KPMG, SBF call for Budget 2024 to enhance Singapore’s tax competitiveness, promote ESG
BUDGET 2024 is a chance for Singapore to reinforce its status as a hub for business, wealth management, and sustainability-linked investments, said the Singapore Business Federation (SBF) and professional services firm KPMG, at the release of joint recommendations on Monday (Jan 8).
One recommendation is for new tax-related incentives to mitigate the impact of global Base Erosion and Profits Shifting 2.0 (BEPS 2.0) rules, which will erode Singapore’s tax competitiveness in attracting multinationals.
Under Pillar 2 of BEPS 2.0, a minimum effective tax rate of 15 per cent for multinational enterprise (MNE) groups with annual group revenues of at least 750 million euros (S$1.09 billion) will be implemented in Singapore on or after Jan 1, 2025.
This means Singapore can no longer rely on existing tax incentives and low corporate tax rates to attract such investments, said Ajay Sanganeria, partner and head of tax at KPMG in Singapore.
To mitigate the impact of Pillar 2, the government can consider introducing new incentives that fit the definition of qualified refundable or marketable tax credits, KPMG and SBF said.
As these incentives are not meant to reduce an MNE’s effective tax rate, they will still be in line with BEPS 2.0, Sanganeria added.
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To stay competitive, Singapore can also renew tax incentive schemes without increasing the tied economic requirements, and review the tax incentive scheme for family offices, suggested SBF and KPMG.
Separately, to encourage innovation, Singapore can broaden the definition of qualifying intellectual property (IP) for corporate tax purposes. The IP Development Incentive could also cover a wider range of IP for writing-down allowances.
Boosting ESG initiatives
SBF and KPMG also made recommendations related to environmental, social and governance (ESG) efforts, particularly climate financing.
One idea is a dedicated fund for financing green energy initiatives, perhaps with the government setting aside up to 1 per cent of Singapore’s gross domestic product for this.
Other proposals include a tiered credit line for climate financing and 10 per cent concessionary tax rate under the Financial Sector Incentive-Standard Tier.
At the company level, the government could draw up a roadmap for ESG talent development, including initiatives such as enhanced tax deductions for accredited training programmes and tax subsidies for employers with clear training pathways.
To help small and medium-sized enterprises (SMEs) kickstart their sustainability journeys, the Enterprise Financing Scheme – Green should be extended and expanded to increase lending. Introduced in 2021, the scheme is currently scheduled to last till Mar 31 this year.
Beyond ESG efforts, SBF and KPMG suggested ways to aid SMEs more generally, such as providing more funding for transformation and digitalisation. The government could also adjust its procurement process to support SMEs.
On the manpower front, SBF chief executive officer Kok Ping Soon noted that rising business costs – driven by manpower costs – were the top challenge cited in the apex business chamber’s latest business sentiment survey.
But he added: “We’re not asking for (the) government’s direct support to businesses to lower salary costs – that’s not tenable, nor should it be done that way.”
Instead, productivity improvements are key, Kok noted. This is why SBF and KPMG also call for government help for investments into human capital.
As for dealing with the continued labour crunch, SBF and KPMG suggested a review of the Complementarity Assessment Framework for Employment Pass (EP) hires, to allow “a possible short-term relaxation on the diversity quota criteria”.
Under this criteria, EP applications fare better if the intended hire’s nationality forms a small share of the employer’s current pool of employees who are professionals, managers, executives or technicians. But companies have found it increasingly difficult to meet this criteria in light of the tight labour market, said SBF and KPMG.
They also called for flexibility in quotas under the Manpower for Strategic Economic Priorities Scheme, which lets approved companies hire S Pass and Work Permit Holders above the quota for a limited time.
“The government could also review the current foreign worker quota to allow them to be pegged to job roles, instead of the current classification, which includes white and blue-collar roles,” they added.
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