Effective tax rates for SMEs much lower than non-SMEs in Singapore: Lawrence Wong

Close to 60 per cent of all SMEs do not pay corporate income tax.
Close to 60 per cent of all SMEs do not pay corporate income tax.ST PHOTO: KELVIN CHNG

SINGAPORE - Effective tax rates for small and medium-sized enterprises (SMEs) are much lower than that for non-SMEs in Singapore, Finance Minister Lawrence Wong told Parliament on Tuesday (July 27).

He made this point in reply to Workers' Party MP Louis Chua (Sengkang GRC) during the parliamentary debate on additional support measures for Covid-19 heightened alert restrictions.

In his speech during the debate, Mr Chua  said that SMEs pay disproportionately more in tax than non-SMEs, as they contribute to 29 per cent of corporate income tax paid despite accounting for just 9 per cent of accounting profit.

He asked if the incidence of taxation could be shifted towards larger multinational corporations (MNCs) which are better positioned financially.

Responding, Mr Wong said that this suggestion that SMEs pay disproportionately more in tax than non-SMEs was inaccurate.

"Firstly, when we look at accounting profits for all companies, it includes profits and losses... it's a summation of the bottom line.

"Number two, corporate income taxes (are) levied on chargeable income, not accounting profits," he noted.

Mr Wong also highlighted that close to 60 per cent of all SMEs do not pay corporate income tax.

He stressed that it is "quite clear from the data" that SMEs have a lower tax burden than non-SMEs or the larger companies, with the effective tax rate for SMEs at 3 per cent while the effective tax rate for non-SMEs is 8 per cent to 10 per cent.

"There should be no doubt. Our system is such that SMEs have a lower tax burden."

The minister's response prompted a clarification from Mr Chua, who asked for a breakdown of the chargeable income by SMEs and non-SMEs, and asked if it was incorrect to say that SMEs bear a higher proportion of the tax burden, given the number of SMEs compared with the total enterprise count.

To this, Mr Wong said the ministry would be happy to provide the figures in a written parliamentary response.

The figures on effective tax rates paid by firms were provided in a written parliamentary response to Mr Chua earlier this month.

Then, he had asked about assessed financial figures such as corporate income tax paid and the average effective tax rate over the past decade.

He also asked for a breakdown of these numbers by SMEs and non-SMEs, tax resident and non-tax resident companies, and Singapore-incorporated and foreign companies.