AN EVALUATION OF THE PERSONAL INCOME TAX STRUCTURE IN SINGAPORE

Abstract

The personal income tax structure in Singapore is designed to maximise output capacity while minimising disincentive effects. There are essentially three mam objectives of the personal income tax: income redistribution, revenue generation and macroeconomic stabilisation. Analysis on the redistributive function of the personal income tax produced the most interesting results. The ability of the personal income tax to redistribute income is vitally dependent on the level of progressivity in the personal income tax structure. In Singapore, we have a finely tuned progressive tax structure which has a large number of tax brackets as compared to those of the United States, Canada and several other countries in the Asia-Pacific region. Computations reveal that for the low, lower-middle and upper-middle income groups, percentage contribution to total tax assessed has always been lower than the percentage of taxpayers in each of the respective income groups. Furthermore, percentage contribution to tax assessed increases as we move up the income schedule. These contribute to a well balanced income tax system which avoids placing an unduly high tax burden on the low income group and aids in the redistribution of income. Measurements on progressivity indicate that of late, our personal income tax structure has become less progressive. This is despite the numerous rebates and reliefs which are incorporated into our personal income tax structure to offset the regressivity of the GST which was implemented in 1994. None-the-less, the personal income tax still plays an important role in the redistribution of income.