Tuesday, July 5, 2011

Inverse Robin Hood 1: How Singapore's rich pay 0% tax and poor pay 40%

Singapore is a wicked regime whereby the rich can pay almost 0% tax, meanwhile the effective tax rate for poor in my estimate is more than 40%. For a rich person that earns for example S$10 million, from dividends, he will pay almost NO tax at all.

Tax burden on poor
For a poor man earning $2000, he is not going to be able to retire and withdraw anything meaningfully from CPF due to minimum sum requirement and inflation. Just as the some economist view social security contribution as taxation, we assume that CPF is a form of tax.

Due to high cost of living, the poor man would be living hand to mouth every month, having zero savings. Hence, all his remaining income is subject to 7% GST. Together with CPF contribution rate of more than 30%, the poor pays around 40% of tax.

Shifting tax burden to the poor 
PAP has all these while been giving their own class of people tax cut goodies by providing excuses that the tax cut help to develop financial center and spurs the relocation of high net worth individuals.

Therefore, taxes on dividends are cut to 0 together with other cuts that benefit only the rich. Meanwhile, to compensate lost of tax revenue, PAP make the poor pay by introducing the regressive GST and hiking it to 7%.

Alternative tax system
The GST is a regressive tyranny that we should do away with. The lost of tax revenue in earlier cut can be fully compensated by implementing landed property tax. Since foreigner is restricted from buying landed property, such tax will claw back earlier tax cut to the local rich elite.

And since landed property tax only hit elite citizen owning landed property, it will not affect the development of financial center. It will not have no impact on any high net worth foreigner wanting to migrate here, so long if they do not buy landed property. Unfortunately, nothing is going to stop our elite from ducking tax burden and dump it to the poor Joe.


Overmydeadbody said...

You need to also comment on death duty no tax to benefit the very rich.

Veritas said...

Re Overmydeadbody
Definitely more to come. I have just perused some part of our tax code and can't help nausea at what I have seen.

Anonymous said...

Feel free to leave a question here if you need help interpreting the tax code. Some of us readers actually do it for a living...

Veritas said...

Re Anonymous July 20, 2011 3:45 AM

Thanks, I hope those expert in tax code can write to me about tax loopholes given to corporate and fat cats.

I have spotted many unfair taxation practice, but as I am not an expert in the area, my writings may not be that professional and I should have miss out much more.

Anonymous said...

Dividends are taxed in the hands of the shareholder. That is why the company distributing the dividends are not taxed, otherwise it will become double taxation.

CPF is not a tax but rather a forced savings because the CPF holder is able to withdraw his money upon retirement. Tax on the other hand is a one-way street where you don't get to withdraw anything.

GST is across all consumers in Singapore, and does not distinguish between rich or poor. It is therefore not a fair comparison to say the GST is a tax to only the poor, but not the rich.

Veritas said...

Re August 27, 2011 6:32 AM:

Dividends are taxed in the hands of the shareholder. That is why the company distributing the dividends are not taxed, otherwise it will become double taxation.

I guess you mean since company already pay corporate tax, then a tax on dividends is considered double taxation.

True indeed, but our corporate tax is way too low. Maybe a 40% corporate tax that commensurate with the stealth tax rate of the poor Singaporean would be appropriate as a benchmark.

Next, people do not tax dividend for nothing. A progressive taxation of dividend actually prevents corporate raiding. It serves a social purpose of directing income towards investment creating greater material well-being.

CPF is not a tax but rather a forced savings

If CPF is able to peg to gold, and return the full amount at 55 years old, I would say your stand holds somehow.

Right now, everyone is seeing our CPF vaporizing.

GST is across all consumers in Singapore, and does not distinguish between rich or poor.

LOL. Go study more. People do not call GST regressive for nothing.

Anonymous said...

Your article is wrong.

Corporate profits are already taxed, the balance is distributed as dividends. Why would anyone tax that again? And that is the reason you make your misleading headline saying that Singapore's rich pay zero tax... You're completely disingenuous. The rich have to pay tax on their income - the higher the income, the higher the tax rate (please read the Income Tax Act before you presume to write about tax).

By the way, dividends are received by everyone, not just the rich. Just because a shareholder receives dividends does not mean he is one of the "rich". And are you suggesting that all of us pay more tax on dividends?

And please, CPF is not a tax lah. If you want to lie, at least do it with some finesse. I suggest you complete your secondary school education first, so that you can understand what "tax" means.


Veritas said...

Re October 13, 2011 6:02 PM
Corporate profits are already taxed, the balance is distributed as dividends. Why would anyone tax that again?

Hello, are you former president George W Bush?

Bush: "We can begin by treating investors fairly and equally in our tax laws. As it is now, many investments are taxed not once, but twice. First, the IRS [Internal Revenue Service] taxes a company on its profit. Then it taxes the investors who receive the profits as dividends. The result of this double taxation is that for all the profit a company earns, shareholders who receive dividends keep as little as 40 cents on the dollar.

Double taxation is bad for our economy. Double taxation is wrong. Double taxation falls especially hard on retired people. About half of all dividend income goes to America's seniors, and they rely on those cheques for a steady source of income in their retirement.

It's fair to tax a company's profits. It's not fair to double-tax by taxing the shareholder on the same profits. So today, I'm asking the Congress to abolish the double taxation of dividends.The benefits of this tax relief will be felt throughout the economy. Abolishing double taxation of dividends will leave nearly 35 million Americans with more of their own money to spend and invest, which will promote savings and return as much as $20bn this year to the private economy."

Veritas said...

Re October 13, 2011 6:02 PM
By the way, dividends are received by everyone, not just the rich.

Can you tell me how many shares the poor owned and how many the rich own?

By targetting to reduce dividends, you are giving tax cut to rich.

But increase GST, you are increasing tax rate for the poor because rich hoard more in proportion, the poor spend more in proportion of income.

And please, CPF is not a tax lah.

If CPF can function as store of value, I would agree with you. But now, inflation close to 6% and CPF interest around 2.5%.

It is a tax by inflation.

Ajohor said...


In that case, since you argue on basis of inflation, CPF still gives a real return in 5-10 year period.
Furthet, if you consider as such pity fellow Asean members who see the value of their currency depreciate even more.

Frankly, CPF is not a tax.
in USA, 401k are also not considered taxes.

GST agreed regressive however, mitigated by the GST refunds by Govt provided and should be made permanent.

Further, if you are earning 30,000 or less, no income tax so only applicable is GST.

Veritas said...

In that case, since you argue on basis of inflation, CPF still gives a real return in 5-10 year period.

The CPI is rigged. And usually runaway asset rise is not consider inflation by economist.

Taking CPF interest as 3%, CPF gained 34% over the past 10 years, gold hiked around 250-300%, oil 75%, wheat around 80%...etc (priced in SGD),

GST agreed regressive however, mitigated by the GST refunds by Govt provided and should be made permanent.

Then why we don do away with GST and make income tax more progressive?

Because PAP tries to lay their hand on middle class and poor and let rich off hook.

Bobby Joe said...

Hi Veritas, my suspicion double-confirmed now.

A truthful system will have a direct tax system based on everyone's income on a progressive basis rather than causing an illusion that the poor don't have to pay tax.

Furthrmore the abolition of Estate Duty is a sure sign to benefit the rich hoarders.

I don have much understanding in these matters as Im only a student who is curious. I hope to be enlightened further. Hope your articles are 100% true

Veritas said...

Re Bobby Joe
I trying reporting as honestly as possible base on available data. If I made mistake due to lack of knowledge, I beg your pardon.

I admit in some of the article, I am a little over board and partisan.

The reason is reporting the full picture take a pretty long and dull article. Next, to make my point clearly, its not easy to be entirely unbiased.

On the lowest denominator, I seek honesty and truth, and hope that I am able to strike a balance in this delicate world.

Bobby Joe said...

Thanks Veritas,

For your efforts and I hope such information as yours reach many and inspire sincere debates.

My only concern and suspicion is that our government is not sincere and worse still, the academics, people who are supposed to be neutrally assessing the whole sociopolitical situation are not truthfully sharing their knowledge either.

There's more to say but I will just say Thanks for your articles and do keep inspiring well meaning folks with Truth, and bring to light those lies and false perceptions.

Thank you and may God be with you

Bobby Joe said...

Just one more thing, Veritas,

I think its perfectly ok to be partisan when choosing between the Batman and the Joker.

However, Batman has to play by ALL the rules whereas the Joker doesn't need to most of the time.

I hope you get my point. Im sure you would keep yourselves beyond reproach. Occasional errors and willingness for correction and to be open is fine.

May this endeavor of yours be truly successful.

Ericka said...

PAP is doing it to lure the world riches into Singapore by giving the lowest high bracket tax. They want to become Monaco of Asia. To copy China's system where close relatives and connection of govt elites are very rich and powerful so they stay in power easily. On the other hand the peasants and masses who can potentially topple the gov are busy, poor and easily controlled. Totally similar to China's system where each peasant's disposable income is limited. The hardworking commoner don't gain access to much RMB for extra pleasures. Similar to SGD returned back to central bank as invisible taxes and CPF.

Singapore attract riches and on the other hand attract & classify slaves(S pass, work permit etc) to work for them at ridiculously low incomes. Chances are both the slave and big boss might be from same country. Uniquely Singapore plan. Gov take in higher and higher tax revenues due to artificial population increase while the wages are allowed to be suppressed. Whether the company profits go to workers' wages or directors are same because none of these affect tax revenue therefore wages can be suppressed freely.

Bobby Joe said...

I think in a capitalist Democratic situation its fair to assume that there will be the obvious wage gap. The more enterprising will be wealthier and the not so 'smart' and the not so 'lucky' will get lesser wealth.
My elders have made it clear that in the 1960s till late 80s there were the very rich, the rich, the middle income and social welfare cases ( the rare poor). There was no envy and even the poor were contented because wages grew and people could afford what they reasonable needed and wanted.

Now, the average working person has the salary stalled but price increases and costs spiraling alot faster. The commoner is unable to pay comfortably for the services that is needed, and is unable to save. From my little knowledge, it looks like the Gov and the filthy rich are in cahoots to play out the common folks like the feudal system of the ancient times.What has really happened between the 80s and now?

Can we have professional opinion on this matter with economic facts in simple terms so that I can share substantiated information with others.

Veritas? Ericka? Anybody?

Anonymous said...

Sorry to say this, what can Singapore offer other than low tax?many country have cheap worker, natural resources or land. if you start a business where will you go?
when you think like a businessman you will get businessman. i not saying is good or bad but who did you prefer. Singapore do need all this company to come here to provide job for the citizen. if not it will not have a $2000 pay.
if we want a change a of income we need to change our lifestyle. how many willing to change? when we see people making money we say i also want! but doing the same things we know! people who earn $1k / $3k / $6k / $20k and $1m a month all think and do things differently.

Veritas said...

There is a need of balanced approach. PAP knows all along that their policies is going to have a big negative impact of our society, such as widening inequality, erosion of social cohesion, excessive burden on the poor.

Is it fair that the poor get all the monies locked up for infinite years, while the spread of real inflation(if we take in asset inflation, our inflation could be 10% a year) and CPF is unreasonably wide?

How about the rich? Have they contributed their fair share, given CPF target only income SGD5000 and below?

It is a daylight robbery?

And this low tax regime do not really help much, in attracting high tech business that benefit us. It only attract usury(banks), asset management (tax evaders, money laundering)..etc

That is going to make us worse off.

Anonymous said...

Your comment is not factual.

Income tax for someone earning $2000 per month is $80 per year. The first $20000 per year is income tax free. This equates to an effective tax rate of just 0.3%

Employee CPF contribution is 10%. CPF is not a tax, it is a mandatory retirement and heathcare saving scheme.

Unlike other welfare states that have employment benefits and pension (where almost everyone gets similar rates). The CPF withdrawal amount is a directly proportional to how much money you have in it. You fund your own retirement instead of taking money from existing tax payers. This is the fairest retirement system.

Assuming that the person earning $2000 per month spends all the disposable cash in GST payable goods and services, the effective overall tax rate is around 7%.

Your comment that the rich pay 0% in tax is misleading. You used a fictitious person that derive 100% of his/her income from dividend knowing in Singapore, profit from dividends and capital gains are not subjected to tax. There is not a single rich person who lives in Singapore that does not require goods and services. Most that you consider rich, make their living from an income that is subjected to income tax. Business owners pays corporate tax at ~18.5% on their profits.

Yor comment is very misleading. The income tax system here in Singapore is progressive and most of the people earning at and below the median wage pays little or no income tax.

GST is a regressive tax and this is a fact. The fact that it is regressive and still widely used in progessive or welfare states like Australia and New Zealand meant that is is also a very effective way to generate income for the country to fund expenditures. The max rate that anyone can pay for GST is still 7%.

If your aim is to highlight the plight of lower income earners, you should comment more on how income can be raised for the lower income earners or even implementation of minimum wage.

Making fictitious claims like this is not going to help anyone, it just make you look like a green-eyed monster.

There is no need to be condescending to posts that states the truth (exposing the fallacy in your comment).