S’pore may lose some lustre as low-tax hub

JAKARTA — Singapore may lose some of its lustre as a low-tax business hub if plans by its neighbours take root.

Indonesia is proposing to cut its corporate tax rate gradually to discourage companies from booking profits in lower-tax countries such as Singapore, President Joko Widodo’s top aide said at the weekend, while the Australian government announced a crackdown on alleged tax avoidance by multinational companies.

The Indonesian government will cut the corporate tax rate from the current 25 per cent to “maybe 17.8 or 17.5 per cent”, according to Mr Luhut Panjaitan, the President’s chief of staff who was formerly the Indonesian Ambassador to Singapore.

“We are going to do it. It is already being ordered by the President. There is not going to be too much gap from Singapore,” he said. The tax cuts will narrow the gap with Singapore’s rate of 17 per cent to stop transfer pricing, he added. Transfer pricing refers to the practice of companies transferring goods to a parent firm overseas before selling internationally and then paying a different tax rate on profits abroad. Indonesia is the world’s largest exporter of palm oil, coal for power stations and refined tin.

“A lot of big companies don’t pay,” said Mr Luhut. The Indonesian government is closely supervising tax officers in its drive to tackle evasion, he said.

The planned tax cuts may prompt some retention of profits onshore, yet it remains to be seen whether that would offset the lower levy, said Mr Wellian Wiranto, an economist at OCBC Bank in Singapore.

“It comes at a tricky time as well when the government is trying to boost the overall tax take. If Indonesia offers enough investment opportunities overall, corporations would be incentivised to keep their earnings onshore on their own accord for better returns,” he added.

Meanwhile, Australian Treasurer Joe Hockey said the government is targeting 30 multinational companies that are diverting profits to no-tax or low-tax jurisdictions. He declined to identify the targets, but said: “It is pretty evident which companies are involved.”

US tech giants Google, Apple and Microsoft revealed earlier this year they were under review by the Australian Tax Office. The Australian subsidiaries of the tech titans have all denied tax evasion.

Companies could be fined up to 100 per cent of the amount of tax deemed to be avoided, Mr Hockey said. Details of the proposed new laws will be unveiled in the federal budget today.

BHP Billiton is also contesting A$522 million (S$551 million) in Australian tax bills on its Singapore marketing operations up to 2010, after having paid almost no tax in the Republic since 2006, the global miner told an Australian Senate panel last month. The figures were released by a Senate committee that is investigating corporate tax avoidance.

The company revealed that between 2006 and 2014, its Singapore marketing business earned profits of US$5.7 billion (S$7.6 billion), on which it paid just US$121,000 in taxes in Singapore.

“The Singapore Government has granted BHP Billiton Marketing a tax incentive for its marketing activities. BHP Billiton Marketing was awarded this incentive for its contributions to the development of Singapore’s commodities sector,” the company said. AGENCIES