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ACCOUNTING and professional services firm EY in its Budget 2018 wish-list released on Thursday called on the Singapore government to take a two-pronged focus - sharpening the country's competitiveness and attractiveness to global investors and keeping taxes broad-based, progressive and fair.
Head of tax services, Ernst & Young Solutions LLP, Chung-Sim Siew Moon said that with this focus, "the budget measures should seek to build resilience and agility of the businesses, workforce and population in Singapore to adapt to change, innovate and seize the opportunities in a fast-changing landscape and increasingly digital economy."
Mrs Chung-Sim's comments take into consideration unprecedented changes in the global tax environment with the implementation of Base Erosion and Profit Shifting (BEPS) action plans coupled with the recent US reforms.
BEPS refers to tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations.
Separately, the US Senate had passed a bill in December to slash taxes and this has triggered strong reactions in Europe towards potentially "discriminatory measures", the Bloomberg reported.
EY explained that these will fundamentally change the foreign direct investment (FDI) landscape and impact FDI flows into Asean (Association of Southeast Asian Nations).
But for a start, Singapore, as chair of asean in 2018, can take the lead in proposing measures to harmonise certain tax treatments to promote greater cross-border flow of capital and labour. Mrs Chung-Sim said: "The government may consider adopting a consistent definition of tax concepts such as permanent establishment and characterisation of software payments, and proposing common tax administration standards such as those in relation to transfer pricing."
EY also suggested that the relevance of Singapore's tax treaty network can be enhanced with the inclusion of the US and other new countries, and updates on older comprehensive tax treaties with countries such as Australia, Indonesia and the Philippines.
Considering countries globally including the US are decreasing their headline tax rates to attract investments, EY called for reviews on Singapore's 17 per cent corporate income tax rate in the mid- to long-term. The government may wish for now to maintain this rate for Singapore to remain attractive and competitive internationally, it said.
Alluding to talk of impending tax hikes, EY recommended a "multi-step approach" if the current 7 per cent Goods and Services Tax (GST) rate is to be increased.
EY partner, GST services, Chew Boon Choo argued that staggering a GST increase, as done in 2003 and 2004, will "lessen the immediate burden on individuals and impact on consumer spending". But she acknowledged that this approach may lead to higher compliance costs for businesses resulting from updating and testing of accounting systems.
EY said GST can also play a part to level up the playing field for local and overseas businesses. Its indirect tax services leader, Yeo Kai Eng, suggested the introduction of a GST registration regime for overseas vendors supplying digital services to consumers in Singapore. He added that this proposal, already being studied by the Government, can curb "tax leakages brought forth by the digital economy" and provide one more source of revenue to support support Singapore's spending on the economy, infrastructure and social services.