The Minister for Finance Lawrence Wong and Minister for Trade and Industry Gan Kim Yong has outlined on 5 July 2021 in parliament that the G7 global consensus will have a potential impact on Singapore’s tax revenues and competitive standing. A total of 1,800 MNEs (global revenue > S$1.2b) currently operating and enjoying an effective tax rate of below 15% in Singapore will be directly impacted by the Pillar 2 (min global tax rate of 15%). As the details of the global consensus is still evolving and it will be too early for any specific response, it is important that Singapore is agile and innovative and adjusts the tax policies in due time. The key economic objectives will be to drive competitiveness beyond taxation and strengthen our key fundamentals of its strategic location and international connectivity, excellent infrastructure, business friendly legal regime and skilled workforce. It will be much harder for Singapore to attract and retain investments based on non-tax competitive factors.
With the shift out of direct corporate tax, the following are what we expect may be coming:
- An increase in the indirect GST tax to partially offset the loss in direct corporate tax.
- A focus on business friendly tax regime to ensure MNE is not unnecessarily burden by tax compliance.
- Development of Singapore as a key global hub for fintech, greentech and digitaltech.
- Incentives on skilled talent management.
- Push for ease of corporatisation and promotion of MNEs setting up offices in Singapore
- Peripheral development on related infrastructural activities relating to the support ecosystem for MNE in intellectual property, arbitration, global office management, operations and IT support.
The impact of the global tax consensus is not limited to the MNE, it extends beyond to non-MNE eg SME within the supply chain. The rippled effects will be filtered down faster before you know it. As a SME owner, it will be wise to be forward looking and start to review your business model and financials. The earlier that you give this some thoughts on what are the potential scenarios and your options, the higher is your chance to be ahead of the pack. For some, it may be a critical life-saving steer of the ship rudder to avoid an imminent tornado.