Tax Write-Up: Global tax deal affect investment deal

How Taxes Affect Investment Returns Frontier Wealth ManagementBy: Trudy, Min Jun, Ryan

Background:

It has been no secret that Singapore has been keeping its corporate tax low, so as to attract companies to set up operations here. This is one of the reasons we, although less well-endowed, managed to build up the economy in less than half a century. However, the Group of 7 (G7) nations, agreed on June 5 2021 to set a global minimum corporate tax rate of at least 15%.

Cause:

The global minimum corporate tax rate of at least 15 per cent will make it harder for Singapore to attach investment. The implementation of these measures is to tackle tax avoidance, improve the coherence of international tax rules and ensure a more transparent tax environment.

This move has been pushed by finance ministers in many wealthy economies. German Finance Minister Olaf Scholz said, “Companies will no longer be in a position to dodge their tax obligations by booking their profits in the lowest-tax countries”. He calls it “bad news for tax havens”.

Tax havens are jurisdictions with very low tax rates. Their motive is often to attract investors to deposit their money there so as to earn tax revenue, instead of attracting investments to set up businesses and operations. Singapore, despite its relatively low corporate headline tax rate of 17%, is traditionally not regarded as a tax haven.

Effect:

The global minimum corporate tax rate will have a negative impact on Singapore’s fiscal policy. With details still being finalised, the negative impact will still stay undetermined. Considering that the fiscal policy will be negatively impacted, Singapore will have to change their budget and borrowing methods to have sufficient revenue.

Singapore follows three guiding principles when deducing the tax system:

1. To abide by international agreed standards

2. Safeguard taxing rights

3. Seek to minimise compliance burden for businesses.

However, Singapore has to focus on non-tax factors out of the guiding principles to stay competitive. Such factors are Singapore’s strategic location, international connectivity, excellent infrastructure, rule of law and skilled workforce.

Conclusion:

In order to enhance competitiveness and improve the business environment, Singapore needs to be constantly on the move, continuing to restructure, reorganise and reposition themselves for new better opportunities to come.

Singapore will continue to take part in the G-20 Inclusive Framework to work out tax solutions that Singapore can adapt to. Through consultation with affected industries, Singapore will adjust its tax system for fairness to everyone.

Source: https://www.straitstimes.com/singapore/politics/global-tax-deal-will-make-it-harder-for-spore-to-attract-investments-lawrence

Tax Write-Up: Higher Additional Buyer’s Stamp Duty (ABSD) Rates (w.e.f 16 Dec 2021)

Buyer's Stamp Duty of Up to 4%: Guide for Singapore Property Buyers | PropertyGuru Singapore

By: Evan Shaquille, Choo Zhi Xuan, Shannon Lim (Research and Training Department)

On 15th December 2021, the Singapore government has announced its latest adjustment to the Additional Buyer’s Stamp Duty (ABSD), which serves as one of its property cooling measures to curb the current property market. In this article, we will explain the following: (a) when does one need to pay Additional Buyer’s Stamp Duty; and (b) what are the current rates for Buyer’s Stamp Duty as well as ABSD rates.

When Do We Pay Additional Buyer’s Stamp Duty (ABSD)?

Upon purchasing your first residential property in Singapore, you would be required to pay Buyer’s Stamp Duty (BSD). Additional Buyer’s Stamp Duty (ABSD) is another type of tax in addition to the BSD, which will be incurred only when we purchase our subsequent properties. For example, if you were to buy your second residential property in Singapore, both BSD and ABSD will be levied.

How Much Is The Buyer’s Stamp Duty Rates in Singapore?

As of 20th February 2018, the current BSD rates can be inferred from the table below:

Source: Inland Revenue Authority of Singapore

In order to calculate the BSD payable, you would take the higher of the purchase price or market value of your property. Hence, the value of your residential property would determine the amount of BSD that you would be required to pay. To better visualize the computations, you could refer to some examples on Inland Revenue Authority of Singapore’s website (IRAS) via this link.

What Are the Current ABSD Rates in Singapore?

With effect from 16th December 2021, the ABSD has been raised and the revised rates are as follows:

Source: Inland Revenue Authority of Singapore

Similarly, ABSD is computed based on the higher of the purchase price or market value of your property.

How To Compute Your ABSD Payable?

For example, a 5-room HDB Flat is being resale at $500,000 but valued at $450,000. With reference to the ABSD rates above, a Singapore Citizen would be subjected to 12% ABSD when purchasing his second residential property onwards. Hence, the amount of ABSD that he/she would need to pay is $500,000 X 12% = $60,000.

Why Was ABSD Introduced?

In December 2011, ABSD was first introduced to control the surge in demand for the property market. It is considered as a “cooling measure” to discourage investors and foreigners from purchasing more than one residential property in Singapore. This would help to deter some demand of property transaction; thus, allowing Singaporeans to be able to purchase residential properties at a relatively reasonable value.

How Are Locals Affected by the Revision of ABSD?

For the purchase of their first residential property, Singaporean Citizens and Permanent Residents will continue enjoying the ABSD rate of 0% and 5% respectively.

However, the revision of ABSD rates would affect their Singapore Citizens in respect of their subsequent purchases of residential property.

– Purchase of 2nd Property: 5% increase in ABSD from 12% to 17%

– Purchase of 3rd Property: 10% increase in ABSD from 15 to 25%

On the other hand, Permanent Residents would face higher ABSD rates in general as compared to a Singapore Citizen. The changes made for the ABSD rates for Permanent Residents are as follows: (a) 10% increase from 15% to 25% for their 2nd property; and (b) 15% increase for their third and/or subsequent residential property.

Source link: https://www.iras.gov.sg/taxes/stamp-duty/for-property/buying-or-acquiring-property/additional-buyer’s-stamp-duty-(absd)

Tax Write-Up: Tax details to come in the next budget

By: Teng Kuan, Chloe, Jing Jie (Research and Training Department)

In this month’s issue, we discuss a Bloomberg article about the tax details that will be disclosed for the 2022 budget in February.

In his annual New Year’s address, Singapore Prime Minister Lee Hsien Loong signaled possible tax changes in the upcoming budget. He cited that this is to raise funds for social programs and expansion of the nation’s healthcare system as the economy is emerging from Covid-19.

Due to covid-19, the financial hub predicts a 3% to 5% increase in gross domestic product in 2022, which is slower than in 2021. This is due to the fact that tourism, consumer spending, and construction are not expected to reach pre-Covid levels. Furthermore, in its fight to keep the economy afloat throughout the pandemic, the government has relied “heavily” on past reserves, resulting in a budget deficit for the past two years. With the economy slowly but progressively making a comeback, PM Lee plans to “start moving” on building back its national reserves through accumulating tax revenue from various sources.

As a result, the proposed increase in the existing GST rate of 7% is likely to materialise, with the implementation date being brought forward to 2022. Other forms of taxation are also being considered by policymakers.

Better-off citizens would contribute more, with everyone else contributing at least a little amount to share the burden. The government has set aside a S$6 billion ($4.4 billion) package to ensure that the GST hike does not affect the majority of Singaporean households, particularly the lower-income families.

Mr Lee is “quietly confident” that the country can cope with the impacts of the omicron variant and that the country is “greatly strengthened” compared to two years ago as a result of the increased vaccination campaign, which now includes young children.

Tune in on February 18 2022 for additional information on the next budget. https://www.bloomberg.com/news/articles/2021-12-31/singapore-s-lee-signals-new-tax-details-to-come-in-next-budget

Tax Write-Up: As global clamour grows again to tax the rich more, Singapore weighs up the pros and cons

By: Joel, Liang Wei, Zhi Wei (Research and Training Department)

In this month’s publication, we refer to an article by Channel News Asia on the evaluation of implementing a wealth tax on the rich and wealthy in Singapore.

The International Monetary Fund earlier this year called for a wealth tax to compel the rich to contribute towards COVID-19 costs. Britain is now contemplating a one-time wealth tax, while Argentina carried out such a one-off levy last December, raising US$2.4 billion to fund coronavirus-related measures amid controversy over the tax.

Similarly, the reality is that tax revenue collections have also fallen during the pandemic, dropping by 7.3 percent in the financial year ended 31 December 2020. The wealth gap in Singapore is expected to continue growing, this remains a trend that is similar to other advanced economies which see growing wealth concentrations.

The top 1 percent of wealthy persons in Singapore held a third of the total wealth as of the end of 2020 and expects the number of millionaires here to grow from 270,000 in 2020 to 437,000 in 2025, a 62 percent jump.

Arguably, people who are against the implementation of wealth tax argue that taxing capital is against economic fundamentals, and could indeed lead to capital flowing elsewhere. This is because wealth that can be used for investing or starting business to promote economic growth in Singapore.

Hence, the aim is to have a wealth tax that is well structured, targeted and at competitive rates. This would offer wealth tax regimes that may actually be an allure for assets to be maintained in Singapore.

Currently, to reduce the wealth inequality, Singapore already taxes assets which the wealthy are likely to spend more in, like property and motor vehicles, though it does not have a tax on inheritance, capital gains, or net wealth.

Hence, this article explores a few ways to impose taxes and duties that target wealthy individuals:

· Higher income taxes for top earners

· Asset taxes on property, motor vehicles, or luxury goods

· Stamp duties on high-value transactions such as property

· Inheritance tax or estate duty, which is levied on the estate when a person dies

· Tax on capital gains, such as when a person makes a profit from selling their assets

· Net wealth tax, in which the total value of their assets minus their debts are taxed periodically

Overall, it is interesting to note that a wealth tax might conceivably pull in a similar amount to raising the goods and services tax by a few percentage points. This phenomenon of increasing goods and services tax is currently expected to happen in 2023.

https://www.channelnewsasia.com/singapore/big-read-wealth-tax-economy-covid-19-pandemic-2342236

Tax Write-Up: Budget 2022 Expectations: Revision of Carbon Tax Rate

By: Evan Shaquille, Choo Zhi Xuan, Shannon Lim (Research and Training Department) 

In light of the current pace of climate change, many researchers and scientists have cast a spotlight on the unsustainable increasing temperatures seen worldwide. The 26th United Nations Climate Change Conference of the Parties (COP26) saw an overwhelming number of countries committing to reduce their carbon emissions and take a stance on climate change with Singapore seen as the role model in South-East Asia.

Singapore’s desire to secure itself as a worldwide community for carbon exchanging can be seen in COP26. As a part of the core Green Economy program, the creation of a carbon revaluing and benefits center will package green money, manageability, account, credits revaluation, and hazard the executives. 

In 2019, Singapore presented its first taxation charging for carbon, as the first country in Southeast Asia to do so. Singapore is as of now at the forefront of the worldwide effort to make a carbon-based economy.  

The creation of a carbon market is of course fraught with challenges, most notably transparency, regulation, price volatility, and liquidity. In light of these issues, it is essential that any prospective carbon exchange creates a platform that addresses these concerns – and Singapore has the edge over other countries considering the creation of such a market, as the country has a history of regulating commodities trading and financial services, as well as its reputation for transparency. Furthermore, Singapore can leverage strong relationships with major carbon emitters in Southeast Asia, such as the U.S. and China (both of which are competing for dominance in the region) to drive investment in its potential carbon trading hub and decarbonization efforts across ASEAN. 

Currently, Singapore is the principal South-east Asian country to present a carbon charge in 2019, set at a pace of S$5/tCO2e (for the period 2019-2023), which applies to coordinate outflows from offices emanating 25 ktCO2e or more in a year. However, its current pace of $5 per ton wasviewed as on the low finish of the range. Hence, Singapore’s reconsidered carbon charge rate for 2024 will be declared in the following year’s Budget 2022, which will likewise show what’s in store up to 2030. According to Finance Minister Lawrence Wong, the rationale behind this agenda is for the Government to ensure a fair direction of its carbon charge, with the objective of mirroring the expense of carbon and impacts venture choices viably.  

While Singapore introduces higher carbon charges in the subsequent years, this change may trickle down and be borne by Singaporeans. Hence the nation may likewise upgrade U-save refunds to help lower-and center pay families with the progress. 

https://www.akingump.com/en/experience/practices/climate-change/speaking￾sustainability/singapore-cop26-and-creating-a-center-for-carbon-trading.html

Tax Write-Up: Individual Income Tax Concession

By: Teng Kuan, Chloe, Jing Jie (Research and Training Department)

In this month’s publication, we refer to an article by International Tax Review on the phasing out of tax concessions that were provided in light of travel restrictions imposed by various countries, including Singapore, as a countermeasure against COVID-19.

From the article, the tax concessions were relevant to 2 key demographics. The first category includes Singapore citizens and Singapore permanent residents (SPRs) who were physically present overseas for their employment but returned to Singapore to work remotely under the same employment due to travel restrictions in 2020. To mitigate the unintended tax consequences resulting from international travel constraints, the Inland Revenue Authority of Singapore (IRAS) provided that the employment income for individuals in this category would be tax-exempt until 30 June 2021 if the necessary conditions were met. While these concessions are in the process of being phased out, they can still be approved and exercised on a case-by-case basis beyond 30 June 2021, provided the following extenuating circumstances are present:

1. The overseas country that the individual is primarily based to work prohibits entry of travelers or it is impracticable to travel due to the unavailability of travel options; and

2. The individual will leave Singapore as soon as he or she is allowed to

The IRAS has prescribed a list of information and documents that need to be submitted for IRAS’ review. The onus is on affected individuals to write in to IRAS with the required information and documents. Upon approval from IRAS, the tax concession can then be granted to affected individuals beyond 30 June 2021.

The second category includes non-resident foreigners who were in Singapore for business assignments but were subsequently stranded due to travel restrictions imposed. IRAS is clear that the employment income attributable to the assignment period remains taxable in the absence of opposing factors, and it is only employment income from the period of extended stay beyond the business assignment that is tax-exempt. Even for the latter, it is only available in 2020, provided the necessary conditions are met. Non-resident foreigners who have continued working remotely in Singapore beyond 2020, will be subject to tax in Singapore, unless the tax exemption for short-term business assignments or that under a relevant tax treaty can apply. Specifically, a non-resident employee may seek respite from tax via a relevant tax treaty provision between his/her country of residence and Singapore. Given that this is subject to a set of conditions being met, affected non-residents are reminded to maintain all relevant documentation and records as proof of satisfying stated requisites, and provide the same upon the IRAS’ request.

In general, such provisions by IRAS aim to facilitate a smooth phasing out of tax concessions without handicapping deserving individuals. https://www.internationaltaxreview.com/article/b1tpm48p5pjw6j/phasing-out-of-tax-concessions-for-individuals-in-singapore-working-remotely

Tax Write-Up 2021: The case for a 9% GST

By Joel, Liang Wei, Zhi Wei (Research and Training Department)

The federal government should maintain a healthy tax environment to preserves future equity for Singaporeans. With the assumption that the consumption patterns remain constant, Singapore Government will be able to collect an additional S$3.2 billion annually just by increasing the GST (Goods and Services Tax) rate from 7% to 9%. With the additional tax collected from the citizens, the Singapore government will be able to operate healthily with a federal budget surplus.

Firstly, GST is a broad-based tax. This means it is a stable source of government revenue, which is relatively free from domestic production and distribution distortions.

Secondly, the implementation of GST evens out the playing field for foreign and domestic supplies as it favors neither the imports or exports. This is especially so with the introduction of reverse-charge mechanism for B2B supplies of imported services, and the overseas vendor registration scheme for B2C supplies of imported digital services.

Thirdly, GST doesn’t have a discriminating effect on savings and investment. It is a consumption-based tax. The individual’s consumption is directly proportional to the amount of GST he has to pay. Hence, a larger amount of GST is collected from big spenders.

Nevertheless, the increase in GST would lead to necessities becoming more expensive, which remains an issue for the lower-income individuals. However, this problem can be eased by through providing subsidies in the form of GST vouchers to such individuals to offset the additional amount of GST that is to be paid. Therefore, the rise of GST can be effectively neutralized when the Singapore Government is able to finance the additional costs to the lower-income individuals.

Article link: https://www.mof.gov.sg/news-publications/media-articles/the-business-times-(7-apr)-the-case-for-a-9-gst

Tax Write-Up: Singapore Explains Changes to 2021 Tax Filing Rules

Individual Tax

By: Kimhan, Angela, Huiyi, Aries (Research and Training Department)

In this month’s publication, we will refer to an article by Tax-News.com on the changes to 2021 Singapore tax filing rules and updates on the revenue threshold for completing the two-line statement required for sole proprietorships.

From the article, it is highlighted that the Inland Revenue Authority of Singapore (IRAS) will be sending tax bills directly to certain taxpayers for the upcoming tax filing season and will be simplifying filing arrangements for the self-employed. 

Starting from May 2021 onwards, IRAS will introduce a new feature, a Direct Notice of Assessment (D-NOA) initiative, in addition to the No-Filing Service (NFS), where information will be automatically included and tax reliefs can be pre-filled for taxpayers. This additional feature aims to save time and eliminate the need for taxpayers to repeat the filing procedure. Moreover, in the event that there is a change in their personal information pertaining  to the reported income and relief claim, taxpayers can still log onto their account and make necessary changes. 

In general,  this change focuses on benefiting self-employed taxpayers as well as eligible commission agents and private hire/taxi drivers who have joined the pre-filing of income scheme. Under this pre-filing scheme, the self-employed taxpayer’s income information is pre-filled in their tax returns and they are not required to file a tax return unless an update is required. 

Besides this, the revenue threshold for completing the two-line statement, Revenue and Adjusted Profit/Loss will be increased from SGD 100,000 to SGD 200,000 from the Year of Assessment (YA) 2021 for sole proprietorships. This change aims to alleviate the tax filing burden for small businesses, whose revenue falls under SGD 200,000.

Lastly, this article calls attention to taxpayers who have been working from home and incur incremental household expenses. From May 2021, taxpayers can claim expenses incurred for work purposes as tax deductions, provided that these expenses are not reimbursed by their employer. 

https://www.tax-news.com/news/Singapore_Explains_Changes_To_2021_Tax_Filing_Rules____97925.html

Tax Write-Up: Budget 2021 – Tax deductions for donations extended; employees urged to volunteer

By: Vanessa, Xiao Jing, Geraldine (Research and Training Department)

In this month’s publication, we refer to the extension of tax deductions for donations as mentioned in Budget 2021. Due to the global pandemic, there has been very few donations made to charitable organisations. In response, the government has implemented 3 key measures to uplift non-profits amidst these challenging times:

Firstly, the government has offered tax incentives in the form of tax deductions, where donations are made to institutions of a public character (IPCs). Announced by our Deputy Prime Minister and Finance Minister, Mr Heng Swee Keat, the 2.5 times (250%) tax deductions on donations made to IPCs will be further extended for another 2 years until 2023.

Next, the government has committed to continue their support for prominent fundraising community organisations like Tote Board’s Enhanced Fund-Raising Programme, Community Chest, and Change for Charity Grant. For instance, support for Tote Board’s Enhanced Fund-Raising Programme will be made available for another year. Non-profit organisations can hence expect to receive dollar-for-dollar matching up to $250,000 on eligible donations raised from projects in 2021.

Lastly, beyond financial support, there is also a growing awareness that corporate volunteerism is crucial. The Business and IPC Partnership Scheme has hence also been made available till the end of 2023, where businesses can claim 250% tax deductions on qualifying expenditure when they send their employees to volunteer. By introducing tax incentives that encourage volunteerism, the government hopes to create a vibrant social landscape where individuals, businesses and charities can work hand in hand to enact meaningful social changes.

In conclusion, with the massive disruptions caused by the pandemic, it is imperative that the government continues to support these organisations. In dark times, it is even more crucial that these charities stand tall, for only then can they support the victims of the pandemic, and effect changes that inspire a nation.

Article Link: https://www.businesstimes.com.sg/government-economy/singapore-budget-2021/budget-2021-tax-deductions-for-donations-extended-employees

 

Tax Write-Up: Tax deductions for donations extended; employees urged to volunteer

By: Vanessa, Xiao Jing, Geraldine (Research and Training Department)

In this month’s publication, we refer to the extension of tax deductions for donations as mentioned in Budget 2021. Due to the global pandemic, there has been very few donations made to charitable organisations. In response, the government has implemented 3 key measures to uplift non-profits amidst these challenging times:

Firstly, the government has offered tax incentives in the form of tax deductions, where donations are made to institutions of a public character (IPCs). Announced by our Deputy Prime Minister and Finance Minister, Mr Heng Swee Keat, the 2.5 times (250%) tax deductions on donations made to IPCs will be further extended for another 2 years until 2023.

Next, the government has committed to continue their support for prominent fundraising community organisations like Tote Board’s Enhanced Fund-Raising Programme, Community Chest, and Change for Charity Grant. For instance, support for Tote Board’s Enhanced Fund-Raising Programme will be made available for another year. Non-profit organisations can hence expect to receive dollar-for-dollar matching up to $250,000 on eligible donations raised from projects in 2021.

Lastly, beyond financial support, there is also a growing awareness that corporate volunteerism is crucial. The Business and IPC Partnership Scheme has hence also been made available till the end of 2023, where businesses can claim 250% tax deductions on qualifying expenditure when they send their employees to volunteer. By introducing tax incentives that encourage volunteerism, the government hopes to create a vibrant social landscape where individuals, businesses and charities can work hand in hand to enact meaningful social changes.

In conclusion, with the massive disruptions caused by the pandemic, it is imperative that the government continues to support these organisations. In dark times, it is even more crucial that these charities stand tall, for only then can they support the victims of the pandemic, and effect changes that inspire a nation.

Article Link: https://www.businesstimes.com.sg/government-economy/singapore-budget-2021/budget-2021-tax-deductions-for-donations-extended-employees