SINGAPORE - Leveraging corporate tax, including the new global minimum tax for large multinational companies, can be a benefit in providing another revenue lever for Singapore, MPs said in Parliament on Monday (Feb 28).
But this might also affect Singapore's attractiveness to global firms, said some MPs on the first day of the Budget debate, as they asked if other factors would be enough to outweigh the tax incentives that will be made redundant with the new tax rate.
Some 137 countries under the Organisation for Economic Cooperation and Development (OECD), including Singapore, agreed to the global minimum tax rate of 15 per cent on large multinational companies that is expected to come into effect next year.
Workers' Party MP Jamus Lim (Sengkang GRC) said this corporate tax lever could possibly help to grow Singapore's revenue, providing an alternative to the goods and services tax (GST) hike.
With the OECD agreement, there will be an assumed reasonable loss of corporate and personal income taxes under Pillar 1, which reallocates taxing rights from markets where activities are conducted to where consumers are located.
But the new global minimum tax rate of 15 per cent under Pillar 2 for the large global firms can amount to a two-thirds increase in the effective rate from current levels, Associate Professor Lim said.
This could generate some $3.45 billion, even as Singapore still allows small and medium-sized enterprises (SMEs) to retain their current 3 per cent effective rate.
Mr Louis Chua (Sengkang GRC) also noted that corporate income taxes have consistently been the largest contributor to the Government's operating revenues, and asked if there is more scope for companies to pay their fair share of taxes, especially with the looming GST hikes, which ultimately would be borne by consumers and not corporate entities.
"To be clear, I fully recognise that many local SMEs and small businesses, especially those in the retail and food and beverage scene, have been struggling to make ends meet amid the changing safe management rules over the past two years, and I applaud efforts by the Government to strengthen our local enterprises," he said.
"However, it is interesting to note that while more than $29 billion of Jobs Support Scheme funding were provided to corporates in the last two years, it appears that corporate profitability as a whole didn't fare too badly."
Mr Chua noted that corporate income tax revenues from last year are expected to exceed pre-pandemic levels, and this is also expected to reach a new high in the 2022 financial year.
He also asked for estimates on how the OECD measures would affect enterprises here, noting that there are 1,800 large global corporations that will be subject to the 15 per cent tax rate.
"I hope that the Government will view the global minimum tax reforms as an opportunity rather than a threat, given Singapore's strong non-tax advantages and attractiveness to multinational enterprises," he said.
He added that Singapore offers other non-tax advantages that can continue to attract multinational firms here.
But Mr Saktiandi Supaat (Bishan-Toa Payoh GRC) asked how the Government plans to preserve Singapore's attractiveness without tax incentives.
"Is it possible to repackage some of these tax incentives so that agencies like the Economic Development Board of Singapore can still continue to have these 'carrots' in the bag as they pitch to foreign investors? What will happen to the investment tax credits with the changes?" he asked.
"As we consider our own implementation steps, I hope we can adopt a 'wait and see' approach - to consider how other countries are implementing this before tailoring our implementation steps in tandem, rather than pioneer an implementation model ahead of the rest of the world."