By: Trudy, Min Jun, Ryan
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%.
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.
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.
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.