At a glance
By Melody Tan
Delivering his first budget after taking the portfolio last May, Singapore’s Finance Minister Lawrence Wong announced a series of progressive initiatives for 2022 to support economic recovery from the COVID-19 pandemic.
At a total of S$109 billion, this year’s budget is expected to clock a deficit of S$3 billion, or 0.5 per cent of gross domestic product (GDP) – a decrease from the S$5 billion (0.9 per cent) in 2021.
Aided by a stronger-than-expected economic rebound last year, the total drain on the city-state’s reserves since the beginning of the pandemic is estimated to be S$42.9 billion – significantly less than the projected S$53.7 billion in 2020 and 2021.
But Wong cautioned that global challenges such as supply chain disruptions, a slowdown in external demand and central banks tightening their monetary policies may threaten recovery.
Accordingly, he announced continuing and expanded measures primarily intended to support individuals, households and small businesses transition to a post-pandemic future.
To help sectors hard-hit by the pandemic, a Small Business Recovery Grant worth S$500 million will be provided for small and medium-sized enterprises (SMEs) that have been most affected by COVID-19 restrictions over the past year, such as the food and beverage, retail, tourism and hospitality sectors.
To help meet future spending needs, Singapore is eyeing corporate tax restructure and implementing a hike in the Goods and Services Tax (GST).
A rise in GST (to 9 per cent from the current 7 per cent) will be implemented in two stages: the first increase being delayed until next year because of the current challenging economic environment.
“No one likes to talk about taxes, but there are no painless solutions,” said Wong.
“This is how we strengthen our social compact, and this is how we will fund our common aspirations for tomorrow.”
Citing the need to support rising healthcare expenditure as Singapore’s population ages, Wong said the GST increase will be staggered across the next two years to cushion the impact on individuals and businesses.
From 1 January 2023, the 7 per cent GST will increase to 8 per cent and on 1 January 2024 rise to 9 per cent.
To reduce the burden, the government is providing a S$640 million top-up to the S$6 billion Assurance Package announced in 2020. This will be distributed via vouchers and cash payments over coming years.
The Productivity Solutions Grant, which supports companies’ adoption of technology to enhance business processes, will gain S$40 million. This is earmarked for businesses intending to apply for subsidised accounting and point of sale solutions as part of adjusting to the higher GST.
“The GST revenue by itself will not be enough to cover additional healthcare spending,” Wong acknowledged.
He explained the need to also increase property, personal income and luxury vehicle taxes. Personal income tax for the top 1.2 per cent of earners will be raised, with the portion of chargeable income exceeding S$500,000 to S$1 million to be taxed at 23 per cent and more than S$1 million at 24 per cent, both up from the current 22 per cent rate.
Taxes for non-owner-occupied investment properties will also go up from the current range of 10 to 20 per cent to 12 to 36 per cent, with the greatest impact on the top 7 per cent of properties – primarily high-end landed units.
Wong also acknowledged the impact of ongoing global tax developments such as the Base Erosion and Profit Shifting 2.0 (BEPS 2.0) Pillar 2, which introduces a global minimum effective tax rate of 15 per cent for multinational enterprises.
Singapore plans to adjust its tax system in response to this shift and is exploring a top-up tax – to be known as the Minimum Effective Tax Rate (METR) – for large multinationals with annual revenues of at least €750 million.
“We will continue to closely monitor international developments before making any decisions on the METR,” said Wong, adding that competition is likely to intensify as countries seek to restore and rebuild their economies after COVID-19.
A strengthened green commitment
The first country in the region to implement a carbon tax, Singapore plans to increase its current rate of S$5 per tonne on firms emitting at least 25,000 tonnes of carbon dioxide- equivalent greenhouse gases to S$25 per tonne in 2024 and 2025.
This will be followed by a hike to S$45 per tonne in 2026 and 2027 to reach between S$50 and S$80 per tonne by 2030.
Businesses will be able to use high-quality international carbon credits to offset up to 5 per cent of the carbon tax to boost local demand for such credits and facilitate the development of carbon markets.
“We are mindful that firms in our emissions-intensive and trade-exposed sectors may face higher costs than those in countries with lower or no carbon tax,” said Wong.
As such, he announced establishing a transitional framework to assist these firms to manage any near-term impact on their competitiveness. The framework will determine allowances for companies based on efficiency standards and decarbonisation targets.
Another development is the issue of up to S$35 billion of government green bonds by 2030 to fund public sector green infrastructure projects, along with the publication of a Singapore Green Bond Framework. The first bonds will be issued later this year.
The measures should significantly bolster Singapore’s commitment to achieving net zero carbon emissions.
Pointing out that Singapore is fully committed to doing its part to tackle climate change despite a lack of natural renewable energy sources, Wong announced that Singapore can expect to bring forward its net zero emissions timeline to 2050 or thereabouts, thanks to advances in technology and new opportunities for international collaborations in emerging green areas like carbon markets.
In closing, Wong said that despite future challenges, Singapore will continue striving for a fair and progressive tax system where those who have more are expected to contribute more.
“This budget is about charting our new way forward together. It is a first step in renewing and strengthening our social compact for a post-pandemic world and in realising our vision of a fairer, more sustainable and more inclusive society.”
Key quotes from key stakeholders
Opinion leaders in finance and business share their takes on Singapore Budget 2022
Max Loh FCPA, Singapore Divisional President CPA Australia and EY Managing Partner Singapore and Brunei
“Budget 2022 holistically addresses what it takes to build an economically competitive, socially inclusive and sustainable Singapore. It tackles both the urgent and the important and the necessary trade-offs to balance the two. Singapore is upping the ante in driving its green transition towards net zero. The proposed increases in carbon tax from 2024 to 2030 is a strategic signal of Singapore’s commitment to delivering on a sustainable home for generations to come.”
Pui Yuen Cheung FCPA, Singapore Deputy Divisional President CPA Australia and CEO Deloitte Singapore
“As expected, this was a budget that addressed the ongoing residual sectoral and social impacts of Covid-19 but still placed the focus firmly on the long-term vision of our nation. There was also a clear message that the Singapore tax system will need to evolve in the years to come to maintain incoming revenues. The finance minister trod a fine line, balancing providing support to the livelihood of all Singaporeans with targeted taxation actions to fulfil the need to ‘manage the uncertainties’ and ‘think about tomorrow’.”
Selena Ling, Chief Economist and Head of Treasury Research and Strategy OCBC Bank
“Budget 2022 was overall expansionary, which is quite unexpected. The carbon tax move is very bold, perhaps too aggressive from the perspective of industry and companies. But from a societal view, it is the right thing to do to contribute to sustainability. What’s important is that the additional carbon tax revenue will be channelled into carbon solutions. The focus is really to invest in costly low-carbon infrastructure, help the greening of the aviation and tourism industries and capture economic opportunities in green areas including green finance.
“Budget 2022 also reinforced fair and progressive principles on wealth taxes. Those who can pay more will really pay more in wealth taxes. Not unexpected, but still quite ‘Robin Hood’.”
Soo How Koh, Executive Director, Koh SH & Associates
“Despite the staggered approach of the planned GST rate increase and the fact that most GST-registered businesses have dealt with past GST rate changes, implementation and compliance will be complicated by having to deal with two rate changes over a short period. While the first rate increase in 2023 will give a bit more time to businesses to plan and prepare for the rate increases, the issue is whether the pandemic curbs and manpower shortage will create a crunch to find the necessary resources needed to help implement the changes on a timely basis.”
Kam Wing Chow FCPA, Executive Director and CFO Micro-Mechanics Holdings
“The budget helps local SMEs to be more adaptive and competitive in the face of rapid change in the business landscape and the Covid-19 pandemic. Besides support measures to help SMEs upgrade their capabilities such as R&D collaboration with local institutions and financial assistance, there is a focus on reskilling and upskilling local workers to match market needs. The government will also spend more on digital infrastructure to facilitate the business environment. All are important for business and investors.
“One thing I really appreciate is the Green Transition. The carbon tax from S$5 per tonne of carbon emissions to S$25 per tonne, and eventually S$80 per tonne, shows the determination of the government to seriously look at climate change.”