(Examples from Singapore because I know it better than other tax systems but generally they are similar worldwide.)

Income tax systems are irrelevant and is not doing its job. Why do I say this? Simply because governments all over the world has come up with very repugnant ways to increase their revenue to supplement income taxes. Consumption tax, carbon tax, water tax, electricity tax…!

It would imply that income taxes are obsolete! But is there a better way to tax? Of course there are, but most governments are too lazy to think. They are also politicizing taxes by encouraging the politics of envy. Tax the rich! The rich should pay their fair share! It is only moral to pay more taxes!

The world has changed tremendously and relying on old arcane income tax definitions of income and applying a non-discrimination progressive tax rate is silly.

Yet, the answer to increasing income tax revenues fairly is staring right at us in the income tax act!

Section 10(1)(b)of the Singapore income tax act: gains or profits from any employment; This section taxes income from employment.

The irony is while the other charging sections for trade, business, interest, dividends…etc all have dedicated treatments under the law to derive the chargeable income, Section 10(1)(b) offers little tax deductions or relief.

Why is that so? Governments do not evolve, they are slow and cumbersome despite hoarding the top talents in government. The term “Employment”, over the years have changed drastically. In the past, you had the blue collar workers and the white collar workers. The types of blue collar jobs are not diverse, the types of white collar jobs are very limited.

The teacher, the clerk, the bookkeepers, government officers…all those working in nice and pristine environments. The ranking of such workers are gained through years of hard work and experience. As you go higher, you get more pay and you will of course be likely to pay more income tax.

The disparity of salaries between the top and middle taxable employee was not significant. This does not hold true now as the top management salaries are significantly more than the lower ranked staff.

It was also quite clear that blue collar workers earn less than white collar ones. White collar workers were usually the head and bosses.

People were not sophisticated then. Legislators have remained so.

In this current world, we have the variety of jobs. Jobs that pays very well to both “blue” and “white” collar work.

Let’s compare them:

A fireman, an officer, a blue collar worker earns about $60–80,000 per annum. Risking life and limb, which is a priceless sacrifice as well as having to upkeep their mental and physical strength means extra spending to maintain both.

Yet, they would have their salaries taxed in the same tax bracket as a white collar who is a bank officer who is paid between $60–$80,000 per year!

There is no discrimination between what entails in each job! A reasonable person would suggest that a fireman should probably pay half the rate of tax than that of a bank officer!

Now, most tax professionals, government officials and politicians would protest that it would be too complicated to assess each job and assign that job a reasonable tax rate!

But let’s look at the other sections of the income tax act.

S10(1)(a)…Trade income from companies are taxed at different rates from businesses. Professions have less tax deductions than vocations and businesses.

S10(1)(c ) Dividends (no tax generally), Interest (depending) and discounts are all in the SAME section but are discriminated. Different deductions are available. Different exemptions given, leading to different effective tax rates!

S10(1)(f) rents, royalties, premiums and any other profits arising from property, shares again the same section but are all taxed differently!

Why the different treatment under S10(1)(b)? Laziness, I presume or else the alternative answer is rather unpleasant to say…

Let’s take a simple example of say a Singapore Prime Minister and a CEO of a large corporation in Singapore.

Lee Hsien Loong — S$2.2M

Lee Chee Koon — S$4.2M

CapitaLand CEO took home $4m-4.25m pay package for 2018

SINGAPORE – CapitaLand chief executive and president Lee Chee Koon, who assumed the top post in September 2018, was…
www.straitstimes.com

The Prime Minister runs the country, presides over reserves from Temasek, GIC and MAS of more than $700B, yes $700 BILLION dollars and S$74B of revenues.

Mr Lee Chee Koon presides over a balance sheet worth of just $33B and $5.6B of revenues.

Taking the Prime Minister as a benchmark. Mr. Lee Chee Koon should not share the same tax bracket as Mr. Lee Hsien Loong!

Anything above the Prime Minister’s pay can be seen as obscene and has little to being an “employment income”.

The excess of S$2M of the CEO’s pay can be attributed to economic leakage and imbalance. A probable result of over charging of their customers or even under paying their workers.

Therefore, the S$2M should not be taxed at 22%, perhaps a rate closer to 44% would be deemed fair.

Tax revenue would then increase from $440,000 to S$880,000.

Why are doctors employed in private practice paying the same tax rate as doctors employed in government hospitals? The latter has longer hours and a poorer working environment. If both are being paid $120,000 per year, would it not be more sensible to tax the doctors in government hospitals at a lower tax rate?

In this day and age of technology and digitization of data, there is no need for tax officers to sieve through tax rates and matching brackets to derive a correct assessment. Technology can do all the work.

I certainly hope governments around the world start to come around to the idea that employment income is no longer a straight forward concept and it deserves its own sub legislation for a fairer tax system.