4 minutes read
On 18th February 2022, Singapore’s Finance Minister, Lawrence Wong, presented his first National Budget to Parliament, with the overarching theme of ‘Charting Our New Way Forward Together’. This budget serves as Singapore’s strategic financial plan in addressing the challenges faced during this pandemic. As part of the announcement, The Finance Minister announced that the government would make significant changes to the tax statement, noting that “These tax adjustments will help raise additional revenue and contribute to a fairer revenue structure.
Of the many tax announcements, Benjamin Lim Director of InCorp Global’s Tax Division, believes the two most impactful announcements were the announcement of the GST hike and adjustments to the corporate tax system in response to BEPS 2.0. This blog encompasses his views on the announced changes and how this will impact businesses in Singapore.
Suggested Read: How business can stay resilient amid COVID-19
A Staggered GST Hike
While many expected the GST increase to occur as soon as June 2022, particularly after Singapore’s economy grew 7.6% in 2021. Instead, The Finance Minister elected to slowly increase the GST over the next 2 years, to 8% in 2023, and 9% in 2024. This will give businesses and individuals time to transition to the new rate. This provides some relief for businesses, helping them cushion the likely impact on consumption related to rising costs and prevalent inflation. This is not without expense, as businesses will likely incur extra compliance costs from a two-stage GST rate increase.
While the decision to delay and stagger the GST increase is a pleasant surprise for many businesses, given the lead time required by many organizations to prepare for the GST hike, it will be beneficial for companies to start their preparations early. When the GST rate finally hits 9% in 2024, it could likely become the second-largest source of tax income for the Singapore Government, behind corporate income tax. Given the broad design of the GST system and upcoming laws on imported goods and services, GST compliance is likely to be scrutinized more heavily moving forward.
Singapore’s Proposed METR
The second major Taxation announcement from the Singapore Budget concerns the METR. Under Pillar 2 of the OECD’s Base Erosion Profit Shifting (BEPS) project, multinational Corporations (MNCs) with a global turnover over €750 million (S$1.15 Billion) operating in jurisdictions subject to an effective corporate tax rate below 15% will have to top up the taxes paid in their “home” jurisdiction.
To align Singapore’s corporate tax system with BEPS, The Finance Minister announced that the Singapore Government would be exploring a Minimum Effective Tax Rate (METR) to top-up the effective tax rate of multinational enterprise (MNE) groups in Singapore to 15 percent.
As Singapore has historically used tax incentives as part of an attractive package for foreign direct investment (FDI), the top-up tax presents a significant challenge, as it may affect Singapore’s image as a tax-friendly jurisdiction. However, aside from the tax system, MNCs place equal emphasis on non-tax factors when considering whether to invest in a location.
Related Read: Will the G7’s Global Minimum Tax Rate affect Singapore?
“If you wish to explore how the potential changes in tax policies could affect your business”, InCorp Global is always ready to support you. Our team of taxation specialists combine decades of experience with a deep understanding of the most up to date tax laws. If you need help or support with your corporate taxes, please reach out to us today!
FAQs on Singapore Taxation Budget
- The first increase will be on 1st January 2023, from 7% to 8%. It will then increase again on 1st January from 8% to 9%
- The Minimum Effective Tax Rate (METR) that Singapore is exploring to top up the effective tax rate of Multinational Enterprises (MNEs) is 15%
- It is unlikely these tax changes will impact Singapore’s attractiveness, as MNEs place equal emphasis on non-tax factors when considering whether to invest in a location.