SINGAPORE: Professional services firm KPMG Singapore has called for specific tax reforms for the upcoming national budget in light of Singapore’s adoption of the OECD’s Base Erosion and Profit Shifting (BEPS) strategies.
Deputy Prime Minister Lawrence Wong is set to deliver SG Budget 2024 in Parliament on Feb 16, and the public has been invited by the Finance Ministry to actively participate in the budgetary process.
The Organisation for Economic Co-operation and Development (OECD) was tasked by the G20 in 2013 to tackle BEPS by multinational enterprises (MNEs).
“BEPS refers to tax planning strategies that exploit gaps and mismatches in tax rules to artificially shift profits to locations with no/low tax rates and no/little economic activity,” the Finance Ministry explained.
In 2021 the Inclusive Framework on BEPS, of which Singapore is part, agreed on a Two-Pillar solution to address the challenges to taxation resulting from the digitalisation of the economy. This has been adopted by over by more than 135 jurisdictions, including Singapore.
Noting that a number of jurisdictions in the region and around the globe have already adjusted their tax systems to respond to BEPS Pillar Two, partner and head of tax at KPMG Singapore Mr Ajay Kumar Sanganeria said that this initiative requires a global minimum tax of 15 per cent for MNE groups whose revenues exceed €750m (S$1.1billion), and that Singapore would do well to follow suit.
“To maintain its position as a top foreign direct investments (FDI) destination, Singapore should consider a similar proactive approach. This will not only ensure compliance with global standards but also enhance Singapore’s competitiveness while bolstering its standing on the international stage as well,” the Singapore Business Review quotes him as saying.
However, in order to balance out adopting BEPS strategies, Mr Sanganeria and Mr Harvey Koenig, partner for Energy & Natural Resources and Telecommunications, Media & Technology at the company, have provided SBR with three ways for Singapore to raise the country’s growth and competitiveness.
One: To stimulate economic growth, the country should keep a competitive tax regime
“It is important to continue to maintain and enhance our existing suite of tax incentives to attract and anchor these smaller businesses that could become the next generation of business giants. To further enhance Singapore’s allure among multinational corporations and high-earning entities, Singapore should continue to enhance the competitiveness of its corporate tax system,” Mr Sanganeria said
Two: New incentives should also be considered that would keep the inflow of wealth and funds coming.
Mr Koenig said that these new incentives that could fall under Qualified Refundable Tax Credits (QRTCs) or Marketable Transferable Tax Credits (MTTCs).
Tax incentive schemes that affect family offices without adding extra-economic conditions could also be on the table, Mr Sanganeria added.
Three: To enhance the country’s innovation capabilities, double taxation should be avoided by the government.
“To boost Singapore’s standing as an innovation leader, the government should also adjust the tax treatment of equity-based compensation. Instead of imposing an exit tax on a deemed vest/exercise basis, the government should consider aligning sourcing of employment income arising from equity-based compensation (such as stock options) over the grant-to-vest period.
This method not only aligns with OECD guidelines but also prevents foreign employees from being taxed twice on the same income. In the long run, it supports Singapore’s goal of becoming a hub for innovation as this will boost Singapore’s standing of being open to talent,” said Mr Sanganeria. /TISG
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