Principles of Taxation: Singapore Budget 2018 and Its Economic Effects

This report provides an analysis of Singapore's taxation system, particularly focusing on the impact of the 2018 budget. It explores how the budget aims to achieve its objectives, including building a strong technological and innovative economy, creating a smart and livable city, and fostering a caring and cohesive society. The report identifies key taxation-based policies, such as fiscal and tax policies, that can improve the lives of Singaporeans and sustain the country's competitiveness. It also compares the overall tax system of Singapore over the years, highlighting the evolution of taxes like Goods and Services Tax, Personal Income Tax, and Corporate Income Tax. Based on the analysis, the report proposes recommendations for future budgets, emphasizing the need for a progressive and sustainable tax system that supports economic growth, fair distribution, and revenue base expansion. These recommendations include strategic and integrated planning, progressive taxation, and adjustments to major revenue sources like corporate and personal income tax.

Running head: PRINCIPLES OF TAXATION
Principles of Taxation
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Discussing the effect of the new tax structure proposed in Budget 2018 laid
out by the Finance Minister in sustaining competitiveness of Singapore and
ensuring the welfare of its people. The new budget helps the Singapore
economy in different aspects:
Question 1
a. How Singapore uses the Budget to achieve its objectives?
With the new tax structure proposed in Budget 2018, Singapore will enjoy healthy
productivity growth. In addition to that, the Singapore economy will be picked up in
the later part of the previous year (Sharkey 2015). The new Budget objective will be
to see rise of Asia and ageing population in Singapore. Furthermore, the increasing
need to get embraces with the introduction of technology.
The four main objectives of the Budget 2018 is to build a strong position in
technology as well as creating an innovative economy (Yung 2016). The other
objective is to build a smart as well as green and liveable city for the Singaporeans.
They will be using the Budget as they can get access to caring as well as cohesive
society. They will get ways to sustain in the near future. The Singapore Budget 2018
aims at bringing for the people innovative economy as well as quality environment
and inclusive society. In order to achieve these objectives, the Budget 2018 will
provide near term support measures for addressing the sector-specific needs at the
time of catering it to the Committee on the Future Economy Strategies for the
medium-term to long-term activities (Riccardi 2018).
b. Identifying 2 main taxation based policies that might improve the lives of
the people in Singapore
The two taxation based policies that might improve the lives of the people in
Singapore are Fiscal Policy and Tax Policy (Adachi 2018). By using fiscal policy,
the people in Singapore can enjoy sustained as well as non-inflationary growth in
economy. The long-term objective of this fiscal policy is to maintain a balance
budget as well as focus mainly on the government expenditure.
The other taxation based polices is tax policy that plays an integral part of the
fiscal policy. There are several objectives to this tax policy in Singapore and

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these are revenue raising as well as promotion of economic and social class
(Smith et al. 2015).
c. Identifying 2 main taxation based policies that might help in sustaining
the competitiveness of Singapore among its neighbouring countries
Research and Development had been treated as one of the significant
component of Singapore’s policy of productivity driven economic growth (Smith et al.
2015). The two main taxation policies will be manage the worker dependence of
foreign workers and this could be done by increasing the level of productivity of local
workforce. The other one is to sustain Small and Medium sized enterprise and this
can done through fostering entrepreneurial environment. Furthermore, by using
these taxation policies, it will be easy to enhance the innovation capabilities of local
enterprises as a whole. In addition to that, research and development enhanced tax
reductions for the local R & D will be increased from the existing 150% to 250% in
order to qualify R & D expenditure that will start from 2019 to 2025 (Riccardi 2016).
Question 2
a. Making a comparison study of the overall tax system of Singapore over
the past years and now
Singapore is a rich nation and along with other revenue-generating streams
like exports, fees as well as charges and other receipts, it is noted that the taxes
are collected every years and are used for developing the country (Singapore)
into a vibrant economy. Efforts are made to think of Singapore as a place where
every foreign entrepreneur as well as company wants to be a part of for investing
purpose (Smith et al. 2015).

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Figure: Overall tax system of Singapore from 2010 to 2018
(Source: Vu 2016)
The government had actually spend more than 46.3% of what is actually
collected from the individuals in form of tax for maintaining security as well as
external relations. In addition to that, government even spent more than 45.7%
on social developments as well as rest for the administrative purposes. It is the
responsibility of the Inland Revenue Authority of Singapore to collect the personal
income tax, property tax, betting taxes as well as corporate tax stamp duty. There
are different other government agencies who gets involved in the collecting the
rest of the taxes from the public (Smith et al. 2015).
Goods and service tax- This tax was introduced in the year 1994 at 3%. The
reason behind introducing the tax was to boost the level of competitiveness in
Singapore as it will help in allowing cuts in individual as well as corporate income
taxes. In addition to that, this tax would help in preparing for an ageing population
and even avoid excessive tax burden laid on the working population as a whole.
The reaction to this introduced tax was lead to booming economy as well as
generous offset measures as it help in cooling the anger over the move (Tan and
Ho 2015).
Personal Income tax- This tax was introduced in the year 1948 at 30%. This
hike was done in the budget 2015. The reason behind introducing this tax was to
generate more revenue for the betterment of the individual and give higher
standard of living (Smith et al. 2015).

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Corporate Income tax- This tax was introduced in the year 1948 at 40%. The
reason behind introducing this tax was due to need for money for balancing the
budget as well as introducing a steady and equitable form of taxation for future
revenue (Tan and Ho 2015).
The Corporate Tax rate in Singapore stood at 17% and averaged at 20.21 %
from the year 1997 to 2018 that had reached the level of 26% in the year 1998
and recorded a low of 17% in the year 2010.
In Singapore, it is noted that the Corporate Income tax rate is one of the tax
that had been collected from companies. In addition to that, it is the amount that
is based on the net income any business can generate at the time of performing
the business activity during one business year. Furthermore, the benchmark that
is used to refer to the highest rate for the corporate income. However, the
revenue from the corporate tax rate can be treated as one of the major source of
income for the government of Singapore (Smith et al. 2015).
b. Based on the analysis done, propose recommendations for the future
budgets in view of improving the tax system in Singapore
From the above analysis, it is proposed to bring improvement in the tax
system in Singapore where Singapore Budget would be a strategic as well as
integrated plan for positioning the country attain success in the future financial
years. It is recommended to have a tax system that is progressive that taxes high
income earners equally as that of low-income earners. There should be fair
distribution of tax policy that will be fair for both (rich and poor). Based on the
strategies, there is a need for Singapore to grow its revenue base for financing
rising healthcare as well as infrastructure expenditures and in doing so it had to
go through the pro-growth and progressive stages at first place (Tan and Ho
2015). The tax system should be sustainable as such so that the individual can
get better out facilities. It should even help profitable companies where they can
pay more income taxes as well as continues to reward for the effort of the
individuals as well as enterprises as a whole. In order to increase the tax revenue
base, it is recommended to bring changes to the tax system that is made to the
largest tax revenue sources. In addition to that, the top three contributors of
government operating revenue takes into account corporate income tax as well

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as goods and service tax and personal income tax. These three government
operating revenue for 20% in case of corporate income tax, 16% in case of goods
and service tax, 15% in case of personal income tax. Most of the companies
actually need to pay very much lower effective tax rates because of the partial tax
exemption regime as introduced in the year 2002. This actually helped the
companies in dealing with the rising business costs. From the year 2018, it had
been noted that the regime is being enhanced as it allow companies for paying
normal corporate tax rate for claiming maximum exemption. It overall had
comprised 75$ exemption on the first $10,000 as well as further 50% exemption
on the rest (Smith et al. 2015).

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