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In this Explainer, find out...
What are the components of Singapore’s current tax regime?
What are the key principles undergirding Singapore’s tax structure?
How do taxes contribute to the achievement of public policy objectives?
Introduction
“Let me tell you how it will be.”
In 1966, the Beatles debuted a landmark record deemed “the mother of all tax protest songs”. Nearly 50 years later, Taxman endures as a pithy musical statement on public sentiments towards taxation. Tax appears as an inevitable force in our collective lives, often in ways we do not fully understand.
Put simply, a tax is a mandatory contribution a government imposes on its residents and businesses. Tax revenue, the total amount of tax collected, is then funnelled into public goods and services accessible to all members of society. From polyclinics to public transport, and from social welfare payouts to National Service (NS) allowances, taxes ultimately form the backbone of our society.
Yet, a quick skim through public forums reveals Singaporeans’ uneasy relationship with taxes. A recurrent theme hinges on the burden of taxes amidst the rising cost of living. With inflation clocking in at a concerning 4.8 per cent and nominal wage growth slowing in 2023, the bite of taxes feels sharper. As we inch closer to the release of the 2025 Budget, one can only expect the perennial debate to heat up even further.
In this first of two Policy Explainers on Singapore’s tax system, we aim to demystify the intricacies of Singapore’s tax system. By shedding light on the mechanisms, principles and goals behind Singapore’s tax structure, we hope to transform your understanding of taxes from an opaque burden to a critical and necessary civic obligation.
Let us first investigate the overall tax regime.
An Overview of Singapore's Tax Structure
Key Sources of Revenue and Their Uses
In the Financial Year (FY) 2023/24, the Inland Revenue Authority of Singapore (IRAS) collected S$80.3 billion in tax revenue from seven sources (see Figure 1):
Corporate Income Tax: An annual tax on a company’s profits. Singapore practises a “single-tier” corporate tax system, where profits are taxed at a flat rate of 17 per cent while dividends are exempt from taxation.
Individual Income Tax: An annual tax imposed on individuals’ earnings. As a progressive tax, income tax rates range from zero per cent to 24 per cent, depending on income bands. Higher tax rates only apply to the portion of income that exceeds each income band threshold. Eligible taxpayers can claim tax relief and rebates, notably married couples and families.
Goods and Services Tax (GST): Also known as a Value-Added Tax in other countries, the GST is a broad-based consumption tax levied on imported goods and nearly all goods and services in Singapore. End consumers bear it as producers can claim the GST paid on inputs. The Government implemented a two-time GST hike over 2023 and 2024, bringing the rate of GST to 9 per cent for purchases made from 1 January 2024 onwards.
Property Tax: An annual tax on property ownership comprising land and buildings, regardless of occupancy. Property tax is derived from the property’s annual value, which is the estimated annual rent of the property. To determine annual value, factors considered include rental rates of comparable property, size of property and location of property.
Stamp Duty: A one-time tax on immovable property, levied on buyers and sellers. Buyers and sellers of stocks and shares can also be subjected to stamp duties. Stamp duty imposed on property is calculated based on the negotiated sale price. Together with property taxes, these are the primary ways that Singapore taxes wealth. It is also progressive since those who purchase expensive properties will be taxed more. Moreover, non-owner occupied properties are taxed at higher rates. Stamp duty – particularly the Additional Buyer Stamp Duty (ABSD) – is also a key mechanism for regulating property prices. Particularly, the ABSD makes Singapore property more expensive for foreigners, in turn reducing demand and cooling the property market.
Betting Tax: A tax on income from gambling activities, such as lotteries, horse racing and casino games. As a demerit tax, betting taxes aim to discourage excessive gambling and mitigate the social costs associated with gambling, such as bankruptcy. Betting taxes belong to a wider family of sin taxes, which include those excised on alcohol and tobacco. Taxes on alcohol and tobacco, however, are not collected by the IRAS.
Withholding Tax: A tax on payments made to foreign individuals or companies, including salaries and profits. Withholding taxes ensures that income generated by foreign entities or individuals in Singapore is taxed at the source. This provides for a tighter scheme of tax collection and reduces tax leakages from the Singapore economy since it would be harder for foreign companies to engage in tax planning and shift their profits to offshore tax havens. Tax residents – Singapore Citizens, Permanent Residents and Singapore-listed companies – are exempt from the Withholding Tax.
Beyond collecting revenues, IRAS also administered a robust set of tax reliefs. In FY2023/24, for instance, about S$2.3 billion in enterprise grants were disbursed to support businesses and their workers.
Altogether, Singapore’s system of taxation funds a range of public expenditures from social development to government administration (see Figure 2).
Taxes in Practice: Three Personalities
How does this system of taxation work in reality? To better unpack it, let us now look at three hypothetical personalities – Mdm Lim, Mr Tan and Mr Ang – and consider some of the taxes they are liable to pay and the reliefs available to them.
We first look at Mdm Lim.
(1) Mdm Lim. Mdm Lim is employed and a mother of three school-going children. She owns a private condominium and a Housing & Development Board (HDB) flat with her spouse. She rents out their condominium and earns a monthly rent.
Firstly, Mdm Lim must pay an income tax charged as a percentage of her income. This income includes both her employment and rental income. However, as a mother of two, Mdm Lim qualifies for the Working Mother’s Child Relief, on top of the Qualifying Child Relief and Parenthood Tax Rebate which she may share with her spouse.
Secondly, since Mdm Lim owns a condominium, she must also pay property tax.
Thirdly, when Mdm Lim spends domestically, she would also have to pay GST, which is 9 per cent as of 2024.
What about Mr Tan?
(2) Mr Tan. Mr Tan opened a graphic design start-up two years ago and is married without children. He continues to serve his reservist duties in the Singapore Armed Forces and most recently performed National Service duties last year.
As a founder, he draws a regular monthly salary. Consequently, like Mdm Lim, Mr Tan must pay both the income tax and GST.
In recognition of his National Service, Mr Tan will be eligible for the NSman (Self) Relief on his income tax, while his wife and parents will be eligible for the NSman (Wife) Relief and NSman (Parent) Relief respectively.
Mr Tan’s company must also pay a 17 per cent corporate income tax on its profits. However, the young company will be eligible for the start-up tax exemption scheme in their first three years of operation.
Finally, what taxes does Mr Ang face?
(3) Mr Ang. Mr Ang is single and is Chief Executive Officer (CEO) of a petrochemical firm. He already owns a private property but intends to buy an additional one this year. He occasionally participates in lotteries through Singapore Pools too.
As the CEO, Mr Ang derives a salary and is liable for income tax. He will also be charged the GST and his company has to pay corporate income tax on its profits. Furthermore, Mr Ang’s private property purchase will incur stamp duties.
Singapore Pools, as Mr Ang’s authorised betting operator, is also liable to pay a betting tax, which is calculated based on the bets it receives. Additionally, Mr Ang’s firm will face a S$25/tCO2e carbon tax if its petrochemical facilities directly emit at least 25,000 tCO2e of greenhouse gas emissions annually.
Principles Undergirding the Tax Structure
Now that we have a better grasp of Singapore’s system of taxation, a natural question seems to be: Why is the system of taxation structured as it is?
Broadly, Singapore’s tax policy aims to achieve three objectives: (i) raise revenue to fund government operations and policy sustainably; (ii) promote economic goals; and (iii) ensure fairness and equitability.
1. Raising Revenue
For context, Singapore’s total government revenue comprises operating revenue derived from taxes and Net Investment Return Contributions (NRIC) derived from investments of national reserves by GIC. As Singapore’s “silver tsunami” looms and public expenditure for elderly healthcare is set to balloon to S$49 billion, tax collection must rise accordingly to minimise the strain on infrastructure capacity and the retirement savings of the elderly.
2. Promoting Economic Goals
Furthermore, for Singapore to uphold its global standing amidst today’s volatile geopolitical landscape, we must strive towards an internationally attractive tax regime. This is so especially since taxes incentivise behaviours that contribute to the fulfilment of certain goals. One such goal is encouraging research and development (R&D), innovation and enterprise, productivity and internationalisation.
For instance, the government aims to keep tax rates competitive for businesses and individuals. At 17 per cent, Singapore’s corporate income tax rate is indeed one of the lowest globally. This is based on the belief that raising tax rates does not necessarily contribute to an increase in tax revenue. Furthermore, a low tax rate helps to attract foreign investment and encourages entrepreneurship and hard work.
The Laffer curve illustrates this. Up to an optimum point, increasing the tax rate will increase tax revenue. However, higher tax rates also deter work as they cause one’s post-tax income per additional hour to fall. Beyond point T* (see Figure 3), an individual works fewer hours in response to the rising tax rates. When expanded to the entire economy, it can be surmised that tax revenue declines from the lower levels of economic activity.
3. Ensuring Fairness and Equitability
Finally, the tax structure ought to be fair and equitable. This means balancing two – sometimes contradictory – key priorities. One, individuals must be rewarded for their work. Two, the system of taxation ought to be progressive, such that the poor are not made to pay a larger share of their income as taxes. An inherent tension connects these two priorities, since taxing a larger share of the rich’s income, while allowing the tax structure to be more progressive, can also be detrimental to the concept of fair reward for work.
Singapore has attempted to balance these two opposing priorities by imposing one of the lowest personal income tax rates in the world. This aims to reward and encourage work.
At the same time, wealth taxes like property tax and stamp duties make Singapore’s tax structure more progressive. This is because those with more accumulated wealth will pay a higher share of taxes. Wealth taxes are also desirable since they target one’s accumulated wealth instead of their take-home pay. Hence, one’s motivation to work, which depends on their take-home pay, will not reduced.
In turn, with taxation portrayed as a “collective responsibility” for nation-building and with the wealthier subject to greater tax contributions, the Singapore economy more effectively tends towards one where the distribution of income becomes fairer.
The Case of Conflicting Objectives
This is not to say, however, that all three objectives will always be intuitively in agreement with one another.
Take the decision to raise the GST, for example. On the one hand, GST helps in raising revenues. This is particularly so because GST is less correlated with business cycles, rendering it a more stable and predictable source of revenue. It is also much harder to circumvent through tax planning. Notably, it also exhibits revenue efficiency, as it is relatively cheap to collect and administer GST compared to other taxes, which contributes to the fact that Singapore is ranked 7 in the world for the ease of paying taxes.
On the other hand, GST can be a regressive form of tax, as the less well-off tend to pay more GST relative to their income, leading to a less equitable distribution of income. How then does one come to terms with such opposing objectives?
Policy levers used to address the above include transfer payments and other subsidies provided for less well-off families. Indeed, with the Assurance Package providing S$8 billion households with assistance to cope with the increased expenditures, both the goals of equitability and revenue collection can be simultaneously achieved.
In this regard, the tax structure (together with the complementing set of reliefs and transfer payments) reflects the key social and economic aims our society hopes to achieve.
Taxes and the Achievement of Public Policy Objectives
Beyond the three objectives listed above, taxes are sometimes used to achieve particular public policy objectives.
Taxes and the National Birth Rate
One such instance can be seen from Mdm Lim’s experience of enjoying several tax rebates for having Singaporean children.
Such pro-natalist tax rebates are a crucial pillar in our system of taxation in response to key population trends, such as the impending possibility of having more Singaporean deaths than births by the first half of the 2030s. Their efficacy in encouraging childbirth should also not be understated – studies have shown that tax rebates contribute to an overall more conducive environment for young couples to have children.
Taxes and the Green Economy
Furthermore, taxes are now being used to promote the development of the green economy, as seen in Mr Ang’s example. Being the first Southeast Asian economy to impose a carbon tax, taxes have now become a key contributor to Singapore’s overall progress towards the Green Plan 2030. This carbon tax aims to meet the ambitions of Singapore’s green energy transition by providing an economic nudge away from carbon-intensive goods and services, which can in turn enrich the business case for the adoption of greener alternatives.
Conclusion
Overall, Singapore has striven to build a tax structure that is efficient, effective and equitable. While much progress has been made, today’s system of taxation also has to deal with an increasing range of international and domestic changes that continually alter our economic reality. How, then, is Singapore affected and how are we adapting? Find out in the next Policy Explainer of this two-part series.
This Policy Explainer was written by members of MAJU. MAJU is an independent, youth-led organisation that focuses on engaging Singaporean youths in a long-term research process to guide them in jointly formulating policy ideas of their own.
By sharing our unique youth perspectives, MAJU hopes to contribute to the policymaking discourse and future of Singapore.
The citations to our Policy Explainers can be found in the PDF appended to this webpage.
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