Singapore Mulls Switch To Current Year Tax Assessment System

by Mary Swire, Tax-News.com, Hong Kong

17 September 2004

Singapore’s Ministry of Finance has launched a consultation with business and the public concerning the feasibility of switching income tax assessment to a current year system from a previous year system.

“Taxing income earned in the current year means that there will be better matching of income and tax expenditure. For individuals, this helps to smooth out their disposable income and expenditure in the face of economic cycles,” the ministry explained in a statement.

It continued: “For companies, taxing income earned in the current year will improve their cash flow. In particular, where companies make lower profits or even losses during a downturn, they need not be paying tax based on previous year's profits. Current year assessment would contribute towards a better matching of the company's income and tax expenditure.

“If the better matching of incomes and tax expenditures leads to more stable consumption and investment spending, a current year basis of assessment could provide better stabilisation for the economy as a whole,” the ministry observed.

However, as some observers have pointed out, switching from one system to the other will present the government with something of a dilemma.

"If you make a change from prior to current year, that year of change, you will get a double whammy. You'll be paying two years of taxes - one for prior and one for the current year,” Peter Tan, a partner at PricewaterhouseCoopers, pointed out in a Channel News Asia report.

Tan noted that the Malaysian government exempted the previous year’s tax when it implemented a current year assessment system in 2000.

The Ministry of Finance consultation commenced on September 15 and will run through to October 30.

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