US Senate Republicans approved President Donald Trump’s corporate tax cut from 35 per cent to 21 per cent. This tax cut is widely considered the largest legislative victory in US politics this year, with CNN describing the move as “the most sweeping overhaul of the US tax system in more than 30 years.”
Netizens have noted that the US corporate tax cut may have repercussions on Singapore policies.
The US corporate tax cut is bound to draw companies to do business in the States itself, instead of setting up shop in tax havens like Singapore. To compete with countries like the US that are offering more incentives to corporations to stay in the US, Singapore may need to slash the corporate tax even further, so as to not lose its advantage.
If the Singapore government chooses to slash the corporate tax to remain a relevant tax haven to corporations, there is a chance that other taxes like the Goods and Services Tax may be raised to compensate for the corporate tax reduction.
One Singaporean noted that the US corporate tax overhaul, coupled with the Japanese Government’s announcement that it will offer tax breaks that could lower businesses’ tax rates by up to 20 per cent if they fulfill certain requirements, will have an impact on policies here.
The netizen, Chris Kuan, opined that to compete with such incentives from nations like the US and Japan, the Singapore government may have to resort to offering more corporate tax breaks or reduce corporate tax rates even further to remain pertinent.
Kuan added: “But then remember that spending gap that needs to be filled most likely by a GST rate hike. Any reduction in corporate tax liabilities, leads to an even larger spending gap which means potential for tax hikes elsewhere.”
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Kuan’s concerns were startlingly similar to Reform Party chief Kenneth Jeyaratnam’s assertion that Finance Minister Heng Swee Keat is planning to hike the Goods and Services Tax (GST) to “compensate for” the corporate tax cut that the Finance Ministry will initiate to counter the US corporate tax reduction.
The son of the late J.B. Jeyaretnam added that he expects GST to rise by a startling 10-11 per cent, if the Finance Ministry slashes corporate tax by half:
“In order to counter the US corporate tax rate cut, it is clear Heng is planning to slash the corporate tax rate to close to zero while hiking the GST rate to compensate. GST is a highly regressive tax since it accounts for a much bigger share of the incomes of the less well-off than the wealthy. The PAP alway claims that it returns the GST to the less well off in the form of vouchers but this accounts for only a small fraction of total revenues raised through GST. In 2017 corporate taxes are estimated to raise about $13 billion while GST is expected to bring in $11 billion. If Heng slashes corporation tax by 50% he is going to have to increase the GST rate to 10-11% to compensate.”
These observations come just a month after the head of government, Prime Minister Lee Hsien Loong confirmed on 19 Nov that higher taxes are inevitable and stressed that it is a matter of when and not whether taxes will be hiked.
Interestingly, when claims that the government would raise taxes erupted in 2015, during that year’s General Election campaign period, PM Lee asserted: “What will make you need to raise GST? Profligate spending and irresponsible, unsustainable plans. That is what will hurt and require you to raise taxes and GST.”
Referring to the Workers’ Party’s suggestion then that the government would raise taxes after the election had been won, PM Lee asserted that the government “did not play such games with voters.”
According to the New Paper, he further added:
“I think it’s a strange psychology to think that this is a government which is only dying to do bad things to people… Do we look like that? Here we are, trying to do the best and needing support. And I would turn the argument and say, be careful if they give more votes to the WP.
“WP will become even more arrogant and oppressive over the rest of the parties as they are already so.”
The head of government also added that the PAP would be “mad” to raise taxes just because it received a strong mandate:
“Raising, adjusting taxes is a very big decision. You consider it carefully, you discuss it thoroughly, and you do it only when you absolutely have to.
“What will make you need to raise GST? Profligate spending and irresponsible, unsustainable plans. That is what will hurt and require you to raise taxes and GST.”
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