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Singapore Urged To Enhance Tax Offering

by Mary Swire,, Hong Kong

05 January 2018

Ernst and Young Solutions LLP, Singapore, has released its wish list for the Singapore Budget 2018, calling for reforms to sharpen the territory's competitiveness.

The firm said that Singapore should maintain its 17 percent corporate income tax (CIT) rate, which is one of the lowest in the world, but recommended a review of the territory's corporate tax policies looking at the mid to long term, due to the ongoing decline in corporate tax rates worldwide and countries implementing the OECD's base erosion and profit shifting project recommendations.

It added that the Government should consider measures to facilitate overseas ventures, with relaxed relief conditions for foreign taxes suffered. It noted: "It is common for companies to send personnel overseas to perform or render services in other markets. Yet, companies in the initial phases of their overseas venture may not spend enough time or carry out substantive activities in the foreign market to create branches or subsidiaries in those jurisdictions. As a result, these companies, especially those in the services sector, may suffer foreign withholding taxes in their overseas ventures."

Chai Wai Fook, Partner, Tax Services, said: "In practice, the foreign tax credit claims to relieve such companies from double taxation are often denied on the basis that the income is Singapore-sourced and that the company does not have a taxable presence or permanent establishment in that foreign jurisdiction. In such instances, companies suffer double taxation in their quest for regional or overseas expansion. The Government may wish to consider the grant of a tax credit claim (through a tax remission mechanism) for targeted companies, for example, local SMEs."

Chew Boon Choo, Partner, GST Services, said it is possible that Singapore will announce a hike to the goods and services tax. She said: "If there is going to be a GST rate hike, it could be an immediate step-up from the current seven percent or it could be staggered in a multi-step approach, as seen in 2003 and 2004. We suggest a multi-step approach so as to lessen the immediate burden on individuals and impact on consumer spending, but businesses will need to manage the higher compliance costs incurred from updating and testing the accounting systems, managing transitional issues and determining the appropriate rate to apply for the supplies made."

Yeo Kai Eng, Partner, Indirect Tax Services Leader, recommended the Government look to the digital economy for new revenues from GST: "Singapore has generally adopted a pragmatic and pro-business approach in the design of its GST system. This approach helps to reduce the GST compliance costs of taxpayers and is welcomed by taxpayers. However, it has also resulted in tax leakages brought forth by the digital economy. Besides a possible GST rate hike, the introduction of a GST registration regime for overseas vendors supplying digital services (e.g., downloadable software, e-books, music) to consumers in Singapore that is being contemplated by the Government can provide an additional source of revenue to support Singapore's spending on the economy, infrastructure, and social services. At the same time, it will also provide a level playing field for local and overseas businesses supplying digital services to consumers in Singapore."

Other suggestions included the introduction of tax deductions for medical-related insurance policies, an increase to the basic earned income relief, and improved tax concessions for carers and women who choose to remain in the workforce after having children.

TAGS: individuals | tax | insurance | insurance tax | Singapore | transfer pricing | tax rates | withholding tax | services | Other | Tax | BEPS

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