TR Emeritus

Jan 28, 2014

http://www.tremeritus.com/2014/01/28/how-much-tax-are-sporeans-really-paying-8/

By Roy Ngerng and Leong Sze Hian

This is a 10-part series which will analyse the tax that Singaporeans are paying, in comparison with the Nordic countries. It has been said that Singaporeans pay one of the lowest taxes in the world, and that the Nordic countries pay one of the highest taxes in the world. This series would explore this matter in greater depth, and seek to have a better understanding of what the truth really is.

In brief:

• Singaporeans pay the highest proportion of our wages into taxes, as compared to the Nordic countries. This is because citizens in the Nordic countries earn much higher wages than Singaporeans do, and the citizens in the Nordic countries can thus have much higher purchasing power than Singaporeans.

Over the past few weeks, we have shared with you how Singaporeans are paying almost as much as the citizens in the Nordic countries pay into taxes, social security/CPF and out-of-pocket expenditure for basic necessities.

But that still isn’t the full picture. This is.

What we have not taken into account is how much Singaporeans are actually being paid, and if we actually paying similar amounts into social expenditure as the citizens in the Nordic countries, what does that mean as a proportion of our wages?

As we have shown in part 2 of the article, Singaporeans receive the lowest wages among the Nordic countries – the median wage in Singapore is the lowest.

Also, Singaporeans seems to pay one of the lowest personal income tax and social contribution/CPF rate – we pay 20.8%, as compared to between 12.79% and 50% in the Nordic countries.

But really, when it comes to how much we actually pay out, as compared to our wages, how much is that?

As we had mentioned, on top of taxes and social security/CPF contribution, Singaporeans have to pay additional out-of-pocket for health, education and retirement. These are things that the citizens in the Nordic countries don’t have to. They need to only pay personal income tax and social security and receive next to free healthcare and free education and get back higher retirement funds than Singaporeans do.

Thus when you compare what we pay into personal income tax, CPF and these out-of-pocket expenditure, and compare to what they pay only into personal income tax and social security, Singaporeans pay almost the same amount as they do. Singaporeans pay $16,260, as compared to the $17,305 to $22,336 that the citizens in the Nordic countries do.

But what happens when you compare this to our wages? The median wage for Singaporeans is $3,000 monthly or $36,000 annually. For the citizens in the Nordic countries, it’s between $4,627 and $8,631 monthly or between $55,524 and $103,572 annually.

When you look at what we pay into personal income tax, social security/CPF and out-of-pocket expenditure (for Singaporeans), this is when things get really interesting.

For the Nordic countries, they only pay between 21.6% and 34.5% into personal income tax and social security. However, for Singaporeans, we actually have to pay a much higher proportion of 45.2% of our wages into personal income tax, CPF and out-of-pocket expenditure (Chart 1)!

Chart 1

We are paying 16 percentage points more of our wages than what the citizens in the Nordic countries pay to get back the same as what they do!

But what if we look at direct and indirect taxes, and out-of-pocket expenditure?

As discussed, Singaporeans pay $22,334. This is compared to the $26,747 to $38,080 that the citizens in the Nordic countries do.

And when you look at it as a proportion of wages, the citizens in the Nordic countries pay between 36.8% and 59.7% of their wages. In comparison, Singaporeans pay 64.8% – higher than any of these countries – of our wages into direct tax, indirect tax and out-of-pocket expenditure (Chart 2)!

Chart 2

We actually pay 18 percentage points more than citizens in the Nordic countries do!

So, it really doesn’t matter that Singaporeans are paying slightly lower nominal amounts than the citizens in the Nordic countries do into taxes and social security, because when you look at it as compared to wages, we actually pay the most! We actually pay more than they do!

By now, you would have realised that even though Singaporeans have been told that we pay one of the lowest personal income taxes in the world, but when you really add it all up, what Singaporeans pay into taxes and social security, as well as for out-of-expenditure is actually the same as what the citizens in the Nordic countries pay only into taxes and social security, and get back as much, and even more than what the Singaporeans do.

But, there’s still something else which we have left out. Do you know that the current expenditure isn’t at its most optimum? There is still some lost expenditure that has not been spent, because the poor cannot afford or assess the basic public services.

And how much more is this? Check out our next part to find out more.

You can read the other parts of the article here.

*****

In the aftermath of the transport fare increase, and in the face of the pending increase of the MediShield premium and Medisave contribution rate, do you have something to say about how the government apportion budget for Singapore?

Do you think the $1,000 wage that the government wants to legislate for cleaners is enough? Do you think more workers should earn a minimum wage and do you think the minimum wage should be higher?

Come join us at the Pre-Budget 2014 Forum, where we would be discussing these issues and sharing with you our recommendations and proposals. This event is jointly supported by MARUAH, Function 8 and Workfair.

Roy Ngerng

Roy blogs at http://thehearttruths.com.

Leong Sze Hian

Leong Sze Hian is the Past President of the Society of Financial Service Professionals, an alumnus of Harvard University, Wharton Fellow, SEACeM Fellow and an author of 4 books. He is frequently quoted in the media. He has also been invited to speak more than 100 times in 25 countries on 5 continents. He has served as Honorary Consul of Jamaica, Chairman of the Institute of Administrative Management, and founding advisor to the Financial Planning Associations of Brunei and Indonesia. He has 3 Masters, 2 Bachelors degrees and 13 professional qualifications. He blogs at www.leongszehian.com.