Singapore's finance minister warns that it's 'easy' for money to move away if net wealth taxes are imposed.

• Lawrence Wong, Singapore's Finance Minister, highlighted the challenges of implementing net wealth taxes, stating that it would lead to capital leaving the country, in an interview with CNBC on Monday.
• To ensure that higher earners contribute more, Singapore increased taxes on real estate and motor vehicles as part of its 2022 budget on Friday.
• On Friday, it was announced that tax rates for top earners would increase, impacting the top 1.2% of taxpayers.
• Singapore, known for its tax-friendly environment to businesses, was also discussed by Wong in terms of the 15% global minimum corporate tax rate's impact.

Singapore is considering implementing net wealth taxes and may increase taxes for those with higher incomes, Finance Minister Lawrence Wong revealed on Monday.

The minister highlighted the difficulties of implementing wealth taxes, which would inevitably lead to money leaving Singapore.

To ensure that higher earners contribute more, Singapore increased taxes on real estate and motor vehicles as part of its 2022 budget on Friday.

Wong stated that Singapore, as a wealth management center, is closely examining various wealth taxes such as capital gains, dividends, and an individual net wealth tax.

Wealth and financial flows are highly mobile, making it challenging to implement wealth taxes. If other jurisdictions do not have similar taxes, it is easy for wealth to move away from Singapore to another location, as Wong explained to CNBC's Martin Soong.

Taxing top earners

On Friday, it was announced that tax rates for top earners would increase, affecting only 1.2% of taxpayers. This change is expected to generate an additional $170 million Singapore dollars in annual tax revenue, as stated by Singapore's finance ministry.

Estimating the wealth of individuals can be a complex exercise, Wong noted.

During his budget speech on Friday, he stated that while it would be ideal to tax the net wealth of individuals, it is difficult to implement such a tax effectively. He noted that other countries also encounter challenges in achieving this.

The number of OECD countries that do not impose taxes on individuals' net wealth has decreased from 12 in 1990 to just 3 in 2020, as stated by Wong on Friday.

We are still studying our options and keeping all possibilities open. However, we must also be practical, so in the budget, we have decided to impose wealth taxes through the existing means, which include property and luxury cars.

Non-owner-occupied properties will see property taxes rise from 10% to 20% in 2023, and from 11% to 27% in 2024. Luxury cars will also be subject to higher taxes.

In his budget speech, Wong stated that property taxes are currently Singapore's primary method of taxing wealth.

Doubling down on non-tax competitiveness

The finance minister discussed the effects of the 15% global minimum corporate tax rate on Singapore, which is renowned for its favorable tax environment for businesses.

In October 2021, countries in the Organization for Economic Cooperation and Development agreed to a global minimum corporate tax rate of 15%. This deal, which will take effect in 2023, will redistribute $125 billion in profits from 100 of the world's largest companies to countries worldwide, the OECD announced.

Wong stated to CNBC that Singapore has never solely relied on taxes to attract investments. Instead, the city-state must intensify its efforts to enhance its non-tax competitive factors, such as infrastructure, workforce capabilities, and business environment, to remain competitive.

Wong stated that it is our goal to ensure that Singapore continues to be among the top business locations globally.

Higher taxes as part of a ‘strengthened social compact’

Wong stated that a more equitable and forward-thinking approach to tax contributions is necessary to maintain Singapore's unity as it faces an uncertain future post-pandemic.

He told CNBC that people doing better, earning more, and accumulating wealth is not something they are against, as these are all good things.

As part of our renewed and strengthened social compact, we want everyone to contribute their share of taxes, with those who have greater means contributing a larger share, as Wong added.

Singapore's finance minister has announced plans to impose taxes on individuals' net wealth.