INCOME TAX ORDINANCE (Amendment to Second Schedule)

4.38 p.m.

The Financial Secretary (Mr T. M. Hart): Sir, I have His Excellency's authority to move,

That this Assembly, pursuant to subsection (1) of section 106 of the Income Tax Ordinance (Chapter 166 of the Revised Edition), resolves that the Second Schedule to the said Ordinance be varied by substituting therefor the following schedule with effect from the 1st January, 1959:- SECOND SCHEDULE. Chargeable Income Rate of Tax (Section 42). $ For every dollar of the first 1,500 5 per cent " " " " " next 500 6 " " " " " " " " 1,000 7 " " " " " " " " 1,000 8 " " " " " " " " 1,000 10 " " " " " " " " 2,000 12 " " " " " " " " 3,000 15 " " " " " " " " 5,000 18 " " " " " " " " 10,000 25 " " " " " " " " 10,000 30 " " " " " " " " 15,000 40 " " " " " " exceeding 50,000 50 " "

Sir, the object of this motion is to give effect to the proposals for the change in the rate of tax on the chargeable incomes of resident individuals which I outlined on the 3rd of December

In brief, the new scale provides for alterations in the "platform" or "slabs" of chargeable income and for different rates of tax on the various slabs. The changes can best be seen by a comparison of the old* and new+ scales which have been in the hands of hon. Members since 3rd December.

• Appendix I col. 1297-8 EXISTING RATES OF TAX ON INDIVIDUALS Appendix I (Cols 1297-1298)

• Appendix II col.1297-300 TABLE SHOWING TAX ON CHARGEABLE INCOME OF RESIDENT INDIVIDUALS Appendix II (Cols 1297-1300)

What perhaps is more important from the point of view of hon. Members is the increase in the amount of tax on chargeable incomes at various levels which results from the new scale. Here again this can best be seen from the schedule+ which was supplied to hon. Members on the same day. It will be seen from the schedule that chargeable incomes - that is incomes after all allowances have been deducted - of under $4,000 attract no additional tax. At $5,000 the increase is $20; at $10,000, $150; at $15,000, $300; at $20,000, $550; at $25,000, $800; at $30,000, $1,300; at $40,000, $2,550; and at $50,000, $3,800.

Yet another table++ which I think has been in the hands of hon. Members - if it has not been, I can supply them with copies - shows what is called the effective rate of tax at the new rates. The effective rate of tax is the percentage which the tax which a taxpayer actually pays bears to his assessable income. These figures have been given for single men, married men, married men with two of a family, but it should be noted that allowances other than personal and children's allowances have been excluded. This table shows that for single men, the effective rate of tax on an assessable income of $5,000 is 2.1 per cent; on $10,000, 5.9 per cent; on $15,000, 9.4 per cent; on $20,000, 12.3 per cent; on $30,000, 16.8 per cent; on $40,000, 20.6 per cent; and on $50,000. 24.5 per cent. I would like Members to pay particular attention to these percentages. For a married man with two children, the effective rates are as follows:

++ Appendix III col. 1301-2 COMPARATIVE TABLE OF EFFECTIVE RATE OF TAX ON ASSESSABLE INCOMES OF MARRIED COUPLES WITH 2 CHILDREN Appendix III (Cols 1301-1302)

$10,000 - 2.3 per cent. $20,000 - 8.6 per cent. $30,000 - 13.8 per cent. $40,000 - 19.6 per cent. $50,000 - 21.9 per cent.

To get the matter into its proper perspective, one must compare these rates with those applicable to a married man with two children in other countries. For example, in the United Kingdom, the effective rates are as follows:

$10,000 - 11.9 per cent. $20,000 - 22.6 per cent. $30,000 - 30.3 per cent. $40,000 - 36.3 per cent. $50,000 - 41.5 per cent.

The effective rates in the U.S.A. range from 3.7 per cent on incomes equivalent to M$10,000 to 26.1 per cent on M$50,000; the equivalent rates in Australia range from 10.3 per cent to 39.1 per cent; in New Zealand from 5.1 per cent to 37.9 per cent; in India from 6.8 per cent to 20.7 per cent.

The equivalent rates prevailing in Ghana, Canada and South Africa are very similar to the proposed new rates for Singapore.

In Ceylon the effective rates are as follows:

M$10,000 - 8.6 per cent. M$20,000 - 20.0 per cent. M$30,000 - 20.5 per cent. M$40,000 - 34.0 per cent. M$50,000 - 38.0 per cent.

It will be appreciated from the information which I have given that the taxpayer in Singapore is still relatively well off.

In point of fact, having regard to the standard of living in Singapore, I have little doubt that the taxpayers who will be affected can shoulder these increases without any hardship whatsoever. Nothing will make me believe that a man who is earning $15,000 cannot pay an additional $150 in tax, or that a man who is earning $25,000 cannot pay an extra $550 in tax and so on.

Despite the mildness of the additional burden placed on taxpayers, these measures have certainly given rise to a certain amount of criticism. That, I am afraid, is inevitable. Perhaps, I may be allowed to deal once again with the points on which criticism has been raised.

One point of criticism - an old chestnut - is on grounds of alleged evasion of tax. Critics will say why raise the tax when so many people are evading tax at present rates? Why not catch the evaders and obviate the necessity for increasing rates? Well, Sir, the answer to that is that I think it safe to say that the amount of evasion which is alleged to take place is exaggerated. This point has already been debated in the Assembly but perhaps I may be allowed to go over the ground once more. I doubt if there are many potential taxpayers in Singapore of whose existence the Department is not aware and whose cases are not examined. No man registers a motor car without coming under the scrutiny of the Comptroller. No man hires a telephone without the same thing happening, and so on. We have very many sources of information about potential taxpayers and all indications and suggestions are followed up. At present, the Department has the names of some 160,000 persons registered on its records while about 25,000 fresh cases are examined each year. I do not think that many escape the attentions of the Comptroller. I do not say that evasion does not go on. That is inevitable in any country. But it is not nearly as widespread as is generally believed by those who do not have the full facts, and I know that the Department is becoming more and more expert in dealing with it. Many large-scale evaders have already been brought to book and at the present time there are over 200 cases being subjected to detailed investigation, but due to the absence of publicity arising from the secrecy provisions of the Ordinance, the true nature and extent of this aspect of the work cannot be generally appreciated. In short, Sir, the criticism that increases in tax would not be necessary if the Department did ifs job properly is simply not justified.

Another criticism has been that the new rates of tax will discourage local investment. I do not think that this will be the case. In the first place, the increases are not sufficiently great to make much difference to the actual amount available for investment. The increases can have very little effect on the question of yield and all the other factors that investment capital takes into account. Secondly, I should have much more sympathy with the argument if in fact the money had been invested in the past. But it has not. It has been salted away in different directions. If it is not going to come forward voluntarily in the interests of the territory in which it is made, a little more of it must be extracted.

Another criticism will be that it is unwise for Singapore to go ahead alone without corresponding action in the Federation. The argument here will be that independent action may disrupt the Pan-Malayan approach to income tax and that the different rates may cause taxpayers to change their place of residence. Superficially these arguments might have some force. In fact, however, they have little validity. There is, as I see it, little danger that independent action in this sphere will jeopardise the Pan-Malayan administration of income tax. There might have been some danger of this in the past. But I do not think that danger exists now. The Federation Government appreciates that our need for revenue, arising from a desire to balance our budget, necessitates a move which it is unable to take at the present time. It will stand to benefit from our action to a certain extent.

I also think it unlikely that the increase in rates is sufficiently great to cause taxpayers to change residence. A change of residence is not a move which one makes lightly or without full consideration of the consequences and I am sure that the larger taxpayers who might be tempted to consider such a move are sufficiently men of affairs to ponder the wisdom of incurring expense on what might conceivably be a costly move to no purpose. With rare exceptions, the place of an individual's residence is largely determined by the locality of his employment or the headquarters of his business and I am confident that it would take far more than a minor increase in taxation to influence him to change it.

Again, questions may be asked why we have not reduced personal allowances in order to broaden the base of the income tax pyramid. Now that, Sir, is a matter in which I am particularly interested. If I may express a personal opinion, that is, an opinion based purely on a slight knowledge of taxation matters, budgetary policy, and of the difficulty of balancing the budget, and without reference to any `political consideration, I should say that the base of the tax pyramid must be broadened and more people brought within the scope of income tax by lowering the personal allowances. In my opinion, Singapore cannot much longer afford the luxury of having personal reliefs which are amongst the highest in the world and rates of tax which are amongst the lowest.

Sir, I beg to move.

Inche Mohamed Sidik Bin Haji Abdul Hamid: Sir, I second it.

Question proposed.

4.52 p.m.

Mr Lim Choon Mong: Mr Speaker, Sir, we have a Bill and a motion on this subject today. Both will be passed. But what is interesting is this - we can liken the Federation and Singapore to the head and the tail of a horse respectively. In respect of the Bill, the head nods and the tail wags and the Bill is carried through. In the case of the motion here, the tail wags but the head refuses to nod! I would like the Financial Secretary to use his good offices with the Federation of Malaya and plead with them, as he has so very often pleaded with them, to level up taxation policies. I would suggest that if he were not influential enough, the Secretary of State for the Colonies might be brought in and persuaded to act as an umpire to help us.

In 1954 Singapore was on top of the world. The Federation of Malaya then said, "Why should we be separated from Singapore? We want to be together." Today I regret it is a different story. We are asking the Federation, "Can we join you?" What is the reason for all this? I can say that there is only one reason - that Singapore has not been setting an example in the matter of peace and stability for the country. Extremist elements have come in to destroy our stability and precipitated actions which are prejudicial and detrimental to Singapore. I would like the people of Singapore to take note that this is their country and if we want our country to be always on top and always in the lead, then we must have responsible leaders to help us out. Leaders of the past whose names have been brought into this Assembly, have been branded as not having done good to the people, but I would say that they did keep Singapore in the forefront. The younger set, with ages around 21, 22, 23 and so on, who are allowed to cry out against the old people, have come on to the scene. See what they have brought to Singapore! We are now at the tail-end in this race and I hope that we will not be dropped out.

Mr Speaker: Mr Hart, in reply?

Mr Hart: No, Sir.

Question put, and agreed to.

Resolved,

That this Assembly, pursuant to subsection (1) of section 106 of the Income Tax Ordinance (Chapter 166 of the Revised Edition), resolves that the Second Schedule to the said Ordinance be varied by substituting therefor the following schedule with effect from the 1st January, 1959: - SECOND SCHEDULE. (Section 42) Chargeable Income Rate of Tax $ For every dollar of the first 1,500 5 per cent " " " " " next 500 6 " " " " " " " " 1,000 7 " " " " " " " " 1,000 8 " " " " " " " " 1,000 10 " " " " " " " " 2,000 12 " " " " " " " " 3,000 15 " " " " " " " " 5,000 18 " " " " " " " " 10,000 25 " " " " " " " " 10,000 30 " " " " " " " " 15,000 40 " " " " " " exceeding 50,000 50 " "