Singapore's tax system can be improved to ensure the country can generate the funds needed for long-term growth and development, according to a white paper from accounting giant PwC yesterday.
It called for policies that ensure tax incentives for both foreign companies and local businesses, greater transparency about the tax regime and efforts to establish bilateral tax agreements with more countries.
PwC said tax incentives remain important to attract foreign companies but there should also be greater flexibility to foster entrepreneurship.
Having that transparency can give companies the certainty that Singapore is the place to pursue growth. And that's the ultimate goal: It's all about bringing growth and profits into Singapore.
MR CHRIS WOO, PwC Singapore tax head, on the benefits of having more transparency to Singapore's tax incentives
Small- and medium-sized enterprises that fulfil certain growth and productivity criteria should be made eligible for tax rewards, it added.
"At the same time, I think we can have more transparency to our tax incentives. Without providing company-specific details, the Government can perhaps release summary data on the incentive requirements, such as average headcount of incentive recipients," PwC Singapore tax head Chris Woo told The Straits Times in a briefing on the paper.
Incentives provided by the Singapore Government - usually in the form of lower corporate tax rate or even a pioneer rate of zero for a certain period such as five years - are decided on a case-by-case basis. There is no public information on the criteria involved.
"Having that transparency can give companies the certainty that Singapore is the place to pursue growth. And that's the ultimate goal: It's all about bringing growth and profits into Singapore."
The PwC white paper came after the Organisation for Economic Cooperation and Development (OECD) released its final reports on how governments can tax more effectively. One of its key aspects is to address transfer-pricing consistency.
Transfer pricing refers to the price in a transaction between two entities in a company. Tax disputes on this front are typically an issue for multinationals, PwC noted.
"One way to further deal with such disputes is through bilateral advance pricing agreements (APAs), which provide taxpayers with certainty through a pricing model documented and agreed between revenue authorities," it proposed.
Singapore should develop APAs with more South-east Asian trading partners, Mr Woo said, adding that the Government should also expand its tax treaty network to minimise double taxation.
Double taxation is when a cross-border business is taxed by both jurisdictions. Singapore and the United States have yet to establish a double-tax agreement, something that the Government can focus on, Mr Woo noted.
"These agreements can encourage Singapore companies to venture overseas. Their growth will, in turn, expand Singapore's revenue base," he said.
Enhancements to the tax system will be crucial for Singapore in the coming decades as it gradually increases its spending on the social safety net for an ageing population.
As spending necessarily increases, all options must be considered to boost government revenue, including raising the goods and services tax, PwC said.