Singapore remains competitive in attracting key top talent despite the government's decision to keep personal income tax rates unchanged, according to tax experts.
However, they say Singapore may be losing ground on the non-tax advantages it has been banking on, such as housing and education.
The persistent air pollution in Hong Kong has sent expatriates to Singapore's shores. That is despite Hong Kong having a lower top personal tax rate of 16%, which is 4 percentage points lower than Singapore's. "I think when a foreigner chooses between whether to base themselves in Hong Kong or Singapore, taxation is not the only consideration, especially for families. They will choose Singapore because it's a much better place to bring up (their children), in terms of security and the environment," says Wu Soo Mee, Director of Human Capital, Ernst & Young.
But with rising rents and longer waiting lists at international schools, some market watchers say the edge may be eroding. Others warn that Singapore should not overlook the impact that income tax rates have on a company's decision to locate its staff.
B.J. Ooi, Executive Director of International Executive Services at KPMG, said: "A multi-national with sophisticated expatriate programmes sends their expatriates all over the world. And in order to motivate these people to go wherever the company wants them to go, companies will usually say they'll equalise your taxes.
"That means if you incur any tax over and above what you would have incurred if you had remained home, the company will pay for your personal tax. That's to say it's a tax cost to the company even though it's a personal tax."
Experts say what is at stake is Singapore's bid to be the financial hub in the region, where top talent is critical.
In the recent Budget, the Singapore government gave a 20% tax rebate on personal income taxes, capped at S$2,000. This means those earning between S$100,000 and S$400,000 will pay less tax, compared to those in Hong Kong.
But without the rebate, tax will still be higher in Singapore for foreign middle income and high earners who do not enjoy CPF and other reliefs, compared to Hong Kong.
Tax experts say they expect Singapore to cut the top personal income tax rate by one or two percentage points in the next two years.
They add that other tax incentives like deductions for those who travel and work out of Singapore for more than 90 days a year, as well as the recent employee stock option incentive schemes, may help mitigate the higher tax factor. - CNA /ls
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