THE International Monetary Fund (IMF) has suggested that Singapore could revisit the idea of taxing current year income – instead of the prior year’s – as a way of stabilising the economy in future.
This proposal was mooted five years ago, but the Government decided against any changes for the time being after two months of consultation.
The IMF recommendation comes as Singapore emerges gradually from its deepest recession on record.
‘Further along the recovery path, fiscal policy would need to play a part in fostering likely transformations in a post-crisis world,’ the IMF said in its annual country report, finished in July after consultations with Singapore economic officials.
PricewaterhouseCoopers tax partner David Sandison said such a change would be appropriate in this recessionary environment as it better matches tax paid with income earned.
In future, such a system would provide fiscal support to the economy in a downturn, while helping companies and individuals with their cash flow.
Under the current system, taxpayers hit by a pay cut or companies that earn less this year pay income tax based on income the year before – meaning a heavier tax burden.
OCBC Bank economist Selena Ling said the change would be ideal in theory.
However, the reasons for non-adoption when it was considered in 2004 remain: administrative and compliance costs of a change, and what to do with tax in the transition year, she said.
She added that there is no urgency for the Government to change the current system, which has worked well.
In 2004, the Government conducted a public consultation from September to October on whether to move to a current year assessment.
Source : Straits Times – 2 Sep 2009
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