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MTI maintains 2018 GDP growth forecast at 2.5 to 3.5 percent

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The GDP growth forecast for 2018 is maintained at “2.5 to 3.5 per cent” on a year-on-year basis in the second quarter, easing from the 4.5 per cent growth in the previous quarter.

In a press release on Monday (13 August), the Ministry of Trade and Industry (MTI) reported that on a quarter-on-quarter seasonally-adjusted annualised basis, the economy expanded at a slower pace of 0.6 per cent compared to the 2.2 per cent growth in the preceding quarter.

The minister stated that the manufacturing sector grew by a robust 10.2 per cent year-on-year, extending the 10.8 per cent growth in the previous quarter. All clusters within the sector expanded, with the electronics, biomedical manufacturing and transport engineering clusters contributing the most to growth.

On a quarter-on-quarter seasonally-adjusted annualised basis, the manufacturing sector grew by 1.8 per cent, slowing from the 26.2 per cent growth in the preceding quarter.

The construction sector contracted by 4.6 percent year-on-year, easing from the 5.2 percent decline in the previous quarter. Construction output was weighed down primarily by public sector construction works. On a quarter-on-quarter seasonally adjusted annualised basis, the sector shrank by 15.4 percent, a reversal from the 0.8 percent growth in the preceding quarter.

The wholesale & retail trade sector expanded by 1.5 per cent year-on-year, moderating from the 2.5 per cent growth in the previous quarter. Growth was supported by both the wholesale trade and retail trade segments.  The wholesale trade segment grew on the back of strong growth in the machinery, equipment & supplies sub-segment.

Meanwhile, retail sales volume rose by 0.4 per cent, supported by both motor vehicular and non-motor vehicular sales. On a quarter-onquarter seasonally-adjusted annualised basis, the wholesale & retail trade sector expanded by 5.4 per cent, a turnaround from the 12.9 per cent contraction in the first quarter of the year.

Growth in the transportation & storage sector eased to 1.3 percent year-on-year, from 2.7 per cent in the previous quarter. The sector’s growth was driven mainly by the air transport segment, which expanded on the back of an increase in air passengers handled at Changi Airport. On a quarter-on-quarter seasonally-adjusted annualised basis, the sector contracted by 2.7 percent, extending the 4.2 percent decline in the preceding quarter.

The accommodation & food services sector grew by 4.0 per cent year-on-year, faster than the 2.0 per cent growth in the previous quarter. The accommodation segment was the main driver of the sector’s growth, and was in turn supported by  higher gross lettings at gazetted hotels in line with an increase in visitor arrivals.

By contrast, the performance of the food services segment was lacklustre, weighed down by the weak sales performance of restaurants and other eating places. On a quarter-on-quarter basis, the accommodation & food services sector grew at a seasonally-adjusted annualised rate of 13.3 per cent, a reversal from the 4.7 percent contraction in the preceding quarter.

The information & communications sector expanded by 5.2 per cent year-on-year, easing slightly from the 5.4 per cent growth in the previous quarter. Growth was primarily driven by the IT & information services segment on the back of healthy demand for IT solutions. On a quarter-on-quarter seasonally-adjusted annualised basis, the sector grew by 3.0 per cent, quicker than the 2.0 per cent growth in the preceding quarter.

Growth in the finance & insurance sector came in at 6.7 per cent year-on-year, extending the 9.2 per cent growth in the previous quarter, and was supported by expansions across all segments. On a quarter-on-quarter seasonally-adjusted annualised basis, the sector contracted by 1.8 per cent, reversing from the 4.8 percent growth in the first quarter of the year.

The business services sector grew by 2.1 percent year-on-year, moderating from the 2.6 percent growth in the preceding quarter. Growth was supported by the professional services and others segments, even as the contraction in the real estate segment eased. On a quarter-on-quarter seasonally-adjusted annualised basis, the sector shrank by 3.2 percent, a pullback from the 11.4 percent growth in the previous quarter.

The “other services industries” expanded by 0.7 per cent year-on-year, slowing from the 2.3 per cent growth in the preceding quarter. Growth was supported by the education, health & social services segment. On a quarter-on-quarter seasonally-adjusted annualised basis, the sector contracted by 2.0 percent, extending the 2.4 percent decline in the first quarter of the year.

 

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Finance

CPF Special, MediSave, and Retirement accounts’ interest rate rises to 4.14% for Q4 2024

The Central Provident Fund (CPF) Board and Housing and Development Board (HDB) announced that the interest rate for CPF Special, MediSave, and Retirement accounts will increase to 4.14% in Q4 2024, up from 4.08%. The 4% floor rate will be extended for another year, providing members with stability amid a volatile interest environment, the announcement stated.

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SINGAPORE: In a joint announcement on Friday (20 September), the Central Provident Fund (CPF) Board and the Housing and Development Board (HDB) revealed that the interest rate for CPF Special, MediSave, and Retirement accounts will rise to 4.14% for the fourth quarter of 2024, up from 4.08% in the previous quarter.

This increase, effective from October to December, comes as the pegged rate exceeds the established floor rate of 4%.

The government has also extended the 4% interest rate floor for these accounts for another year, valid from January 1 to December 31, 2025.

“This extension of the floor rate will continue to provide CPF members with certainty on the returns of their CPF savings amidst the volatile interest rate environment,” the announcement stated.

The interest rate for these accounts is tied to the average yield of 10-year Singapore Government Securities plus an additional 1%.

Meanwhile, the Ordinary Account (OA) interest rate will remain unchanged at 2.5% for the upcoming quarter, as its pegged rate is below the floor rate.

Additionally, the concessionary interest rate for HDB housing loans, set at 0.1% above the OA interest rate, will stay at 2.6%.

To further bolster retirement savings, CPF members will continue to earn extra interest.

Members below 55 years will receive an additional 1% on the first S$60,000 (approximately US$46,500) of their combined balances, capped at S$20,000 for the OA.

For those aged 55 and above, the extra interest comprises 2% on the first S$30,000, capped at S$20,000 for the OA, and 1% on the subsequent S$30,000.

Extra interest accrued on OA balances will be allocated to a member’s Special Account or Retirement Account.

For members above 55 who join CPF LIFE, the additional interest applies to their combined CPF balances, including savings utilized for CPF LIFE.

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US taxation authority to pursue wealthy tax evaders with advanced AI tools

The Internal Revenue Service (IRS) of United States has announced a comprehensive initiative aimed at aggressively pursuing individuals and entities that owe substantial amounts in overdue taxes.

Under the initiative, 1,600 millionaires and 75 large business partnerships are the primary focus of the IRS’s intensified “compliance efforts.”

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WASHINGTON, UNITED STATES: The Internal Revenue Service (IRS) announced last Friday (8 Sept), that it is embarking on an ambitious mission to aggressively target 1,600 millionaires and 75 large business partnerships that collectively owe hundreds of millions of dollars in overdue taxes.

IRS Commissioner Daniel Werfel revealed that with increased federal funding and the aid of cutting-edge artificial intelligence tools, the agency is poised to take robust action against affluent individuals who have been accused of evading their tax obligations.

During a call with reporters to provide a preview of the announcement, Commissioner Werfel expressed his frustration at the contrast between individuals who dutifully pay their taxes on time and those wealthy filers who, in his words, have “cut corners” when it comes to fulfilling their tax responsibilities.

“If you pay your taxes on time it should be particularly frustrating when you see that wealthy filers are not,” he said.

The IRS’s latest initiative targets 1,600 millionaires, each of whom owes a minimum of US$250,000 in back taxes, along with 75 large business partnerships boasting average assets of approximately US$10 billion.

These entities are now under the spotlight of the IRS’s renewed “compliance efforts.”

Werfel emphasised that a substantial hiring campaign and the implementation of artificial intelligence research tools, developed both by IRS personnel and contractors, will play pivotal roles in identifying and pursuing wealthy tax evaders.

This proactive approach by the IRS aims to highlight positive outcomes resulting from the increased funding it has received under President Joe Biden’s Democratic administration.

Notably, this move comes amid efforts by Republican members of Congress to reassess and potentially reduce the agency’s funding allocation.

IRS has introduced an extensive programme aimed at revitalisng fairness within the tax system

The IRS announced the groundbreaking move aimed at enhancing tax compliance and fairness, with a particular focus on high-income earners, partnerships, large corporations, and promoters who may be abusing the nation’s tax laws.

This initiative follows the allocation of funding under the Inflation Reduction Act (IRA) and a comprehensive review of enforcement strategies.

The new effort, which builds on the groundwork laid following last August’s IRA funding, will place increased attention on individuals with higher incomes and partnerships, both of which have experienced significant drops in audit rates over the past decade.

These changes will be facilitated through the implementation of advanced technology and Artificial Intelligence (AI) tools, empowering IRS compliance teams to more effectively detect tax evasion, identify emerging compliance challenges, and improve the selection of audit cases to prevent unnecessary “no-change” audits that burden taxpayers.

As part of the effort, the IRS will also ensure audit rates do not increase for those earning less than $400,000 a year.

Additionally, the agency will introduce new safeguards to protect those claiming the Earned Income Tax Credit (EITC).

The EITC is intended to assist workers with modest incomes, and despite recent years seeing high audit rates for EITC recipients, audit rates for individuals with higher incomes, partnerships, and those with complex tax situations have plummeted.

The IRS will also take measures to prevent unscrupulous tax preparers from exploiting individuals claiming these vital tax credits.

This move underscores the IRS’s commitment to fostering a fair and equitable tax system, ensuring that all taxpayers, regardless of income or complexity, are held to the same standards of compliance and accountability.

The initiative reflects a comprehensive approach to addressing disparities in tax enforcement and strengthening the integrity of the tax system for the benefit of all Americans.

“This new compliance push makes good on the promise of the Inflation Reduction Act to ensure the IRS holds our wealthiest filers accountable to pay the full amount of what they owe.

“The years of underfunding that predated the Inflation Reduction Act led to the lowest audit rate of wealthy filers in our history. I am committed to reversing this trend, making sure that new funding will mean more effective compliance efforts on the wealthy, while middle- and low-income filers will continue to see no change in historically low pre-IRA audit rates for years to come,”

“The nation relies on the IRS to collect funding for every critical government mission, from keeping our skies safe, our food safe and our homeland safe. It’s critical that the agency addresses fundamental gaps in tax compliance that have grown during the last decade,” Werfel said.

Major expansion in high-income/high wealth and partnership compliance work

Prioritisation of high-income cases: Under the High Wealth, High Balance Due Taxpayer Field Initiative, the IRS is intensifying efforts to address taxpayers with total positive income exceeding US$1 million and recognised tax debts of more than US$250,000.

Building on prior successes, which resulted in the collection of US$38 million from over 175 high-income earners, the IRS is allocating additional resources to focus on these high-end collection cases in Fiscal Year 2024.

The agency is proactively reaching out to approximately 1,600 taxpayers in this category who collectively owe substantial sums in taxes.

Expansion of pilot focused on largest partnerships leveraging Artificial Intelligence (AI): Recognising the complexity of tax issues in large partnerships, the IRS is expanding its Large Partnership Compliance (LPC) programme.

Leveraging cutting-edge Artificial Intelligence (AI) technology, the IRS is collaborating with experts in data science and tax enforcement to identify potential compliance risks in partnership tax, general income tax, accounting, and international tax.

By the end of the month, the IRS will initiate examinations of 75 of the largest partnerships in the United States, encompassing diverse industries such as hedge funds, real estate investment partnerships, publicly traded partnerships, large law firms, and more. These partnerships each possess assets exceeding US$10 billion on average.

Greater focus on partnership issues through compliance letters: The IRS has identified ongoing discrepancies in balance sheets within partnerships with assets exceeding US$10 million, indicating potential non-compliance.

Many taxpayers filing partnership returns are reporting discrepancies in the millions of dollars between year-end and year-beginning balances, often without attaching required explanations.

This effort aims to address balance sheet discrepancies swiftly, with an initial mailing of around 500 partnership notices set to begin in early October.

Depending on the response, the IRS will incorporate these cases into the audit process for further examination.

Priority areas for targeted compliance work in FY 2024

The IRS has launched numerous compliance efforts to address serious issues being seen. Some of these, like abusive micro-captive insurance arrangements and syndicated conservation easement abuses, have received extensive public attention. But much more work continues behind the scenes on other issues.

Among some of the additional priority areas the IRS will be focused on that will touch the wealthy evaders include:

Expanded work on digital assets: The IRS is continuing its expansion of efforts related to digital assets, encompassing initiatives such as the John Doe summons and the recent release of proposed broker reporting regulations.

The IRS’s Virtual Currency Compliance Campaign, which aims to ensure compliance with tax obligations related to digital currencies, will persist in the coming months.

An initial review has indicated a potential non-compliance rate of 75% among taxpayers identified through record production from digital currency exchanges.

The IRS anticipates the development of additional digital asset cases for further compliance efforts in early Fiscal Year 2024.

More scrutiny on FBAR violations: High-income taxpayers across various segments have been utilising foreign bank accounts to avoid disclosure and related tax obligations.

US individuals with a financial interest in foreign financial accounts exceeding US$10,000 at any point in the year are required to file a Report of Foreign Bank and Financial Accounts (FBAR).

The IRS’s analysis of multi-year filing patterns has revealed hundreds of potential FBAR non-filers with average account balances exceeding US$1.4 million. In response, the IRS plans to audit the most egregious potential non-filer FBAR cases in Fiscal Year 2024.

Labour brokers: The IRS has identified instances in which construction contractors are making payments to apparent subcontractors via Form 1099-MISC/1099-NEC, yet these subcontractors are, in fact, “shell” companies lacking a legitimate business relationship with the contractor.

Funds paid to these shell companies are routed through Money Service Businesses or accounts associated with the shell company before being returned to the original contractor. This scheme has been observed in states like Texas and Florida.

The IRS is expanding its attention in this area, conducting civil audits and launching criminal investigations to address non-compliance.

This effort is aimed at improving overall compliance, ensuring proper employment tax withholding for vulnerable workers, and creating a fairer playing field for contractors adhering to the rules.

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