Budget 2022: Singapore to explore Minimum Effective Tax Rate amid global tax developments

SINGAPORE will need to update its corporate tax system to account for global tax developments relating to the Base Erosion and Profit Shifting initiative (BEPS 2.0), said Finance Minister Lawrence Wong in his Budget speech on Friday (Feb 18).

As such, Singapore is exploring a Minimum Effective Tax Rate (METR) to top-up the effective tax rate of multinational enterprise (MNE) groups in Singapore to 15 per cent, in response to the Global Anti-Base Erosion (or GloBE) rules under the second pillar of BEPS 2.0.

Under the first pillar, some MNEs will need to re-allocate profit from where activities are conducted to where consumers are located, while the second pillar will, among others, introduce a global minimum effective tax rate of 15 per cent for some MNE groups.

The Inland Revenue Authority of Singapore will study the METR further and consult the industry on its design, said Wong. The government will also continue to closely monitor international developments before making any decisions on the METR.

"At this stage, it is premature and difficult to determine the eventual fiscal impact of both pillars," Wong said.

He noted, however, that Singapore will likely lose tax revenue under pillar 1 given the country's small domestic market and the extent of activities conducted here by MNEs.

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He added that Singapore would likely need to consider an intensified global competition for investments under Pillar 2, as governments worldwide seek to restore and rebuild their economies after the effects of the pandemic.

"We will therefore need more time to study these issues thoroughly, and will announce changes in the corporate tax system when we are ready," said Wong.

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