© Reuters. FILE PHOTO: Singapore’s Deputy Prime Minister and Minister for Finance Lawrence Wong delivers the Singapore Energy Lecture during the 15th Singapore International Energy Week, in Singapore October 25, 2022. REUTERS/Isabel Kua/File Photo
By Xinghui Kok and Joe Brock
SINGAPORE (Reuters) – (This Feb. 16 story has been corrected to say S$6 billion top up to fund helping with sales tax instead of S$6 billion in vouchers in paragraph 9, and clarifies that the S$1 billion over five years is for developing industry and talent in AI in paragraph 14)
Singapore’s Finance Minister Lawrence Wong announced on Friday a “significant adjustment” to the tax system with implementation of the 15% global minimum corporate tax rate spearheaded by the Organisation for Economic Cooperation and Development (OECD).
The prime minister-in-waiting also expanded government spending to help households battle inflationary pressures in the city-state and to grow the economy and jobs.
Wong told parliament the tax adjustment could lead to a reduction in the tax base as multinational companies re-evaluate their plans and said he did not expect the move to generate revenue gains for Singapore.
OCBC economist Selena Ling called the move “quite sobering” but said the trade-reliant economy had no choice since more countries – key trading and investment source markets – were implementing the OECD’s minimum corporate tax rate.
Wong announced an overall small surplus of S$0.8 billion or 0.1% of GDP for fiscal year 2024, “essentially a balanced fiscal position”, he said.
The government’s medium-term fiscal position was tight but its overall stance was “appropriate as we are providing targeted support”, Wong said.
“Our key priority is to ensure a strong, innovative and vibrant economy.”
Support for households in one of the world’s most expensive countries would be topped up by another S$1.9 billion ($1.41 billion), while a S$1.3 billion support package would also be introduced for companies, including a corporate income tax rebate of up to S$40,000.
The population of 5.9 million is also dealing with hikes in sales tax that started last year, and an upcoming scheduled increase in water tariffs. Wong announced a S$6 billion top up to a fund to help Singaporeans cope with the sales tax hike.
Inflation in Singapore has fallen from its peak of 5.5% early last year but remains higher than pre-pandemic levels at 3.3% in December.
“The best way to deal with inflation is to ensure firms, workers are more productive and that real incomes rise,” he said.
Wong said he was targeting growth of 2% to 3% each year over the next decade “by focussing on productivity and innovation”.
Singapore expects higher GDP growth at 1% to 3% this year after it plunged from 3.8% in 2022 to 1.1% in 2023.
A new tax credit would be created to support high-value economic activities, manufacturing, research and development and green transition, and S$3 billion would be added to an R&D fund, as well as S$1 billion over five years for development of artificial intelligence talent and industry.
The government will also spend an additional S$300 million a year on healthcare support for its ageing population, which is expected to drive up overall spending to 20% of GDP by 2030 from the current 18%.
Wong also announced a new fund for the energy transition, with an initial inject of S$5 billion.
TAX CHALLENGE
Wong said he would push ahead with implementing pillar 2 of BEPS 2.0 – an OECD project under which more than 140 countries have agreed to bring the minimum effective tax rate of large corporates to 15%.
But it was uncertain how much additional revenues that would pull in and how long it would last in a country that has long been attractive to investors because of its low tax rates.
“We may even see a reduction in our tax base if MNE’s (multinational enterprises) shift some of their activities to other jurisdictions,” he said.
In Singapore, the current headline rate is 17%, but some investors pay an effective rate that is as low as 4%.
Ling, the OCBC economist, said this would level the playing field for countries and it remained to be seen how multinational companies would react.
“Singapore has never competed on cost or tax alone,” she said.
Wong said Singapore made no apology for pursuing growth, but the government would not push for economic expansion at all costs as there constraints in labour, land and carbon.
Singapore, he said, would be an “economy that benefits the many rather than the few”.
($1 = 1.3457 Singapore dollars)
