We have put forward feedback and recommendations to the Ministry of Finance (MOF) for consideration in the 2024 Singapore Budget and beyond.
On this page, we share three hot topics in our recommendations that you may be interested in:
Some multinational enterprises (MNEs) will be affected by the global minimum corporate tax rate if they are incorporated and tax resident in some countries. Singapore can consider positioning itself as an attractive location for holding companies of these MNEs to be re-domiciled or set up here.
Amongst other things, and subject to meeting certain conditions, such companies may not be subject to the corporate minimum tax rate and may be granted certain tax and non-tax incentives.
Benefits: Incentivises companies to set up HQ in Singapore, larger tax base
Concerns: Risk that Singapore may be categorised as a "tax haven".
With the advent of a global minimum tax rate, there is a potential phasing out of corporate tax incentives. Therefore, the government’s attention should be directed to attracting decision-makers to Singapore, rather than necessarily the business itself.
Making Singapore an attractive place for decision makers personally, will encourage them to "reverse engineer" a case for the business being brought into and maintained in Singapore. This can be done through
Benefits: In order to build Singapore's economy, we strongly believe that Singapore must widen its tax base by growing the number of companies and entrepreneurs in Singapore.
The more business activity in Singapore, the more tax collected without the need to introduce new taxes. The effect is then multiplied, as both the additional business and additional people (with more income) will increase spending on goods and services in Singapore. The incentivisation of individuals side-steps the ambit of the global minimum tax.
Concerns: Politically managing the case for reduced rates for key foreign business executives.
Non-tax incentive tools may be introduced for MNEs to encourage them to set up operations in Singapore. These tools may include cash grants to defray operating expenses such as staff costs, rental cost and facilities costs.
Grants are typically recognised as income and thus will be included in as part of the income in determining the effective tax rate (ETR) using the Global Anti-Base Erosion (GloBE) model.
Compared to other tax incentive schemes such as tax holidays or concessionary tax rates, grants should be more attractive to MNEs if not only for their immediate impact.
Enhanced/ double deductions should be given for ESG reporting costs – as long as the reporting is done in Singapore.
A reduced tax rate could also be considered for Singapore-based companies providing ESG reporting and advisory services.
Benefit: Establishes Singapore as an ESG reporting hub and supports businesses that are keen to operate on a more sustainable basis.
Many companies want to give back to the community and this can be encouraged further by granting deductions for volunteering activities. Deductions could include the cost of chartering buses to the charity location and staff's time costs. The concept could also be expanded so that deductions are available for charities that are not registered as Institutes of Public Character (IPC).
Benefit: Encourages corporate volunteering and giving back to the community.
Goods and Services tax (GST), incurred on qualifying ESG reporting or activity costs should be claimable as input tax on basis that these costs are recognised to be for the purpose of the business of making taxable supplies.
Benefit: Provides certainty that ESG costs have a close nexus to the business and reduces costs for GST-registered businesses. It also furthers the ESG agenda for Singapore businesses.
Based on the statistics released by the National Population Health Survey in October 2023 of about 17,000 adults, the prevalence of poor mental health in Singapore has risen from 13.4% (2020) to 17% (2022). DPM Lawrence Wong has also recently announced in Parliament that Government is making plans to make mental health and well-being a key national priority.
To encourage employers to better provide for their employees’ mental wellbeing, a further deduction on mental (and physical health) expenses incurred for welfare of staff should be considered.
Benefit: Improved mental wellbeing and potential increase in productivity for the working population. This is also in line with the Government’s plans to address mental health and well-being as a key priority on the national agenda.
From a corporate perspective
The current Employee Share Option (ESOP) and Employee Share Ownership (ESOW) rules create a mismatch between the income tax position for the employee (i.e. open market value of the shares less cost to employee at the tax point) and the corporate tax deduction (i.e. broadly the cost to the Singapore company in acquiring the treasury shares).
We propose an alignment between the corporate and individual income tax treatment such that whenever and to the extent that income is taxed on the employee, the company obtains a corporate tax deduction.
Benefits: Supports companies in remaining globally competitive when remunerating key employees.
From an individual perspective
The current ESOP and ESOW schemes leave some ambiguity in relation to when a sales moratorium is in place. It also poses challenges to new start-up and growth companies trying to implement schemes to attract talent, as their shares are not readily tradeable. Therefore, even though no sales moratorium may exist, the individual may be stuck with an illiquid asset that they cannot sell. Despite this tax will still have to be paid.
We would therefore welcome more clarity around what "subject to any restriction on the sale of the shares" means, maybe with examples for privately held companies. We would also welcome a scheme that allows tax incentives for equity schemes for key management to attract management to Singapore. This could be limited to a certain value, i.e. tax-free ESOPs up to SGD 100k or limited to certain people (e.g. up to 5 employees earning more than SGD 150k).
Benefits: As mentioned earlier, a business is usually centred where their key people are living and working (indeed, where they choose to be). Therefore, if we are able to attract key people to Singapore, this would lead to more businesses coming and more revenue being booked in Singapore which will ultimately mean more tax revenue.
Concerns: None for the clarity around sales moratorium. Tax incentives for equity could be seen as giving tax incentives to the wealthy. However, the benefits of bringing the key management as well as their businesses to Singapore should bring far reaching benefits to the wider population that should justify the benefits provided to the ESOP holders.
In order to boost Singapore's cashflow from the collection of taxes, as well as enhance compliance, we would suggest introducing a Pay As You Earn (PAYE) system whereby employers would have to withhold income tax from their employees' monthly earnings. Employers already have to withhold CPF (and other amounts) through payroll and therefore there should only be a small increase in administration for the employer. This would at the same time reduce the risk of employees forgetting to pay or not having the cash to pay income tax after the end of the year. It would also reduce the risk of non-collection of tax for tax clearance cases.
This should also be extended to ESOP and ESOW events to minimise the risk of employees underpaying tax at the appropriate time. It forces the employee to ensure that they have the liquidity to pay the tax at the point it arises. There is a perceived lower level of understanding and awareness of the obligations around ESOP/ESOWs. Therefore the introduction of PAYE and transitional guidance around the requirements is likely to increase awareness and therefore compliance.
For those who have non-employment sources of income, e.g. self-employment, rental income etc, we suggest having an estimated tax regime to collect tax as the income is earned.
All of these ultimately encourage compliance as taxpayers would be paying tax as they earn the income rather than 12+ months later. This could be combined with a harsher penalty regime for incorrect payroll, and desktop reviews could cover both PAYE and Central Provident Fund (CPF) obligations.
Benefit: One off enhanced cash-flow benefit for government, increased compliance and a reduced risk of employees defaulting on payments. Finally, individuals will not have to continue paying tax once they retire or have to scramble for catch-up payments for tax clearance cases.
Concerns: Double cash outflow for individuals in the 1st year of implementation and so transitional rules would be required.
Tax computation and return submission deadlines should be set by reference to the taxpayer company's year-end rather than a blanket 30 November filing deadline for all companies in the Year of Assessment. We would suggest the standard period should be 11 months after the year end.
Benefits: This is better for IRAS, Tax agents and clients as it spreads the workload evenly and equitably. Tax agents are largely currently powerless to compel clients with inordinate amounts of time within which to prepare and submit computations to do anything other than wait until the last minute. Some formal legislative assistance would help ensure more orderly processes going forward.
Concerns: IRAS will need to e-issue the Form C / Form C-S earlier, but this should not be a major hindrance.
19 February 2024, Monday | 9am
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