In the recent rally speech by Senior Minister Tharman Shanmugaratnam, he said that the median income Singaporeans paid 0% to 2% in income taxes.
There were sceptics who questioned how true that was on social media.
So we decided to run the numbers to check it.
Singaporean’s Median Income
The median income for full-time Singaporeans in 2019 is $3,900.
That translate to about $50,700 annual salary (+13th month bonus).
Less 20% CPF contribution, the annual chargeable income is $40,560.
That translates to about $589.20 in chargeable income tax, which is about 1.2% of the total $50,700 salary.
The above chargeable income tax excludes other sources of tax relief like donations or parent or child relief, which would lower the tax bill even more.
So… I guess SM Tharman is not lying when he said that the median Singaporeans pays less than 2% in income tax?
Cherry-Picking Tax Policies?
Of course, that’s kind of like cherry-picking on the tax issue.
“Pick the one we scored best and show it to the public”.
So at Investment Stab, we decided to dig deeper and find out what is the overall tax rate Singaporeans pay in Singapore.
Recommended Read: The Best CPF LIFE Plan Is…
The “Social Security” Portion
In most countries, social security is their CPF.
And in this scenario, we are only calculating employee’s contribution.
You can think of social security as a retirement tax.
“I contribute a portion of my pay to the Government. In return, when I am old and retired, the Government will pay me a monthly payout until I pass away.”
In Singapore, well that’s 20% of our salary although we would consider it to be 0%.
20% is the actual figure most Singaporeans contribute every month when they are young.
The problem is as Singaporeans, we tend to max out or use up that 20% for housing.
Whereas in other countries, they actually cannot use their social security money for housing – they have to pay cash.
So, if you are using all 20% of your CPF contribution for housing, technically you paid 0% in retirement tax.
If you use anything less than the full 20% for housing, then your retirement tax will be whatever that you did not use.
If you did not buy a house or did not pay for your house with your CPF, then your retirement tax can be considered as 20%.
So one would have paid between 0% to 20% in “retirement tax”.
The GST Portion
Monthly Income: $3,900
Less CPF Contribution: $(780)
Monthly Take-Home Pay: $3,120
Assuming you spent every cent of your take-home pay, you would have paid $218.40 (7% GST) or $280.8 (9% GST).
Since GST have not increased yet, we will just assume one pays 7% in GST.
$218.40 / $3,900 = 5.6%.
Bonus calculation: $280.8 / $3,900 = 7.2%
So a median income Singaporean would pay about 5.6% per year in GST.
Recommended Read: SM Tharman on Personal Finance
The Property Tax Portion
We assumed that with a spouse that earns the same median income, both would get a 5-room HDB flat.
Based on 2019 4th quarter data:
Highest 5-room flat property tax area: Bukit Merah
Rental: $2,800 per month.
Estimated Annual Value: $33,600
Estimated Property Tax: $1,024
Lowest 5-room flat property tax area: Woodlands.
Rental: $1,800 per month
Estimated Annual Value: $21,600
Estimated Property Tax: $544
If the taxes are split evenly between the couples, each couple is liable for $272 to $512 in property taxes.
$272 / $50,700 = 0.5%
$512 / $50,700 = 1.0%
That translates to about 0.5% to 1% in property taxes paid by each spouse respectively.
So there are no additional taxes payable by Singaporeans on these items.
Taxes We Don’t Have
We don’t have capital gains tax, dividend tax, estate (aka inheritance) tax.
So there are no additional taxes payable by Singaporeans on these items.
Total Tax Rate
If we sum up the total taxes the median income Singaporean earner pays, it works out to be…
Income Tax: 1.2%
GST: 5.6%
Retirement Tax: 0% – 20%
Property Tax: 0.5% – 1.0%
Total Tax Rate: 7.3% to 27.8%
Based on an annual income of $50,700, the median income earner would pay between $3,701.10 to $14,094.60 in taxes annually.
We expect the number to be nearer to the lower end as most Singaporeans would use their CPF contribution for housing, which would greatly reduce the “retirement tax contribution” part.
Of course, we did not include property tax, stamp duty, COE & road tax (if you own a car), and a bunch of other taxes.
These taxes are either harder to calculate, may or may not apply to everyone, or are generally a one-time tax.
But what we have listed are the general taxes most countries’ citizens pay.
Is the tax rate for the median income Singaporean earner within the range you find acceptable?
Let us know in the comments below 
Let us know if we miss any other big taxes that you think should be included in the list of taxes we pay in general.
Recommended Read: Answering the 2 Common CPF “Complaints”
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