Tax Part 3: Singaporeans Pay As Much Personal Income Tax And CPF As Nordic Citizens

By Roy Ngerng and Leong Sze Hian

This is a 10-part series which will analyse the tax that Singaporeans are paying, in comparison with the Nordic countries. It has been said that Singaporeans pay one of the lowest taxes in the world, and that the Nordic countries pay one of the highest taxes in the world. This series would explore this matter in greater depth, and seek to have a better understanding of what the truth really is.

In brief:

  • Singaporeans pay the lowest tax rate, but when including social security/CPF contributions, what Singaporeans pay isn’t too far off that what the citizens in the Nordic countries pay. In short, we pay almost the same as the citizens in the Nordic countries do.

In Part 1 of the article, we had showed you how even though Singaporeans pay one of the lowest taxes in the world, for a low-income Singaporean, they are actually worse off than a citizen in the Nordic countries, even though people in the Nordic countries pay higher taxes. This is contrary to what the Singapore prime minister had claimed, that the poor in Singapore is “less badly off than if you were poor nearly anywhere else in the world”.

In fact, the poor in Singapore are more likely to go into heavy debt, whereas compared to their counterparts in the Nordic countries, the poor in those countries are still able to save some part of their wages.

In this article, we will dispel another myth. Do Singaporeans really pay the lowest taxes?

According to the Inland Revenue Authority of Singapore, for the lowest-income earners in Singapore, the tax rate is 0%. For the highest-income earner, they would need to pay an overall tax of 20%.

For the contribution rates to the Central Provident Fund (CPF), for a low-income earner who earns $800, he/she would need to pay a total contribution of 36%. However, do you know that because the “ordinary wage ceiling is $5,000”, this means that for a person who earns above $5,000, they would only need to contribute 20% of the maximum level of $5,000 into CPF. Thus for very high-income earners, they would pay virtually nothing more beyond the $5,000 to CPF.

Thus, if you do the sums, a high-income earner may need to pay relatively less in percentage terms of his/her wages to tax and CPF, whereas a low-income earner may need to pay relatively more in percentage terms of his/her wages to tax and CPF. In effect, the low-income earner would have a relatively lower purchasing power than a high-income earner.

As we had also written about in part 1 of the article, for low-income Singaporeans, because they are most likely to be in debt for the most part of their lives, this would mean that with the lower purchasing power, they are even worse off.

But this isn’t yet the full story.

Since the Nordic countries pay the highest taxes, we decided to look at how the taxes that Singaporeans pay compare with that of the Nordic countries.

The personal income tax revenue collected in Singapore is $7.7 billion. In Finland, this is $49.4 billion, $109.4 billion in Denmark and $120.1 billion in Sweden (Chart 1).

Slide1

Chart 1

And what if we were to include CPF into the equation? The CPF revenue collected is $24.8 billion, which is more than 2 times what is collected in tax.

In comparison, the social security revenue collected by the Danes is $4.2 billion, $40.3 billion by the Finns and $48.1 billion by the Swedes (Chart 2). You can see that the CPF revenue that the Singapore collects is actually not that low, as compared to the Nordic countries.

Slide2

Chart 2

And if you look at the social security collected as a proportion of personal income tax, you can see that only in Singapore is the social security revenue higher than the tax revenue. In Singapore, the CPF revenue collected is 323% the tax collected, whereas in the Nordic countries, the social security revenue is only between 4% and 82% of the tax revenue collected (Chart 3).

Slide3

Chart 3

So, even though it looks like Singapore’s personal income tax is low, when you put things into perspective, Singapore is collecting a lot more in CPF – more than what the Nordic countries are, and the overall tax and CPF is actually not that low.

You would remember that for low-income Singaporeans, they pay 36% of their wages into CPF whereas for high-income Singaporeans, they would pay virtually nothing into CPF beyond the $5,000 monthly income cap for CPF contributions, but pay a lower 20% into tax. Since the CPF revenue collected is more than two times higher than personal income tax revenue, who do you think is footing the burden of the CPF revenue collected?

Next, when you look at the tax and CPF collected as a proportion of the total government revenue, things become clearer. The total government revenue in Singapore, including CPF revenue collected is $79.9 billion. For Finland, it’s $143.9 billion, $200.2 billion in Denmark and $299.2 billion in Sweden.

When you look at personal income tax as a proportion of total government revenue, indeed the personal income tax collected in Singapore is low – it forms only 9.6% of the total revenue collected, whereas it is 34.3% in Finland, 40.2% in Sweden and 54.7% in Denmark (Chart 4).

Slide4

Chart 4

But if you include CPF/social security, the picture looks very different. Singaporeans pay $32.4 billion into personal income tax and CPF, the Finns pay $89.7 billion, Danes $113.6 billion and Swedes $168.2 billion.

Thus including CPF, personal income tax and CPF would form 40.5% of the total revenue – a significantly higher proportion. It would form 56.2% in Sweden, 56.8% in Denmark and 62.3% in Finland (Chart 5).

Slide5

Chart 5

You can see that when we compare the proportionate personal income tax collected, Singapore collects about 92% lesser than the Nordic countries. But when we compare the proportion personal income tax and CPF collected, this is only about 26% lower.

This means that when we look at personal income and CPF as a whole, Singaporeans aren’t paying that much lesser than citizens in the Nordic countries.

Thus if we are indeed paying somewhat similar amounts into tax and CPF as the Nordic countries, shouldn’t we be getting similar benefits as the citizens in the Nordic countries?

The citizens in the Nordic countries are able to obtain next to free healthcare and education, and higher retirement funds, while Singaporeans have to pay 69% of the total health expenditure and pay the second highest university fees among the high-income countries.

The question to ask is – why do Singaporeans still have to fork out so much of our own money to pay for our basic needs when the citizens in the Nordic countries are able to obtain these for free – what’s more when we pay about the same as they do into personal income tax and CPF?

In summary, if we track the cashflows that Singaporeans pay, we are actually not much better off than citizens in the Nordic countries. But this is not all, as there are some more parts of this article that shall be published later.

In the next part of the article, we will look into how much Singaporeans have to pay out of our own pockets, and how this would compare to the Nordic countries. When we include how much we pay out of our pockets with the Nordic countries, are we paying that much differently, or not?

You can read the other parts of the article here.

Slide1

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6 comments

  1. Pingback: [Infographics Part 3]: How Much Tax Are Singaporeans Really Paying? | The Heart Truths
  2. Jaded SG

    This is very depressing to read. One other point that i am familiar with. Nordic countries provide very supportive unemployment benefits which is supported from the high tax rate. I was told by my nordic colleague that Sweden pays unemployment benefits to 80% of last drawn for the first year of unemployment and this is reduced proportionally until 50% for subsequent years. However I did not verify this. I believe the same also applies to Denmark. But I do acknowledge that these approaches are on the extreme as it does have its drawbacks in that it encourages people to be lazy.

    In Singapore, we have the other extreme. There is not only no unemployment benefits, but there is absolutely no protection for PMEs when it comes to employment termination or redundancy. Unlike our Nordic neighbours, and even our neighbouring economies, Singapore does not have any form of labor protection for its PMEs. There is however a change coming up April 1 2014 and all PME earning up to 4,500 per month are protected by the Employment Act. I guess better than nothing but it would be interesting to find out what percentage of existing PME are protected by this new inclusion. It would also be interesting to find out of all the PME, what is the percentage of citizens vs non citizens. And of the percentage of PME citizens, how many are unemployed and for how long.

  3. Shawn

    Hmmm… Very interesting findings. However you missed out the most crucial step in doing up statistics. Where are the sources??? Anyone can just draw up a diagram and put in values that may or may not be genuine?
    Didn’t you learnt in your University days that statistics WITHOUT sources at the bottom will not be entertained?

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