Tax breaks for MNCs pay off in many ways

I refer to the letter “Have tax incentives for MNCs paid off?” (April 29).

Considering the profits earned by mining, metals and petroleum powerhouse BHP Billiton, the writer raises valid concerns and appears alarmed by the measly tax revenue the Inland Revenue Authority of Singapore has collected.

Assuming the S$7.6 billion profit mentioned was the chargeable income, a simplistic application of the Singapore corporate tax rate of 17 per cent would have earned tax revenue of a little over S$1 billion. The writer probably feels Singapore was short-changed.

However, there is a need to factor in tax incentives and other variables, such as the 30 per cent corporate income tax rebate, which apply to all companies here.

Moreover, the Income Tax Act provides for concessionary tax rates, which apply to certain approved trading activities. It is noteworthy that these rates are lower than the 17 per cent corporate tax rate, which in itself is highly competitive.

What all this means is that the effective rate of corporate tax is reduced materially for eligible firms.

It is, therefore, simplistic and unreasonable to draw a direct correlation between high profits and high tax revenues: The two are not always directly proportional to each other.

Also, these tax incentives make us an attractive place for multinational companies to do business, which pays off for Singapore and for Singaporeans in multitudinous ways, such as job creation, knowledge transfer, foreign direct investments, property value appreciation, establishing and strengthening valuable relationships, creating opportunities for small and medium businesses to learn and trade, thereby creating more jobs, and augmenting the Singapore brand.