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Higher property tax and corporate income tax collections provide a boost to the government's revenue

According to experts, this year's "strong" contribution from corporate income tax and property-related taxes has bolstered the Government's finances, allowing recent COVID-19 assistance measures to be implemented without dipping into prior reserves.

They said that the higher tax receipts are due to a strong property market, ongoing expansion of some industries such as manufacturing, and a resurgence in Singapore's GDP growth this year.


Singapore is going through a "stabilization phase," with robust COVID-19 guidelines such as a two-person limit for gatherings and dining out.


The intended objective was for these stricter measures to be in place for a month to calm the rise in local COVID-19 infections. They were first implemented on September 27. However, because the country's healthcare system is still under strain, with daily new cases in the four figures, the regulations have been extended until November 21.


In late September, a S$650 million package encompassing salary subsidies, rental exemptions, and other types of assistance was implemented to assist affected firms and workers. The government announced a second batch of help for S$640 million when the stricter limitations were extended last month.


Authorities have stated that the current assistance measures, which total to approximately S$1.3 billion, will be paid by higher-than-expected taxes received, with no additional use of past reserves.


Economists told CNA that in the fiscal year 2021, the government's revenues were likely boosted by increasing tax collections in a variety of areas.


"IIt is true that budget revenue collections are currently running higher than expected … thanks to healthy corporate and personal income taxes, property tax, stamp duty, and customs and excise duties," said Selena Ling, OCBC's head of treasury research and strategy.


"In fact, the year-to-date 2021 collection numbers (for these taxes) have exceeded the same period in pre-COVID 2019," she continued.


According to the latest statistics of the Accountant-General's Department, available for public viewing on the Singapore Department of Statistics' website, corporate income tax collection has totalled over S$12.8 billion since the commencement of the financial year in April.


This is more than double the S$5.7 billion collected in the previous financial year over the same time.


Personal income tax collections so far have totalled S$8 billion, slightly more than the S$6.9 billion collected in the same six-month period last year.


According to the latest official numbers, property tax collections doubled to about S$2 billion, in comparison to the S$508 million from last year.


From April to September, stamp duty collections were S$3.2 billion, a significant increase over the previous financial year's S$1.2 billion.


WHAT'S CAUSING THE INCREASE IN TAX REVENUE?

When asked why corporate income tax collections have increased despite the COVID-19 outbreak, Ms Ling explained that some industries, such as manufacturing, have done better than projected. This might have helped to mitigate the effects of the decrease in other industries.


Irvin Seah, a senior economist at DBS agreed with the above and said that the recovery has been "very uneven" since certain industries have benefited from improved external demand and accelerated trends such as digitalization while other industries, for example travel and tourism, are still impeded by the pandemic's uncertainty.


"So basically, the value-add from sectors doing better has helped to offset the downside from sectors that continue to struggle," he added.


"Those sectors that have done well will bring in fairly strong revenue collection, and they form quite a big part of the economy. This explains why the overall GDP this year is a positive number, and a strong one at between 6 to 7 per cent," Mr Seah said.


According to the two economists, the durability in personal income tax revenues is due to the same reasons.


Ms Ling, on the other hand, highlighted that the increase is "a bit surprising," pointing to the Jobs Support Scheme and other government policies as possible buffers for the labour market.


Property tax and stamp duty collections have been boosted by a booming property market fuelled by higher prices and more transactions.


Official statistics revealed that Singapore's private house prices climbed at a quicker rate of 1.1 percent in the third quarter, aided in part by landed property sales and prices.


While monthly sales of new private residences declined for the second month in a row in September, property analysts say the overall number of new units sold in the first three quarters of this year has already topped the entire year of 2020.

Property demand has been stable, according to Mr Seah, for two reasons.


First, the economic impact of the epidemic has been "highly regressive," with low-income workers suffering the brunt of it.


"The mid to high-income are mostly in industries and sectors that are less affected by the pandemic. Many of their jobs can also be performed remotely,” he said. “Given that they are not that badly impacted, they may continue to invest and one way is buying properties.”


Mr Seah believes that some people may be considering larger homes as a result of their work-from-home arrangement.


CONTINUE WITH BETTER TAX REVENUE

Because of the Singapore economy's recovery, higher tax receipts in these sectors are expected to persist.


It’s all about the economy. If restrictions are eased, more in-person activities and more hiring can take place, it should add to the overall sentiment.", CIMB Private Banking economist Song Seng Wun remarked.


“So the trend of improving tax collections should broaden out beyond the sectors and industries that have held up so far.”, he added


The government also provided support packages worth more than S$2 billion to people affected by the two "heightened alert" periods from May to July earlier this year. These were paid through budget reallocations from under-utilized departments as a result of COVID-19.


With the recent use of higher-than-expected revenues to support the pandemic's relief measures, Mr Seah believes the country's overall fiscal condition will have less likelihood of an upside surprise".


He pointed out that the government tends to be conservative in its forecasting, and that recent budget deficits have been lower than expected.


"I’m not discounting the possibility of an upside surprise... but this time round, I think that will be moderated because of the series of ad-hoc spending on the support measures," the DBS economist noted.


Singapore's total fiscal condition in FY2021, according to the government, would have a budget deficit of S$11 billion, or 2.2% of GDP.


By Flexi Team


*DISCLAIMER: This article and its publication are intended to provide a brief introduction and act as a general guide. This is provided for information purposes only and cannot be utilized as a substitute for professional advice. This document does not represent a legal opinion and one must not rely on it without receiving independent advice based on the particular facts of its own case. No responsibility is accepted by the author or the publishers for any loss suffered from acting or refraining from acting based on the contents of this publication.

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