Tiểu luận tài chính công THE CONTRIBUTION OF PUBLIC FINANCE POLICY TO SINGAPORE’S ECONOMIC DEVELOPMENT

Public Sector Pay...11 II.2.1 Experience in reforming salary policy for Singaporean civil servants...11 II.2.2 Impact of public sector pay to Singapore’s development...15 II.3 Infrastruc

THE CONTRIBUTION OF PUBLIC FINANCE POLICY TO SINGAPORE’S

ECONOMIC DEVELOPMENT

Table of Contents

I Overview of Singapore economy 1

II Prominent features of Singaporean public finance policy 2

II.1 Singapore Tax Revenue 2

II.1.1 Corporate and Personal Income Tax 3

II.1.2 Tax revenue relevant to possession of vehicle 7

II.2 Public Sector Pay 11

II.2.1 Experience in reforming salary policy for Singaporean civil servants 11

II.2.2 Impact of public sector pay to Singapore’s development 15

II.3 Infrastructure Investment 16

II.3.1 Singapore’s world-class infrastructure 16

II.3.2 Efficient transportation system 18

III How can Vietnam learn from Singapore 24

III.1 Corporate income tax rate and vehicle tax 24

III.2 Public Sector Pay 25

III.3 Infrastructure Investment 25

I Overview of Singapore economy

Singapore is one of the world's fastest growing economies Its GDP per capita has risen to

an incredible US $60,000, making it the sixth highest in the world based on CentralIntelligence Agency figures For a country that lacks territory and natural resources,Singapore's economic ascension is nothing short of remarkable Singapore has a highlydeveloped and successful free-market economy It is not only low in taxation but also enjoys

a significantly open and corruption-free environment

Singapore has based its economic development on a proactive strategy to attract FDI usingits trade openness Since 2003, when the World Bank Group began publishing its rankingsystem, Singapore has been ranked first for ease of doing business Favorable lending toforeign investors, a simple regulatory system, tax incentives, a high-quality industrial realestate park, political stability and the absence of corruption make Singapore an attractivedestination for investment

According to the UNCTAD 2016 World Investment Report, Singapore is the 7th largestrecipient of FDI in the world and the 3rd largest among the East and Southeast Asiancountries with US50 billion The main investors are the U.S., the Netherlands, the UnitedKingdom and Japan

Singapore has a unique position in the global economy and a pivotal role as a businessepicenter in the heart of Asia The city-state has been consistently acknowledged as a globalbusiness hub – one that features developed infrastructure, political stability, open businesspolicies, a skilled workforce, the use of English as the main working language and respect forintellectual property rights

Many multinational companies have chosen to set up their bases in Singapore, next to154,000 small and medium enterprises Business owners all over the world regard Singapore

as an ideal location to grow their businesses, with many of them using the country as aspringboard to tap into other emerging markets in Asia

II Prominent features of Singaporean public finance policy

II.1 Singapore Tax Revenue

Table 1 Overall Budget Balance

Source: Singapore Budget 1

Figure 1 Breakdown of Government Operating Revenue in FY2016

Source: Singapore Budget 2

1 http://www.singaporebudget.gov.sg/budget_2017/BudgetSpeech/RevenueExpenditure

2

http://www.singaporebudget.gov.sg/data/budget_2017/download/FY2017_Analysis_of_Revenue_and_Expendit

FY2016 Operating Revenue was S$68.7 billion The chart was mainly occupied by severalsectors which are Corporate Income Tax, Personal Income Tax, Good and Services Tax andcollected revenue relevant to possession of vehicle.

The Total Corporate Income Tax in 2016 was S$13.45 billion, made up 19.6% of totalrevenue The Personal Income Tax, Good and Services Tax and Revenue from owningVehicle were S$10.48 billion (15.3%), S$10.85 billion (15.8%) and S$9.17 billion (13.3%)respectively

II.1.1 Corporate and Personal Income Tax

With a low headline corporate tax rate of 17%, generous tax exemptions for midsize companies, and industry-specific tax incentives, Singapore is well positioned tomaintain its economic competitiveness in today’s global environment The Government ofSingapore provides a comprehensive package of tax concessions and incentives to businesseswhose business activities reflect the direction in which the state plans to steer economicdevelopment

small-to-Table 2 Tax Rate in YA

Source: Inland Revenue Authority of Singapore 3

Singapore is considered a tax haven because of its low personal and corporate tax ratesand other incentives for foreign investors It levies 22% on personal incomes in the highesttax range, defined as incomes above 320,000 Singapore dollars, and does not tax capitalure.pdf

3https://www.iras.gov.sg/irashome/Individuals/Locals/Working-Out-Your-Taxes/Income-Tax-Rates/

gains The city-state attracts international investment because of its strategic location as agateway for companies planning to expand into emerging Asian economies The InlandRevenue Authority of Singapore (IRAS), a legal board of the Ministry of Finance, isresponsible for collecting taxes.

Source: Inland Revenue Authority of Singapore 4

Corporate Tax Rates

The corporate income tax rate in Singapore is 17% However, the effective corporate taxrate could be lowered by other IRAS incentives The Productivity and Innovation Credit(PIC) Scheme, for example, allows companies a complete corporate tax exemption if they

4https://www.iras.gov.sg/irashome/Individuals/Locals/Working-Out-Your-Taxes/Income-Tax-Rates/

earn 28 million Singapore dollars per year Start-up companies in Singapore can also takeadvantage of the zero tax exemption on their first $100,000 of income for the first threeconsecutive years of business To qualify for the startup tax exemption, companies must beincorporated in Singapore and have a maximum of 20 shareholders One of the startupshareholders must be an individual shareholder and hold a minimum of 10% of shares Afterthe startup period, companies with incomes up to $300,000 are also eligible for a partial taxexemption that translates to an effective tax rate of 8.5%.

Source: Inland Revenue Authority of Singapore 5

Industry-Specific Tax Exemptions

Singapore also offers industry-specific tax exemptions for certain businesses Industrieseligible for tax exemptions include foreign banks, qualifying offshore funds and globaltrading companies Additionally, banks are eligible for a withholding tax exemption onpayments to non-resident individuals, which applies to payments made between April 1, 2011and March 31, 2021, based on agreements that take effect between those dates Qualifyingoffshore funds are also exempt from tax on specified income Singapore defines specifiedincome as dividends, gains, profits and interest from traditional investments includingdeposits, bonds, shares, stocks and securities Global trading companies are eligible forespecial tax rates of 5 to 10% for five to 10 years if they qualify for Singapore's GlobalTrader Scheme Singapore typically grants Global Trader status to companies withestablished track records of performance in international trade

Low personal and corporate tax rates and other incentives for investors, short time toprocess administrative work along with other factors, Singapore attracts a lot of foreigncapital pouring in the country and many big corporations choose Singapore to locate establishtheir regional headquarters in the Asia Pacific region such as Facebook, Unilever, Apple,

II.1.2 Tax revenue relevant to possession of vehicle

S$9.12 billion came from Vehicle Tax and Vehicle Quota Premium or COE Premium inFY2016

There are 5 main factors that would determine the price of a brand new car in Singapore.They are the Open Market Value (OMV), the Additional Registration Fee (ARF), ExciseDuty & GST, Certificate of Entitlement (COE), and local dealers’ margin

5https://www.iras.gov.sg/irashome/Individuals/Locals/Working-Out-Your-Taxes/Income-Tax-Rates/

(1) Open Market Value (OMV)

Think of a car’s OMV as a baseline guide to the original price of the car If not for taxes,COE, ARF or other form of taxes, we could have bought the car at the OMV price The OMVprices we see are what some people in other countries are paying for the exact same car.For example, a brand new Audi A4 has an OMV of about $32,000 In some Europeancountries such as Germany, you would be able to get the car at about that price

In Singapore, it currently retails at $161,000 Why is that so? Here are the other factorswhy

(2) Additional Registration Fee (ARF)

In Singapore, all cars would be subjected to the ARF The ARF is a form of tax imposed

on all cars during registration The ARF is calculated based on the OMV of the vehicle

Table 3 The calculation of ARF

Source: Dollars and Sense6

(3) Excise Duty and GST

Excise Duty is a form of tax imposed on specific goods within a country For example, inSingapore, we have additional taxes on goods such as alcohol, cigarettes and petrol

6 http://dollarsandsense.sg/no-nonsense-explanation-on-why-cars-in-singapore-are-so-expensive/

The Excise Duty on cars in Singapore is 20% of OMV Once the Excise Duty of 20% isadded to the OMV, a further 7% GST will be tax on both the amount for the OMV andExcise Duty.

For example, a Mercedes E200 that has an OMV of $49,113 will incur an excise duty of

$9,822 (20% of $49,113) and a GST of $4,125 (7% of $49,113 + $9,822),

(4) Certificate of Entitlement (COE)

Even non-car owners would know about the COE The COE is “market-driven” certificatethat allows a car to be driven on Singapore road for 10 years Anyone who wishes to register

a new vehicle in Singapore must first obtain a Certificate of Entitlement (COE) COE pricescan increase steeply during period of high car demand, which in turn cause prices of cars toincrease This method is used to limit new vehicles registered

COE prices are currently between $40,000 and $50,000

Table 4

(5) Dealers’ Margin

Last but not least, the car dealers that are selling you the car would also need to cover theirown overheads and earn a profit for themselves We call this dealers’ margin Dealers’margin could range from as little as about 15% for affordable brands to as high as 50% ormore for luxury car brands.

To calculate what the dealers’ margin is, simply sum up the OMV, ARF, Excise Duty,GST & COE SGCarmart refers to this as the “basic cost.” We then compare the basic costagainst the actual sales price, with the difference being the dealers’ margin

For example, a Mazda 6 currently has a basic cost of $92,520 with a sales price of

$122,888 Hence, the dealer’s margin for the car is about 33%

(6) Carbon Emissions-Based Vehicle Scheme (CEVS)

Carbon Emissions-Based Vehicle Scheme was introduced in 2013 to encourage people toadopt environmental-friendly cars with low carbon emissions Depending on your car’scarbon emission, you can either get a rebate or a surcharge, which can be viewed from thetable below7:

http://www.carsomesg.com/news/item/Car-Ownership-How-CoE-and-CEVS-Can-Affect-Your-Car-Loan

Source: Carsome 8

Additionally, Singapore intends to implement a carbon tax from 2019 as part of its efforts

to cut greenhouse emissions, Finance Minister Heng Swee Keat announced in his Budget

2017 speech on February 20th The tax is likely to be between $10 and $20 per ton ofgreenhouse gas emissions

The Government is trying to curb the car population by driving prices upwards andmaking cars more unaffordable With that policy, except from the tax collected from theextraordinary fee, the authorities can limit the number of cars on road as the country arebecoming dense The country is also good at using tax as a tool to control the negativeexternalities such as environmental issue

II.2 Public Sector Pay

Salaries are a crucial determinant of socio-economic policy, creating a motive force foreconomic growth and equality, social progress, capacity building and state management aswell as exploiting creativity potential of workers For a decade, Singapore has been the

8 https://www.carsomesg.com/news/item/Car-Ownership-How-CoE-and-CEVS-Can-Affect-Your-Car-Loan

country with the highest per capita income among ASEAN member states, especially inpublic sectors and civil services The Civil Service is the largest employer in Singapore,comprising about 6.5% of the resident workforce Hence, the civil service salary scheme setsthe tone for “market rate” compensations in Singapore This help the country own one of theworld’s leading transparent government systems

II.2.1 Experience in reforming salary policy for Singaporean civil servants

1 Highly competitive and reasonable salary policy

One of the prominent points in Singapore public sector pay is the high salary for civilservants Ministers in Singapore have the highest wages among ministers in the most affluentcountries Despite that, Singapore decide to increase their salaries to encourage them workefficiently More importantly, in order to ensure the living of young and promising civilservants and avoid brain drain, the authority has increased the salary of young civil servants

to nearly equal level of employees aged 32-35 in private sectors

Figure 2 Pay levels of world leaders in perspective

Singapore government also increased the starting salary for senior officials (holding suchpositions as Permanent Secretary, Ministerial Advisors, Ministers, Prime Minister and thePresident) In addition to the fixed amount of money each month, their salary includes theportion paid according to economic efficiency and annual job performance This willstimulate them to strive in their career

Although in Singapore education levels still play an important factor in determiningstarting salaries, Singaporean government has applied market standards to determine salaries

for civil servants In order to attract talent from the private sector and to deter the corruptionthat afflicts other Asian countries, the government often relies on private sector revenue toallocate salaries for civil servants

The salary level of civil workers hence has been increased significantly in accordance withthe low hires and high separation rates

Table 5 The revised Civil Service salaries for the various MX pay grades in 2015

(Last two revisions were: +5% Aug 2014, +5% Feb 2012)

01 Deputy Director,

Director

MX9(Superscale)

2 A clean wage system

Singapore practices a transparent system where salaries are fully accounted for through aclean wage set at a competitive level with no hidden perks and privileges This is in contrast

to systems where salaries appear to be low but are in fact coupled with allowances, benefitsand perks Such systems have come under criticism in several countries because of theirnontransparent nature and difficulties in control and accountability

Under Singapore’s system, the total Ministerial remuneration is made up of salariescomprising fixed and variable pay components, and medical and retirement benefits.Ministers do not receive perks such as housing and cars for personal use Ministers do notenjoy tax exemptions and have to pay tax like all who work in Singapore (e.g income tax onall salary components earned)

3 Policy of pay cut for Singaporean Ministers

Between 2011 and 2012, Singapore's salary committee cut millions of dollars of itsleaders’ salaries Therein:

 Entry Level Ministers – 37% pay cut, falling to $1.1 million a year

 President – 51% pay cut, falling to $1.54 million a year