In Singapore, donations to approved charities confer a 250% tax deduction. The example given by IRAS is as follows: suppose your statutory income for a given year of assessment is $100000$ dollars, and you donated $10000$ to an approved cause. The government grants you $10000 \cdot 2.5 = 25000$ in tax deduction, resulting in $75000$ of assessable income.

What’s the net cash flow from your perspective?

Does donating reduce your cash outflow? #

Let’s establish some parameters. Let $m = 2.5$ be the tax deduction multiplier in Singapore. Let $I$ be the statutory income before the tax deduction. Let $D$ be the donation amount. Then the tax deduction amount is simply $mD$ and the assessable income after deduction is $I - mD$.

Factoring in the tax brackets #

Let $P_1$ be the tax payable at the assessable income of $I$ if not donating, and $P_2$ be the tax payable at the assessable income of $I - mD$ if donating an amount $D$. The difference in net cash outflow between donating and not donating is simply $$P_2 + D - P_1.$$ Can this equation be negative? On first glance, the $P_1$ term has the potential to be larger than $P_2 + D$. To investigate this rigorously, we must define a tax payable function that operates on the Singapore income tax brackets.

For a given tax bracket, we have a threshold $T_k$, a base tax $B_k$ for the amount below the threshold, and a rate $R_k$ for the amount above the threshold. For example, as of 2025 one of the tax brackets is defined by IRAS as:

For chargeable income in $[80000, 120000)$, the base tax is $3350$ and the rate above $80000$ is $0.115$.

Given an input amount $x$, the tax payable $P : \mathbf{R} \to \mathbf{R}$ is a piecewise defined function, such that if $x$ falls within a bracket $k$ (namely, $T_k \le x < T_{k+1}$), we have $P = p_k$ where $$p_k(x) = B_k + \left(x - T_k\right) R_k.$$ We thus have $$ P_1 = P(I), \quad P_2 = P(I - mD). $$

The question of whether making a donation $D > 0$ reduces the net cash outflow is the inequality $$\boxed{P(I - mD) + D - P(I) < 0}.$$ If this inequality holds, then making a donation results in a financial gain that more than offsets the donation amount.

Proof of impossibility #

We’ll prove that the inequality never holds in Singapore.

Suppose $I$ lies the bracket 1 and $I - mD$ lies in bracket 2. Define $F(D) = P(I - mD) + D - P(I)$. Observe that $F(0) = 0$. If we expand each $P$ we also get $$ \begin{aligned} F(D) &= B_2 - B_1 + \left(R_2 - R_1\right) I + T_1 R_1 - T_2 R_2 + \left(1 - mR_2\right) D \\ &= \left(1 - mR_2\right) D. \end{aligned} $$ The second equality holds because $F(0) = 0$. This removes all the terms independent of $D$. Now observe that $F(D)$ is a linear function in $D$ with a slope of $1 - mR_2$. Since we need $F(D) < 0$ for the inequality to hold, we need the slope $1 - mR_2$ to be negative so that increasing $D$ from zero causes $F(D)$ to dip below zero.

As of 2025, the Singapore government has fixed $m = 2.5$. The highest tax bracket is taxed at 24%, so $R_2 = 0.24$. This gives $1 - mR_2 = 0.4 \ge 0$, as required.

So what are the tax deductions really for? #

The tax deduction effectively means the government is partially funding your donation. For example, say you want a charity to ultimately receive 1000 dollars. The presence of the tax deduction means you only have to donate a smaller amount less than 1000 dollars, while the government steps in to make up for the remaining.

The government’s share of your donation depends on the tax bracket of the assessable income after your donation. This can be seen in the slope of $F(D)$ shown above, which depends on $R_2$. The higher the $R_2$ is, the higher the share borne by the government. For instance,

• at $R_2 = 0.24$ (the highest tax bracket), the government will share 600 dollars of the 1000 dollars donation;
• at a much lower tax bracket of $R_2 = 0.07$, the government will only share 175 dollars.

There are two ways you might interpret the effect of this discrepancy. One way to look at it is the government essentially subsidises donations from higher earners more than lower earners, allowing higher earners to pay less for the same donation amount. An alternative view is that the government incentivises higher earners to donate, who presumably are able to donate more.