident individual, if he has been staying in Singapore for not more than 182 days in a calender year. As a non-resident, an individual will be taxed on all his income earned in Singapore. The individual will not get the benefit of personal reliefs.
A non-resident must pay income tax on his income that has source in Singapore. Under Withhold Tax law, an individual has the legal obligation to hold back a percentage of the payment he makes. The withhold amount need to be sent back to the Comptroller of Income Tax by the 15th of the following month.
Some of the major types of payments subject to Withholding Tax include royalties, interest, and gains from real property transaction.
The corporate tax is imposed on the profit of a company in Singapore. Most of the time, corporate income tax is imposed on the net income of a company. Net income is the difference between total receipts, expenses and additional reduction in the book value of an asset. A company will be taxed if it generates income in Singapore. The company will also be taxed, in the event the company generates income from overseas but receives it in Singapore. The government of Singapore follows a one-tier system of levying corporate tax on the companies operating business in Singapore.
Property tax is levied on the unmovable properties like land and buildings. The amount of tax payable is measured on the basis of the percentage (tax rate) of the annual value of the property. All property owners in Singapore are subject to Property Tax.
Goods and Services Tax
Goods and Service Tax (GST) is an indirect tax, as it is levied on the price of goods and services in Singapore. In Singapore, GST was introduced on 1st April, 1994 at a rate of 3 percent. On 1st July, 2007, the rate of GST in Singapore was 7 percent. The GST is imposed on all goods and services supplied in Singapore. GST is also imposed on the import of goods.
Income Tax Act (Chapter 134), Property Tax Act (Chapter 254), Stamp Duties Act (Chapter 312), Goods & Services Tax Act (Chapter 117A)
International Organizations of which Singapore is a Member Nation:
WTO, Commonwealth, ASEAN, APEC
Tax Treaties that Singapore has with other Nations/Regions:
Singapore has concluded 76 Avoidance of Double Taxation Agreements, eight Limited Treaties, one Exchange of Information Arrangement with Bermuda, and eight Agreements which have been signed but not ratified.
Additionally, Singapore is a signatory to Convention on Mutual Administrative Assistance in Tax Matters, developed jointly by the OECD and the Council of Europe.
The city-state has also signed the Foreign Account Tax Compliance Act (FATCA) enacted by the United States (US) Congress in March 2010 to target non-compliance with US tax laws by US persons using foreign accounts.