Three things about taxes youth should understand
Just like managing day-to-day money and habits, understanding taxes is a skill for building your financial future.
Many of us youths may not be familiar with taxes and simply hearing or seeing the word may leave us feeling daunted.
Thus, many might steer clear from the topic until we have no choice but to deal with it when we transit to adulthood.
Youths may be most familiar with Goods & Services Tax (GST), as we pay it on day-to-day purchases. Though many of us are aware of GST’s existence, how often do we really take the time to ponder what the GST collected is even used for? Besides GST, there are also other forms of taxes such as Personal Income Tax, Property Tax and more that we may come across at different stages of our life.
However, even as youths might not be directly affected now, it’s important to understand why taxes matter as they provide the main source of revenue for the Government. This revenue will then be used in several ways, such as upgrading public facilities and necessities.
To better understand how taxes will affect you as a young adult, these are three key things you should know:
1. Taxes contribute to nation-building
Have you ever wondered where the tax money we pay goes to?
Taxes were reported to make up more than 70 per cent of Singapore’s operating revenue in the years 2020 to 2021.
Taxes provide resources for the Government to subsidise many of our fees such as hospital bills and public school fees, and allow us to use and experience upgraded public commodities for free.
2. Taxes can be found in every financial aspect of life
While most youths only experience GST when making purchases or dining out, taxes are often collected across many other sectors as well.
As most of us may still be schooling, we may not know that when working part-time or earning some income through online activities, chances are that we will need to file Personal Income Tax. Take note that filing taxes does not necessarily mean that you need to pay tax, as tax residents do not need to pay tax if their annual income is less than S$20,000.
For those who decide to become entrepreneurs, your company may need to pay Company Income Tax on the profits earned.
Are you a content creator or online seller? If so, you may need to file taxes as the income from these activities may be taxable as trade income.
And when buying properties in the future, we may need to pay Stamp Duty on the transaction, and Property Tax thereafter.
Many of us may be familiar with the high cost of owning a car in Singapore — this is partially due to Motor Vehicle Taxes that help to curb car ownership and road congestion.
All of these taxes we pay contribute to further developing Singapore’s community, environment, and economy.
3. Taxes promote equality and competition
Many citizens may view taxes as an added hassle that simply deplete one’s bank account further. That said, Singapore is one of the countries with the most competitive tax rates.
While countries such South Korea have a maximum personal income tax rate of 45 per cent as of 2021, Singapore’s maximum income tax rate is currently 22 per cent. This preserves the incentive for Singaporeans to work and invest.
Singapore’s Personal Income Tax system also follows a progressive structure where higher income earners pay a proportionately higher tax.
Taxpayers are not only able to claim for allowable business expenses if applicable, they can also claim specific personal reliefs, such as Parent Relief to aid those financially supporting their parents, grandparents, parents-in-law or grandparents-in-law, as well as National Serviceman Relief to recognise one’s contributions to National Service.
GST was also introduced to create a more diversified tax base.
The Government recognises though that certain low-income households may not be able to afford the added cost of taxes on top of their living expenses. Thus, subsidies and aids such as GST vouchers and rebates are provided to help lessen the burden.
Taxes, as a whole, may seem complicated, but it is actually not. Some of us who may not know may be interested to find out more but are not sure how to get started. Fret not, as all the information can be found easily on The Inland Revenue Authority Of Singapore (IRAS) on their website.