Singapore, 18 February 2022 – Off the back of the Singapore Budget announcement by Finance Minister Mr Lawrence Wong, experts from Grant Thornton Singapore share their thoughts.
On the new personal income tax band and increase in personal income tax: Adrian SHAM, Tax and Private Clients Partner, Grant Thornton Singapore (沈建華, 税务合伙人，致同) – “We are not surprised by the increased personal income bands as these will increase the progressiveness of our income tax system and we welcome this point to reduce the disparity in income across Singapore.
“However, it is a double-edged sword as increasing personal income tax rates may discourage high-income people to relocate or stay in Singapore. Therefore, we feel that the government should have implemented some tax reliefs to encourage business owners and decision makers to relocate or remain in Singapore which in turn would bring these high value jobs (and the taxes related to them) to Singapore.”
On the property tax for non-owner occupied residential properties: David SANDISON, Head of Tax and Singapore Practice Leader, Grant Thornton Singapore – “The enhancement of the progressivity of property tax for non-owner occupied residential properties is a change in the right direction to streamline the taxation of the wealthier owners. It is a pity that the change does not include a deemed income tax on vacant residential properties. Apart from enhancing the tax coffer, this may help stamp further increases in residential property prices.”
On whether increasing property tax is a good approach: Adrian SHAM, Tax and Private Clients Partner, Grant Thornton Singapore (沈建華, 税务合伙人，致同) – “We agree with the increased property tax rates because it is difficult to plan around and it is easy to collect as it is already being collected. However we don’t think that the Budget goes far enough.
“Firstly, we recommend that a higher rate of property tax should be applied to non-productive property, (i.e. non occupied property), than productive property, (i.e. occupied property). This is to encourage the property to be productive and adding value to our economy, (rented out or lived in), otherwise a penal tax rate would apply to individuals parking their wealth in Singapore property. The secondary benefit arising from this would be to reduce rental costs for individuals in Singapore as more properties would be on the rental market and increase Singapore’s GDP.
“Secondly, we are all aware that a lot of foreigners park their funds in Singapore property, driving up the prices so that they are out of reach for Singaporeans. With this, we believe that the government could also implement a tax to combat this. This could be structured as a capital gains tax on foreigners or just an additional property tax on non-Singapore residents.”
On the impact of the taxes for wealth on the wealth management industry: Adrian SHAM, Tax and Private Clients Partner, Grant Thornton Singapore (沈建華, 税务合伙人，致同) – “With no net wealth tax being implemented in this year’s budget, the wealth management industry has avoided significant structural changes in how it advises its clients. Business-as-usual then? Pretty much.
“The increases in income tax will have a marginal impact in the amount of wealth flowing into the wealth management industry as we are talking about a 2% hike only on Singapore sourced income. Many High-Net Worth Individuals (HNWIs) have multiple income streams which may not all be impacted by this move (e.g. overseas income or dividends/capital gains all of which is not taxed in Singapore). Even if they have Singapore sourced income, it is only a marginal 2% increase in tax.
“The increase in property tax will, however, have a wider ranging impact on the wealth management industry as it affects all residential property thus reducing yield on residential property, including those held in funds. With this, I think it is probably relatively business-as-usual for the wealth management sector with some small shuffles to adapt to the changes in profit coming from residential properties.
“Car collectors and afficionados will be disappointed in the news that their luxury car purchases will be taxed at even more than they currently are and so maybe they should just own those and drive them overseas instead of in Singapore?”
On the timing of the GST hike: David SANDISON, Head of Tax and Singapore Practice Leader, Grant Thornton Singapore – “There was no surprise as the timing was always pure speculation to the rest of us. It always would’ve been a roll of a dice. Put a slight dampener on businesses particularly in the F&B and tourism industry, just when they are beginning to see some light at the end of the tunnel; be kind to businesses in general by preventing a double transitional period; or please the crowd, (i.e. the consumer/voter).”
On the GST hike being in two steps: Jeremy O’NEILL, GST Senior Manager, Grant Thornton Singapore – “The need to review, update and revise taxes on a continual basis is a necessary evil. A change in tax rate cannot be made without additional one-off costs to those affected. In the case of GST, the one-off costs are likely to include making changes to their finance and invoicing systems, reviewing contract terms, and updating pricing / menus.
“Another factor that is often overlooked is the need to implement transitional provisions. Every time there is change in the scope, or rate, of GST, there is a requirement to design and implement transitional provisions. Without effective transactional provisions, there may to scope for taxpayers to defer, or even evade, some of the impacts of the change.
“The downside of transitional provisions is that they can be complex and may result in further one-off increases in the compliance costs for businesses. Therefore, staggering the increase in the rate of GST will result in additional operational and transitional costs for GST-registered business. Some businesses may even seek to recoup these costs from their customers.
“The one saving grace is that this is not our first experience of a staggered change. In 2003, the rate of GST was increased by 1% to 4%, followed by a further 1% increase to 5% in 2004. The requirements and transitional provisions should be similar and therefore, legislators, tax authorities, and businesses should be able to leverage from.”
On the top-up tax for the minimum effective tax rate: Emily LIN, Tax Associate Director, Grant Thornton Singapore – “The minimum effective tax rate is the effective corporate tax rate that an entity within an MNE group (with global revenues of 750 million euros and above) are being subject to in a country. This rate multiplied by the taxable income (arrived at based on an agreed set of principles laid out in pillar 2) of the entity reflects the taxes that will be paid to the country’s tax authority.
“If this rate is below 15%, the MNE will pay the difference to the tax authority in the country in which the MNE is based.
“The minimum effective tax rate attempts to address the issue of the race to the bottom wherein countries are using low tax rates to entice MNEs to be located in their countries.
“Although Singapore’s current corporate tax rate is 17%, our current tax system provides for tax reliefs, income exemptions and multiple deductions on certain expenses, which could result in companies paying an effective corporate tax rate below 15%. This effectively reduces the effectiveness of using tax measures to attract and retain MNEs in Singapore. However, there are many reasons that MNEs choose to locate in Singapore e.g. strong rule of law, stable political environment, well-educated workforce. Thus, the implementation of the effective tax rate may not necessarily erode our competitiveness. This tax was just announced late last year but is expected to be implemented across the 131 countries (including Singapore) who are members of the OECD’s inclusive framework in the next few years.”
On the impact of the OECD’s Base Erosion Profit Shifting Inclusive Framework on Singapore: Emily LIN, Tax Associate Director, Grant Thornton Singapore – “BEPS 2.0 has two pillars.
“Pillar 1 affects MNEs with global revenues above 20 billion euros with a profit margin above 10%. The profits will be reallocated from where the activities are being conducted, to where the consumers are based.
“Pillar 2 affects MNEs with global revenues above 750 million and in countries where the effective corporate tax rate is below 15%. Taxes will be topped up to the effective tax rate of 15% in MNE’s “home countries”.
“For Pillar 1, given that Singapore is a small market, some of the profits of MNEs (with global revenues above 20 billion) that are currently being taxed in Singapore may be reallocated to the bigger markets (i.e. with a larger consumer base). However, depending on the measures that Singapore may take to counter the impact of Pillar 2, some of these lost revenues may be recovered via the measures that are undertaken in Pillar 2.
“For Pillar 2, Singapore is considering a top up tax to be imposed on MNEs. This may actually present an opportunity to Singapore through an increase in tax revenues given that most MNEs in Singapore are subject to an effective tax rate below 15%, provided these MNEs do not exit from Singapore as a result of this increase in tax rates.
“However, nothing has been cast in stone as Singapore is still considering international developments. As Pillar 2 provides for an income-based substance carve-out based on a certain percentage of payroll cost and tangible assets, Singapore should continue to strengthen its existing tax incentive schemes where headcount commitment has always been in place.
“In addition, as investment and real estate funds are excluded from Pillar 2, Singapore should continue to encourage these funds to be managed in Singapore.”
Pictures of each of the spokespersons can be found in these links.
David SANDISON, Head of Tax and Singapore Practice Leader, Grant Thornton Singapore [jpg]
Adrian SHAM, Tax and Private Clients Partner, Grant Thornton Singapore [jpg]
Emily LIN, Tax Associate Director, Grant Thornton Singapore [jpg]
Jeremy O’NEILL, Goods and Services Tax (GST) Senior Manager, Grant Thornton Singapore [jpg]
Natalie Choo
Manager – Marketing and Communications
M +65 9672 4683
Grant Thornton is a different kind of network ready to meet the very different demands of today’s business. The network comprises 62,000 passionate people in member firms in 130 countries, with one common goal — to help organisations realise their ambitions in any environment.
Press Release
Reactionary comments on the Singapore Budget 2022 from Grant Thornton
18 Feb 2022
Off the back of the Singapore Budget announcement by Finance Minister Mr Lawrence Wong, experts from Grant Thornton Singapore share their thoughts.
Singapore, 18 February 2022 – Off the back of the Singapore Budget announcement by Finance Minister Mr Lawrence Wong, experts from Grant Thornton Singapore share their thoughts.
On the new personal income tax band and increase in personal income tax: Adrian SHAM, Tax and Private Clients Partner, Grant Thornton Singapore (沈建華, 税务合伙人，致同) – “We are not surprised by the increased personal income bands as these will increase the progressiveness of our income tax system and we welcome this point to reduce the disparity in income across Singapore.
“However, it is a double-edged sword as increasing personal income tax rates may discourage high-income people to relocate or stay in Singapore. Therefore, we feel that the government should have implemented some tax reliefs to encourage business owners and decision makers to relocate or remain in Singapore which in turn would bring these high value jobs (and the taxes related to them) to Singapore.”
On the property tax for non-owner occupied residential properties: David SANDISON, Head of Tax and Singapore Practice Leader, Grant Thornton Singapore – “The enhancement of the progressivity of property tax for non-owner occupied residential properties is a change in the right direction to streamline the taxation of the wealthier owners. It is a pity that the change does not include a deemed income tax on vacant residential properties. Apart from enhancing the tax coffer, this may help stamp further increases in residential property prices.”
On whether increasing property tax is a good approach: Adrian SHAM, Tax and Private Clients Partner, Grant Thornton Singapore (沈建華, 税务合伙人，致同) – “We agree with the increased property tax rates because it is difficult to plan around and it is easy to collect as it is already being collected. However we don’t think that the Budget goes far enough.
“Firstly, we recommend that a higher rate of property tax should be applied to non-productive property, (i.e. non occupied property), than productive property, (i.e. occupied property). This is to encourage the property to be productive and adding value to our economy, (rented out or lived in), otherwise a penal tax rate would apply to individuals parking their wealth in Singapore property. The secondary benefit arising from this would be to reduce rental costs for individuals in Singapore as more properties would be on the rental market and increase Singapore’s GDP.
“Secondly, we are all aware that a lot of foreigners park their funds in Singapore property, driving up the prices so that they are out of reach for Singaporeans. With this, we believe that the government could also implement a tax to combat this. This could be structured as a capital gains tax on foreigners or just an additional property tax on non-Singapore residents.”
On the impact of the taxes for wealth on the wealth management industry: Adrian SHAM, Tax and Private Clients Partner, Grant Thornton Singapore (沈建華, 税务合伙人，致同) – “With no net wealth tax being implemented in this year’s budget, the wealth management industry has avoided significant structural changes in how it advises its clients. Business-as-usual then? Pretty much.
“The increases in income tax will have a marginal impact in the amount of wealth flowing into the wealth management industry as we are talking about a 2% hike only on Singapore sourced income. Many High-Net Worth Individuals (HNWIs) have multiple income streams which may not all be impacted by this move (e.g. overseas income or dividends/capital gains all of which is not taxed in Singapore). Even if they have Singapore sourced income, it is only a marginal 2% increase in tax.
“The increase in property tax will, however, have a wider ranging impact on the wealth management industry as it affects all residential property thus reducing yield on residential property, including those held in funds. With this, I think it is probably relatively business-as-usual for the wealth management sector with some small shuffles to adapt to the changes in profit coming from residential properties.
“Car collectors and afficionados will be disappointed in the news that their luxury car purchases will be taxed at even more than they currently are and so maybe they should just own those and drive them overseas instead of in Singapore?”
On the timing of the GST hike: David SANDISON, Head of Tax and Singapore Practice Leader, Grant Thornton Singapore – “There was no surprise as the timing was always pure speculation to the rest of us. It always would’ve been a roll of a dice. Put a slight dampener on businesses particularly in the F&B and tourism industry, just when they are beginning to see some light at the end of the tunnel; be kind to businesses in general by preventing a double transitional period; or please the crowd, (i.e. the consumer/voter).”
On the GST hike being in two steps: Jeremy O’NEILL, GST Senior Manager, Grant Thornton Singapore – “The need to review, update and revise taxes on a continual basis is a necessary evil. A change in tax rate cannot be made without additional one-off costs to those affected. In the case of GST, the one-off costs are likely to include making changes to their finance and invoicing systems, reviewing contract terms, and updating pricing / menus.
“Another factor that is often overlooked is the need to implement transitional provisions. Every time there is change in the scope, or rate, of GST, there is a requirement to design and implement transitional provisions. Without effective transactional provisions, there may to scope for taxpayers to defer, or even evade, some of the impacts of the change.
“The downside of transitional provisions is that they can be complex and may result in further one-off increases in the compliance costs for businesses. Therefore, staggering the increase in the rate of GST will result in additional operational and transitional costs for GST-registered business. Some businesses may even seek to recoup these costs from their customers.
“The one saving grace is that this is not our first experience of a staggered change. In 2003, the rate of GST was increased by 1% to 4%, followed by a further 1% increase to 5% in 2004. The requirements and transitional provisions should be similar and therefore, legislators, tax authorities, and businesses should be able to leverage from.”
On the top-up tax for the minimum effective tax rate: Emily LIN, Tax Associate Director, Grant Thornton Singapore – “The minimum effective tax rate is the effective corporate tax rate that an entity within an MNE group (with global revenues of 750 million euros and above) are being subject to in a country. This rate multiplied by the taxable income (arrived at based on an agreed set of principles laid out in pillar 2) of the entity reflects the taxes that will be paid to the country’s tax authority.
“If this rate is below 15%, the MNE will pay the difference to the tax authority in the country in which the MNE is based.
“The minimum effective tax rate attempts to address the issue of the race to the bottom wherein countries are using low tax rates to entice MNEs to be located in their countries.
“Although Singapore’s current corporate tax rate is 17%, our current tax system provides for tax reliefs, income exemptions and multiple deductions on certain expenses, which could result in companies paying an effective corporate tax rate below 15%. This effectively reduces the effectiveness of using tax measures to attract and retain MNEs in Singapore. However, there are many reasons that MNEs choose to locate in Singapore e.g. strong rule of law, stable political environment, well-educated workforce. Thus, the implementation of the effective tax rate may not necessarily erode our competitiveness. This tax was just announced late last year but is expected to be implemented across the 131 countries (including Singapore) who are members of the OECD’s inclusive framework in the next few years.”
On the impact of the OECD’s Base Erosion Profit Shifting Inclusive Framework on Singapore: Emily LIN, Tax Associate Director, Grant Thornton Singapore – “BEPS 2.0 has two pillars.
“Pillar 1 affects MNEs with global revenues above 20 billion euros with a profit margin above 10%. The profits will be reallocated from where the activities are being conducted, to where the consumers are based.
“Pillar 2 affects MNEs with global revenues above 750 million and in countries where the effective corporate tax rate is below 15%. Taxes will be topped up to the effective tax rate of 15% in MNE’s “home countries”.
“For Pillar 1, given that Singapore is a small market, some of the profits of MNEs (with global revenues above 20 billion) that are currently being taxed in Singapore may be reallocated to the bigger markets (i.e. with a larger consumer base). However, depending on the measures that Singapore may take to counter the impact of Pillar 2, some of these lost revenues may be recovered via the measures that are undertaken in Pillar 2.
“For Pillar 2, Singapore is considering a top up tax to be imposed on MNEs. This may actually present an opportunity to Singapore through an increase in tax revenues given that most MNEs in Singapore are subject to an effective tax rate below 15%, provided these MNEs do not exit from Singapore as a result of this increase in tax rates.
“However, nothing has been cast in stone as Singapore is still considering international developments. As Pillar 2 provides for an income-based substance carve-out based on a certain percentage of payroll cost and tangible assets, Singapore should continue to strengthen its existing tax incentive schemes where headcount commitment has always been in place.
“In addition, as investment and real estate funds are excluded from Pillar 2, Singapore should continue to encourage these funds to be managed in Singapore.”
Notes
Pictures of each of the spokespersons can be found in these links.
David SANDISON, Head of Tax and Singapore Practice Leader, Grant Thornton Singapore [jpg]
Adrian SHAM, Tax and Private Clients Partner, Grant Thornton Singapore [jpg]
Emily LIN, Tax Associate Director, Grant Thornton Singapore [jpg]
Jeremy O’NEILL, Goods and Services Tax (GST) Senior Manager, Grant Thornton Singapore [jpg]
For questions or further enquiries, please contact
Natalie Choo
Manager – Marketing and Communications
M +65 9672 4683
About Grant Thornton
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![David SANDISON, Head of Tax and Singapore Practice Leader, Grant Thornton Singapore [jpg]](/globalassets/1.-member-firms/singapore/photography/highres-corp-pictures---press/david-sandison_grant-thornton.jpg){kind=link}
![Adrian SHAM, Tax and Private Clients Partner, Grant Thornton Singapore [jpg]](/globalassets/1.-member-firms/singapore/photography/highres-corp-pictures---press/adrian-sham_grant-thornton.jpg){kind=link}
![Emily LIN, Tax Associate Director, Grant Thornton Singapore [jpg]](/globalassets/1.-member-firms/singapore/photography/highres-corp-pictures---press/emily-lin_grant-thornton.jpg){kind=link}
![Jeremy O’NEILL, Goods and Services Tax (GST) Senior Manager, Grant Thornton Singapore [jpg]](/globalassets/1.-member-firms/singapore/photography/highres-corp-pictures---press/jeremy-oneill_grant-thornton.jpg){kind=link}
