Taxes; How You Can Pay Less (Legally)
In this world, nothing is certain but death and taxes
— Benjamin Franklin
In the latest IRAS annual report, they estimated that they brought in nearly $50B in tax revenue in FY2020. The chart below shows tax collection data for the past 5 years.
Out of the $50B collected, personal income tax was the second highest collection at $12.8B, with GST coming close at $10.3B. Now, latest reports indicate that our GST could go up to 9% as early as Jul 2022.
You may or may not be happy with paying tax. However in her book “The Deficit Myth: Modern Monetary Theory and the Birth of the People's Economy”, 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. If there were no 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. Take Zimbabwe’s average inflation of 86% per year. 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. Whilst this isn’t used very often, the government implemented COVID-19 support schemes which had some benefits to the lower income population.
Governments can use taxes to encourage or discourage certain behaviours. Money incentives and disincentives can be extremely effective in encouraging and discouraging certain types of behaviours. For example, our COE and ARF impose a high cost on private transport ownership. There are also taxes on items that the government might deem as demerit like alcohol and cigarettes. A new tax that the government is slowly rolling out in an effort to save our planet and slow climate change are taxes on carbon emissions.
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.
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.
So, reduce your taxes by contributing to your SRS account before 31 December 2021! After all, who doesn't want to pay less to the taxman? There is a maximum contribution of $15,300 for Singapore Citizens and PRs, and $35,700 for foreigners, but reducing your taxable income by that amount could help you drop to a lower tax bracket.
But remember, don't just leave your money in the SRS bank account; it could be sitting there earning almost zero interest for a very long time. Talk to us about how you can make the most of your SRS monies, e.g. buying a retirement annuity or 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.
Please speak to your adviser if you’d like more details on the SRS scheme, account, and/or investments. You can also visit the IRAS website for more information.
