Death and Taxes
Key Takeaways
Taxes enable governments to provision themselves, distribute wealth and income, and influence societal behaviours.
By contributing to SRS, you can reduce your assessable income by the same amount of your contribution, with a maximum contribution of $15,300 for Singapore Citizens and PRs, and $35,700 for foreigners.
Nothing is certain except for death and taxes
— Benjamin Franklin
The latest IRAS annual report for FY2023/2024 highlighted a 17% higher tax collection totalling S$80.3 billion. The increase in GST from 8% to 9% in 2024 likely helped, but the data below shows that in terms of the contributed amount, it only comes in third place. Corporate and personal income tax are the top two contributors to tax revenue.
You may not be too happy about paying tax, but compared to other countries, our local tax structure is quite straightforward and simple. In addition, it does not penalise investors on gains or dividends received from capital markets.
In the book “The Deficit Myth: Modern Monetary Theory and the Birth of the People's Economy”, author Stephanie Kelton offers a few good reasons why we have to pay a tax.
Taxes enable governments to provision themselves without the use of explicit force. Without taxes, it would be difficult for the government to have power over their citizens. If people didn’t need to earn dollars to pay taxes, it would be much harder for the government to find workers to carry out essential jobs.
If there were no constraints on government spending, there would eventually be a bad inflation problem. Taxes act as a restrictor of sorts in that they can help keep inflation from getting out of control.
Taxes can be used to distribute wealth and income in the form of various schemes, grants, and up-keeping and improving public goods (infrastructure and transport).
Governments can use taxes to influence societal behaviours. For example, our COE and ARF impose a high cost on private transport ownership. There are also taxes on ‘vice-related' items like alcohol, cigarettes, and gambling. Carbon emissions tax will likely help to change people’s behaviours to slow climate change.
We are fortunate to benefit from one of the lowest tax jurisdictions in the world. However, there are ways for us to reduce our taxes even further. Whilst there is no way for us to reduce our GST exposure (unless you stop consuming goods and products altogether), there is a way to lessen your personal income tax if you are still in the workforce or receive rental income from your investment properties.
By contributing to SRS, you can reduce your assessable income by the same amount of your SRS contribution. The Inland Revenue Authority of Singapore (IRAS) website describes the SRS scheme as follows:
The Supplementary Retirement Scheme (SRS) is a voluntary scheme to encourage individuals to save for retirement, over and above their CPF savings. Contributions to SRS are eligible for tax relief. Investment returns are tax-free before withdrawal and only 50% of the withdrawals from SRS are taxable at retirement.
Before The New Year
So utilise the SRS facility to reduce your annual tax burden and make the most of it by investing it, choosing from a range of strategies to suit your investment preference and risk tolerance. The goal is to grow this amount over time to be used as retirement funding.
There is a maximum contribution of $15,300 for Singapore Citizens and PRs, and $35,700 for foreigners.
If you are unsure about how SRS works or how to implement it, come and speak with us. You can also visit the IRAS website for more information.
