Will the personal tax rate hike drive senior executives away from Singapore?

This is the first increase in 30 years.

The government caught market watchers by surprise yesterday when it announced Singapore’s first increase in highest marginal personal tax rates in the last 30 years.

Singapore’s top marginal tax rate will be raised by two percentage points, from 20% to 22%, for the highest income earners with a chargeable income above $320,000.

“The increase in top marginal personal tax rate is a calculated risk for Singapore, as its competitive position is weakened for a group of highly mobile senior executives,” said Grahame Wright, Partner, Human Capital, Ernst & Young Solutions LLP.

Even DPM Tharman recognised the risk in raising Singapore’s tax taxes. We cannot take tax competitiveness lightly, but highlighted that Singapore has other key strengths compared to other Asian countries. 

“The international competition for talent is real, for both Singaporeans and foreigners. Many Singaporean professionals are in fact working abroad, such as in Hong Kong. It would be naive to think that we can keep raising tax rates without affecting our competitiveness. We must remain an attractive place for world-class teams to be in Singapore with Singaporeans at the core, and to keep our place in the world. This will keep our economy vibrant, and retain talent, so that all can contribute to building a better Singapore,” he said.

Although the move caught the market by surprise, it is still in line with the trend of making better-off Singaporeans contribute more while keeping tax burden low on middle-income earners.

“A surprising move by the Singapore Government to propose an increase in the income tax rates for high income earners with effect from the Year of Assessment (YA) 2017 (income year 2016). This is probably done to fund the slew of upcoming schemes like the Silver Support Scheme being announced, and to ensure the future sustainability of the schemes. While mindful of the need to keep our tax rates competitive, the government has also recognised the need to keep our individual tax regime more progressive and improving on income inequality,” said Jill Lim, Global Employer Services Leader, at Deloitte Singapore.