Deloitte proposes tax incentive changes in its Budget 2024 wish list
PROFESSIONAL services firm Deloitte has called for the government to reshape Singapore’s tax incentives and grants regime in its Budget 2024 wish list on Tuesday (Dec 26).
This is in anticipation of a landmark year of tax reform, it said, highlighting the global anti-base erosion model rules which will impose a global minimum effective tax of 15 per cent on large multinational enterprises.
These suggestions that aim to keep the investment environment attractive and support innovation are among other recommendations to support sustainability, Singapore’s financial hub status, provide financial relief for citizens and attract talent.
Strengthening tax measures
From Jan 1, 2024, gains received in Singapore from the sale of foreign assets will be taxable. But some clarity on the new law’s implementation and ways to refine the rules are needed, Deloitte said.
Firstly, it suggested the deferment of taxes when foreign assets are transferred among related Singapore entities, to minimise tax leakages during internal group restructuring and reduce fiscal strain. The gain on sale can be recaptured if the parties are no longer associated, or if the foreign asset is sold to an unrelated party.
Next, it also recommended allowing the fulfilment of economic substance requirements to be another way to exempt certain types of foreign income.
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“Apart from widening taxpayers’ alternatives, this would also align with the general focus on anchoring real economic activities in Singapore,” said Loh Eng Kiat, tax partner, Deloitte Singapore.
Deloitte also suggested re-consideration of extending the availability of foreign tax credits to include taxes paid by indirectly-owned overseas subsidiaries. Currently, foreign tax credit is still ring-fenced to foreign taxes paid by the overseas company remitting the dividends back to Singapore, it explained.
Refining incentives in view of international developments
Another key feature of the professional services firm’s proposals is the evaluation and refinement of tax incentives. It recommended expanding the scope of grant programmes, which it said will be crucial in attracting investors with the implementation of the qualified domestic minimum top-up tax.
Eligible activities could be expanded to include areas such as headquarters operations or trading, while existing areas such as R&D and innovation could be redefined to encompass more activities.
Additionally, grant mechanisms could be further streamlined, and the support rate for qualifying costs could be increased, potentially through the use of Qualified Refundable Tax Credits (QRTCs).
QRTCs could help to maintain a supportive, growth-oriented fiscal environment, even as Singapore upholds its fair minimum tax rate commitments, said Yvaine Gan, global investment and innovation incentives leader, Deloitte Singapore.
Deloitte also proposed other changes and additions to incentive frameworks, including extending the Energy Efficiency Grant, refining the “overly restrictive” rules for the Land Intensification Allowances grant and adjusting caps for the Enterprise Innovation Scheme.
Pushing sustainability
The professional services firm also suggested reinvesting some carbon tax revenue to the transition towards decarbonisation and a circular economy. Financial incentives could be used to encourage businesses to modify processes and adopt new technologies, it said.
It also proposed enhancing the use of collaborative trade agreements to address climate issues, with a stronger focus on the trading of clean energy from renewable sources.
Also on the list of recommendations were allocating resources to understand and help manufacturers adapt to the European Union’s Carbon Border Adjustment Mechanism, as well as an increased focus on sustainability in worker upskilling.
Other proposals
Deloitte also highlighted the need for Singapore to refine and guide tax policies in fund management and banking, to establish itself as a financial services hub.
It suggested measures to optimise Singapore’s personal tax system amid the persistent inflationary environment, such as introducing a tax relief for mortgage interest on owner-occupied homes, which Deloitte Singapore and South-east Asia global employer services tax leader Sabrina Sia said would alleviate financial pressures and also encourage home ownership.
Finally, to tackle the future of work and solidify Singapore’s appeal for international talent, Deloitte recommended differentiated Employment Pass (EP) qualifying salary requirements, greater transparency for the EP’s points-based Complementarity Assessment Framework, and various other employment-related measures.
Despite expected economic expansion in 2024, the Budget must be adaptable to the uncertain macro environment, which encompasses changes to international tax laws, the emergence of new technologies, the stronger sustainability focus, geopolitical tensions, and the complexities associated with rising inflation, said Daniel Ho, tax and legal leader, Deloitte Singapore.
“The recommendations we have proposed underscore the commitment to ensuring the welfare of Singapore’s households, workers, businesses, and the broader community amidst these evolving circumstances.”
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