Taxation in Asia

A rapidly ageing population in Singapore will result in two grave problems. The tax revenues collections from the working population will fall and the rise in social spending is expected. To fund the gap between rising expenditure and lower revenues, new sources of tax revenues are necessary.

A possible source of revenue is capital gains tax (CGT). This however leads to questions such as the type of CGT Singapore should rely on to plug this gap. A CGT policy on whichever kind of asset will also bear consequences.

This report will discuss the necessity for Singapore to look for other sources of tax revenue. It also provides an analysis to the type of CGT that should be levied upon. Insights on the macroeconomic consequences and how Singapore national objectives will be impacted by the implementation of CGT will also be shared. Lastly, the report will also examine how Singapore’s competitiveness with Hong Kong, our closest competitor for foreign investments, will be affected.

In this report, we submit that Singapore can levy a CGT on gains on share disposal. This brings about a host of concerns such as the drop in competitiveness and this might threaten the national objectives of maintaining a stable economic growth rate and low unemployment rate.

We find that CGT can have a particularly damaging effect on Singapore’s economy. However, when compared to our closest competitor, Hong Kong, our low tax rate and the generous exemptions and rebates offered by the pro-business Singaporean government remains very competitive.

This report is heavily centred upon qualitative analysis built upon from research. As such, while being able to examine the possible effects of CGT on Singapore, it is unable to quantitatively conclude that the benefits to CGT will definitively outweigh the possible ramifications that could arise.