SINGAPORE BUDGET 2022
The Finance Minister Mr Lawrence Wong delivered Budget 2022 on 18 February 2022.
Mindful that the nation has not fully recovered from the pandemic, this year’s Budget aims to focus on the immediate needs and at the same time lay the groundwork to better position Singapore for future opportunities and challenges.
Budget 2022 laid out thoughtful measures to accelerate the economy’s future readiness with focus on:
- Investing in new capabilities,
- Advancing in green initiatives,
- Renewing and strengthening the social impact, and
- Developing a fairer and more resilient revenue structure.
Apart from the slew of measures and initiatives that are introduced, the emphasis of Budget 2022 is the pressing need for the government to raise more revenue. The need to boost revenue comes as government spending is expected to exceed 20 per cent of the gross domestic product by 2030 mainly due to healthcare needs from an ageing society, and strengthening social programmes. While income from net investment returns should keep up with the economic growth, the slowdown in Singapore’s economy will ultimately affect tax revenue collection. Hence, the government has announced significant enhancements to the tax system, which includes wealth tax in the form of property tax and ARF for luxury vehicles, raising the personal income tax rates for higher income earners, and carbon taxes.
To help cushion the impact of inflationary pressures and rising prices, the long anticipated increase in Goods & Services Tax (“GST”) will now take effect in 2 steps from 7% to 8% on 1 January 2023, and from 8% to 9% on 1 January 2024. This is aimed at mitigating the impact on consumers. It is reassuring that the government has also added another $640 million to the $6 billion Assurance Package to soften the effect of the GST increase for lower and middle income households.
On the international front, the corporate tax system will be updated, after examining the impact of the global tax development relating to the rules of Base Erosion and Profit Shifting 2.0. Under Pillar 1 of BEPS 2.0, profits of large and profitable MNCs will be re-allocated from where their activities are conducted to where their customers are located. International discussions are ongoing on how to determine the jurisdiction that will surrender profits for re-allocation and also how much it should surrender.
Pillar 2 introduces, amongst other things, a global minimum effective tax rate of 15% for MNCs with annual revenue exceeding Euro 750 million. This would mean that if such an MNC were to have an effective tax rate of less than 15% in Singapore at the group level, the other jurisdictions such as its home jurisdiction would collect the difference of up to 15%. In response to Pillar 2 GloBE rules, Budget 2022 announced that Singapore is exploring a top up tax called the Minimum Effective Tax Rate in Singapore of 15%.
Notwithstanding the ambitious transformation plans to put Singapore on the road to recovery, there are still segments of the economy that are still struggling. To this, near term support to assist affected businesses such as the Business Support Package, Small Business Recovery Grants and other financing schemes are also introduced.
The guiding idea of Budget 2022 is that those who are better off should contribute more and those who are in need can take comfort from the government’s policies and assistance. The idea is to close the inequality gap in society progressively.
It is recognised that spending needs will continue to rise in the healthcare and social service sectors as the population ages. To remain resilient in its public spending and to deal with unexpected economic challenges (i.e. Covid-19), Singapore has to maintain a healthy reserve to fall back on. The constant tapping on our reserves is certainly unsustainable in the long run and taxes play a crucial role in keeping society functional.
The Budget also looked at areas that will impinge on the lives of future generations. From the urgency of digital transformation to preparing for a future in which ecological considerations will need to be welded seamlessly to the economic imperatives of globalisation. It will go a long way towards taking Singapore’s economy and society forward in the post-pandemic world.
28 February 2022
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Click here to view the Singapore Budget 2022 publication.