The fallacy about tax in the West

I am so freaking sick and tired of bloody stupid Singaporeans talking bullshit about tax in the West. For crying out aloud, if you don't know how the tax system works in another country, then you have two choices:

a) go to google and verify the facts before you embarrass yourself by spouting incorrect rubbish online
b) shut the fuck up (don't let everyone know how ignorant you are)

Frankly, it's not rocket science given how easy it is to verify your facts online. In reply to the Minimum Wage article on The Real Singapore, there were so many bullshit comments written by misinformed Singaporeans who blatantly didn't understand the taxation system in other countries. I don't want this to turn into another Xiaxue-style name & shame exercise. But good grief, these people clearly don't know what the hell they are talking about. There are several but I am just going to quote one of them:

"This is bollocks. The reason why this fast food worker can explain all this is because the rest of the country pays income tax at the rate of of about 40% to 50% of their income. If that happens, I'm leaving Singapore."

Groan. Double groan. Even in the UK, we don't pay 50% tax. Tax is progressive, ie. it's a sliding scale. http://en.wikipedia.org/wiki/Taxation_in_the_United_Kingdom#Income_tax I am going to focus on the UK's system first, then we shall look at Australia's system then at Singapore's.

Different countries have different tax systems.

The UK system is actually really straight forward.

• The first £8105 of income is tax free. 
• Then for the 8106th pound to the 34370th pound that I earn, I am taxed at 20% only. 
• Then income coming in at £34,371 - £150,000, one pays 40% income tax. 
• Anything over £150,000 is taxed at 50% (to be reduced to 45% in the next spring).

Since I don't earn £150,000 a year, I am never taxed at that rate of 50% which you talk about. That's for super rich people. So if a man earns £150,001 a year, then only the £1 out of £150,000 is subjected to 50% tax. Let's look at three case studies to see how it works in practice: meet a British engineer, CEO and nurse.

Let's say an engineer earns £50,000 a year - a very respectable salary that's like S$100,000 a year. The first £8105 is tax free. Then he pays 20% for next £26265 earned = £5253 in tax. Then for the remaining £15630, he is taxed at 40% = £6263. Hence total income tax bill for a man who earns £50,000 a year is £11,505 = 23.01% This is still higher than Singapore of course, but it is not 50% like you have stated.

Our British engineer is taxed at 23%, not 50%.

Let's look at an CEO who earns £100,000 a year.  The first £8105 is tax free. Then he pays 20% for next £26265 earned = £5253 in tax. Then for the remaining £65630, he is taxed at 40% = £26,252. Hence his total tax bill is 5253 + 26525 = £31,778. Hence in fact he is taxed at 31.78%  - yes that is higher than Singapore, but again, it is nothing like the kind of figures quoted by some Singaporeans of 40%, even 50%

I am afraid many of you have fallen victim to PAP bullshit lies in terms of income the West. They are trying to give you the misleading image that hardworking folk are seeing half their income disappear on high taxes - this just doesn't happen! May I now introduce you to the British junior nurse who earns £21,176 a year (at entry level) - let's do some maths here and work out what her income tax is.

The first £8105 is tax free. Then the next £13071 is taxed at 20% = £2614.20 Income tax bill of that nurse earning £21,176 is £2614.20 = 12.3%  Hence, a snapshot just for you to understand the UK tax system:

• Nurse £21,176 = 12.3% income tax
• Engineer £50,000 = 23% income tax.
• CEO £100,000 = 31.78% income tax

Your rate of income tax depends on how much you earn.

Given the way the system is created, nobody will pay 50% income tax, that's just not a mathematical possibility with the British system. It just takes some simple maths to do the calculations and figure out your taxes. It's not rocket science is it? I'm sure you need no more than PSLE maths to figure out this kind of calculations. Okay, time for a trip down under, let's have a look at the Australian tax system then. Now the Aussies pay even less taxes than the Brits. Please allow me to refer you to the table below:

Financial year 2012-13^[3]

Taxable income	Tax on this income	Effective tax rate
0 – $18,200	Nil	0%
$18,201 – $37,000	19c for each $1 over $18,200	0 – 9.7%
$37,001 – $80,000	$3,572 plus 32.5c for each $1 over $37,000	9.7 – 21.9%
$80,001 – $180,000	$17,547 plus 37c for each $1 over $80,000	21.9 – 30.3%
$180,001 and over	$54,547 plus 45c for each $1 over $180,000	30.3 – 44.9%

Let's now turn our attention to Australia

So for comparison, let's look at three Australian men who earn different levels of income: A who earns $25,000, B who earns $50,000 and then C who earns $100,000.

For A, he pays no tax for the first $18,200. The next $6,800 is taxed at 19 cents per $1 = $1292. Hence he actually pays just 5.17% income tax. 

For B, he pays no tax for the first $18,200. For the next $18,800, he is taxed at 19 cents per $1 = $3572, and then for the next $13,000, he is taxed at 32.5 cents per $1 = $4225. Hence his total tax bill is 3572 + 4225 = $7797. Hence he actually pays just 15.6% income tax.

For C, he pays no tax for the first $18,200. For the next $18,800, he is taxed at 19 cents per $1 = $3572, then for the next $50,000 he pays 32.5 cents per $1 = $16,250 and then for the next $20,000 he pays 37 cents per $1 = $7400. Hence his total tax bill is 3572 + 16250 + 7400 = $27,222. Hence he actually pays just 27.22% income tax. 

Australians pay less taxes than Brits but more taxes than Singaporeans.

Once again, here's the snapshot for the Australian tax system:

• A who earns $25,000 = 5.17% income tax
• B who earns $50,000 = 15.6% income tax
• C who earns $100,000 = 27.22% income tax

Imagine if A, B and C lived in Singapore and earned the same amounts - how much would they be taxed?

• A = 0.4% income tax in Singapore
• B = 2.5% income tax in Singapore
• C = 5.65% income tax in Singapore (here's the link for Singapore income tax rates)

So yes indeed, Singapore is a low-tax regime where everyone from the low-income to the high earners get away with much lower taxes, that much we know. But what pisses me off is this fallacy of people in Europe or Australia having to pay 50% income tax - because it is simply not true. Let's allow the figures to speak for themselves: so please, no more lies or exaggerations about high tax rates in Europe or Australia. Can we talk about the issue like sensible adults and focus on the facts?

Low tax regime - but have you seen the bigger picture? 

Do you think Singaporeans are better off? Think again. I don't have to contend with the stealth tax of CPF and COE - how ya like that eh Singaporeans? How much of your "money" is locked away in your CPF account? Do you feel rich looking at your CPF statement? Bwhahahahaha. It is a fallacy that Singapore is some kind of low-tax regime - it is really only a low-tax regime for those who are working there are expatriates and have no CPF obligations. They are the ones who benefit the most from the Singaporean system.

Furthermore, I think I paid a bloody big tax with 2 years 4 months of my life - we call it national service. Gosh, when think of how much I earn these days and how much I gave up in terms of earning power by delaying my career by 2 years 4 months. Oh and in that time, I was paid so little by the SAF that I had to live off my savings and was dependent on my parents for so many things. If I were to calculate the opportunity cost of that 2 years 4 months taken from my life, then that is huge 'nationality' tax that I had to pay because of the unfortunately combination of my gender and nationality. Try this my friends: work out what your salary is per annum then multiply that by 2.33 (or by 2.5, 2: ie. a factor of how many years your NS liability was) - then add to that the amount of money a typical NSF needs from his parents to make ends meet during the full duration of national service. How does that figure stack up against your idea of a low-tax regime? Then again, it's the money per se - it is also what I could've been doing with my time instead of the crap I was doing.

Male Singaporeans pay a very hefty'nationality tax' in the form of NS.

Don't get me wrong - there are many good things about working in Singapore, but you need to make sense of the tax system by looking at the bigger picture and take into account everything including availability of housing, CPF, COE and NS (for us male Singaporeans - that is something you female Singaporeans don't really understand). How can we have a sensible discussion about taxation policies when so many Singaporeans don't even have the faintest clue what the hell happens in other countries and just believe crazy bullshit lies about 50% income tax in the west? Tolong lah. If you've made it this far with my article, well done - the next time some stupid Singaporean talks about people in the West paying 50% income tax, you can correct them.

So yes, Singaporeans do pay less tax than Australian and Brits, but the gap is actually smaller than a lot of Singaporeans claim and by the time you take into account the big picture - CPF, HDB, COE, NS and your expensive health care costs (whilst I have the NHS here in the UK) and the fact that you're living on a very crowded island of 5.3 million people on an island of just 710 km2 (with loads of foreign talents in your midst) - ask yourself this, are you really better off in Singapore?

Finally, tax can be a red herring - after all, if increasing your income tax from 5% to say 20% will send you crashing into poverty, then I say: it's not the tax system that's the problem. You're clearly not earning enough money in the first place and you should be thinking about how you should earn more money (rather than minimize your taxes). We need to look at the wider picture of an individual's earnings, investments and outgoings, rather than just focus on his taxes. Some people (such as those in the "squeezed generation") can earn a lot of money and still be struggling to make ends meet because they have too many financial commitments.

In any case, I invite you to have a look around London or Sydney, there's no shortage of rich people in the West who are paying rather high levels of income tax but for them, they are making so much money they are still rich even after paying their taxes. After all, wealth creation really depends on how much you earn, not how little you are taxed. Tax dodging aside, the people who pay the least income tax are the poorest.

As usual, feel free to leave a comment below and share your thoughts on the issue, thanks.