A wealth report by real estate consultancy Knight Frank earlier this year found that the number of individuals in Singapore with at least US$30 million in net assets rose by 10 per cent last year.
“In this context, the topic of wealth tax has come up,” she said.
Giving an example, Mr Vikna Rajah, who heads the tax, trust and private client practices department at law firm Rajah & Tann, pointed to the stock market rallies occurring last year.
“I think it’s probably likely that the affluent could have been able to enjoy these benefits, and with this backdrop of the wealthy increasing asset value, how do we then ensure that we can lessen the wealth gap across generations?” said Mr Rajah.
Agreeing, Mr Stephen Banfield, partner and head of family office and private client at KPMG in Singapore, said it is no secret that there are parts of society that have done well amid the pandemic, and they happen to be people who are asset rich.
“If you look at market share returns over the past year (and) property prices in various countries, everything is up,” he said.
“Combine that with governments which are looking for additional revenue, and the man on the street who may have borne the brunt of lockdowns and interruptions to their businesses on account of COVID-19, you can see why there has been a greater focus and dialogue about things like wealth taxes.”
The search for a novel tax solution has led many tax jurisdictions to eye the private wealth of ultra wealthy individuals, especially considering their ability to avoid having to pay income taxes — typically the largest component of any country’s tax collection alongside corporate tax.
A ProPublica report earlier this year exposed how the US’ 25 richest people have managed to avail themselves of tax avoidance methods to reduce their income taxes, in some cases to zero.
While their collective wealth rose by US$401 billion from 2014 to 2018, they only paid US$13.6 billion in federal income taxes in those years. This amount paid in taxes is only 3.4 per cent of their increase in wealth in that period.
Among those named in the report were Amazon founder Jeff Bezos, Tesla founder Elon Musk, investor George Soros and businessman Michael Bloomberg.
Progressive income tax systems globally have led those who are generally wealthy, but not the wealthiest, to pay more, since the amount of income taxes paid scale according to the taxpayer’s income. But income taxes are unlikely to feature heavily among the ultra-rich.
Mr Saravan said: “In reality, for most wealthy individuals and entrepreneurs, their wealth is locked up in assets and they typically do not draw high salaries. However, their net worth may be astronomical due to the stakes in the companies and assets they own. From this perspective, the effectiveness of our current income tax system has its limits.”
Taxing wealth, on the other hand, takes into account the amassed wealth of the individual.
Associate Professor of Economics Walter Theseira at the Singapore University of Social Sciences (SUSS) said wealth taxes could be “less economically distorting than other taxes which are based on income or consumption”.
“Wealth taxes largely discourage concentration of resources, whereas income and consumption taxes discourage economic activities,” added Assoc Prof Theseira, a former Nominated MP.
On net wealth taxes, one way to see how it may work is to look at countries like Switzerland, which imposes varying degrees of tax based on canton. Such a flat tax on wealth is arguably the purest form of wealth tax since it encompasses everything a person owns instead of individual items.
A Bloomberg report earlier this year looked into how the Swiss are faring with their system of levy that applies to property, artworks, cryptocurrency, and even livestock. While the world is debating why and how to implement such a tax, the report found that “the Swiss do not seem to be very bothered by all that”.
Based on estimates, Assoc Prof Theseira said wealth taxes account for around 3.6 per cent of total tax revenue in Switzerland, which like Singapore, is also a wealthy country.
Although much depends on the rate of wealth taxes and the size of the tax base, if the Swiss example of net wealth tax were to be used here, it could make a difference of a “few percentage points” of government revenue for Singapore, though that would not be significant relative to taxes on personal income, corporate income, and consumption, he said.
“But it is interesting to note that a wealth tax might conceivably pull in a similar amount to raising the goods and services tax by a few percentage points,” said Assoc Prof Theseira, with a caveat that the possible wealth tax revenue for Singapore is all speculation at this point.