Recently, the chief of MAS has touted the idea of inheritance tax to address the wealth inequality in Singapore, specifically to reduce the worsening wealth gap from the increasing private housing prices. The last inheritance tax in Singapore is the estate duty which has been abolished since 15 February 2008. It was last implemented since 28 February 1996 till 15 February 2008 and is payable on all assets upon death at 5% for the first $12 million exceeding the $9 million threshold and 10% for amounts exceeding $12 million. Is wealth tax an effective way to redistribute wealth and closing the widening class gap?
Estate duty contributed an average of $111 million for the last three years, a mere 6% of private property tax brought in during the same period ($1.83 billion annually). Globally, wealth tax is not widely implemented. Of the twelve countries in OECD that had implemented wealth taxes, only three (Norway, Spain and Switzerland) still remain with it, probably due to the limited tax collection from its implementation. Wealth taxes hauled less than 1% of a country total tax revenue historically.
The key consideration on wealth tax is its impact on the behaviour of entrepreneurs, whether this will lead to a flight of investment out of Singapore, an erosion of the competitiveness of the wealth hub that is built over the years. This must be cautiously balanced on the policy effectiveness on wealth distribution. There is no easy answer to this question.
A wealth tax on global assets will transform the viscosity of the assets, as the assets held domestically and overseas will all be brought under the tax bucket. Investors will now have to consciously manage a fluid assets portfolio across borders and constantly rank them competitively, making flight of investments more free moving. Considering other development globally eg global minimum tax drive, this may not bode well for Singapore.
Is the wealth tax a sign what we foresee earlier (Heightening Tax Risks, Sitting Ducks Beware 23/7/2021), an aggressive tax collection to crawl back funding deficits for the pandemic under wealth equalisation? It remains to be seen how this will evolve and hopefully, this leads to better and happier place for all.