Beyond move to tax MNCs more, Budget 2022 shows Singapore is still a good place to do business

Making businesses pay their fair share. That’s one subject that more than 130 jurisdictions may have found consensus on when they inked the Base Erosion and Profit Shifting initiative (BEPS 2.0) in October last year.

Governments pledged to take on multinational corporations (MNCs) charged with profiteering off workers, communities and the environment.

This is also an issue with important implications for Singapore that Finance Minister Lawrence Wong touched on in his Budget 2022 speech, though this has gone under the radar given the public attention on the increase in Goods and Services Tax (GST) and the carbon tax, among others.

In sum, Mr Wong signalled impending moves to tax MNCs more.

And I would argue that this need not be a negative thing for MNCs, as Budget 2022 also contains other announcements that will make Singapore still a highly attractive place to do business.

TAXING MNCS MORE

Mr Wong announced in Budget 2022 plans to explore a minimum effective tax rate (METR) of 15 per cent for businesses to bring the country’s corporate tax regime in line with BEPS 2.0.

With a headline corporate tax rate of 17 per cent, Singapore hardly qualifies as a tax haven for businesses.

However, the effective tax rate of many businesses in Singapore could be lower than this rate through the incentives introduced by the Inland Revenue Authority of Singapore.

For example, start-ups in Singapore can take advantage of a tax exemption of up to S$125,000 on the first S$200,000 of income for their first three consecutive years of business.

However, when BEPS 2.0 comes into force in the next year or two, a “top-up tax” may be triggered to the extent that the profits of some large businesses here will be taxed when they fall below the 15 per cent METR.

These new taxes – along with the impending increases in GST and other “wealth” taxes — will help to shoulder more of the country’s growing fiscal obligations in the coming years.

RENEWING GOVERNMENT-BUSINESS COMPACT

Income and wealth redistribution has been the theme of this Budget, for good reasons.

But this is not necessarily at the expense of MNCs. In fact, they can stand to benefit.

Further investments in the country’s digital economy push will be turbocharged by S$200 million set aside in Budget 2022 to “build digital capabilities” in Singapore’s businesses and worker, and investments in high broadband speeds and future technologies like 6G.

This burgeoning digital economy is estimated to add as much as S$13.5 billion to Singapore’s gross domestic product, according to market research firm IDC.

Businesses based in this hub for digital and data flows can plug into a global digital marketplace that is estimated to be worth S$15.5 trillion globally. They will be well-positioned to deal in a highly contested landscape that will continue to be reshaped by dramatic shifts in pandemic-induced customer behavior, according to Digital Experience company Adobe’s Digital Trends Report 2022.

Budget 2022 seeks to further strengthen Singapore’s proposition as a choice-destination for foreign MNCs, start-ups and cutting-edge research producing commercialisable solutions.

Singapore already has a few strong reference customers — Mr Wong revealed that BioNTech, the company that co-developed an mRNA Covid-19 vaccine, will be establishing its regional headquarters for Southeast Asia in Singapore.

He further announced that S$25 billion will be earmarked for Singapore’s Research, Innovation and Enterprise 2025 strategy, serving as a catalyst for similar investments in the private sector.

One such investment from the private sector was recently initiated by Nasdaq-listed medical technology company Medtronic.

The company launched a S$67.5 million open innovation platform in Singapore, with the Economic Development Board’s support, to foster closer collaboration in healthcare technologies between start-ups and various stakeholders in Asia Pacific.

Budget 2022 will also enable companies to make the leap into green as climate action throws up fresh business opportunities. Up to S$35 billion of green bonds will fund a gamut of public sector infrastructure projects.

Businesses worried about the cost of going green will be supported. Aligned with Singapore’s revised goal of becoming a net-zero emissions economy “by or around mid-century”, Mr Wong assured businesses of the support they need to make the same transition.

While a higher carbon tax, at S$25 a tonne (up from S$5 today) in the next two to three years, is on the cards, international carbon credits can be used to offset up to 5 per cent of their taxable emissions, in lieu of paying carbon tax.

Furthermore, Mr Wong also assured businesses that additional revenues from such taxes will be used to help them cope with the impact of decarbonisation. Government incentives will support business investments in low-carbon and energy efficient ways of working in the city-state.

“We can become the go-to location in Asia for expertise in carbon services, and the trusted regional marketplace for carbon credits”, said the finance minister.

Indeed, global management consultancy McKinsey recently launched a sustainability innovation hub for Asia, headquartered in Singapore to expand its client services focused on the implications of climate change and the economic transformation that net-zero carbon goals entail.

DRIVING S’PORE’S NEXT GROWTH CHAPTER

Taken against the backdrop of BEPS 2.0, these Budget 2022 measures signal the government’s resolve in entrenching Singapore as the choice investment hub for MNCs.

Going beyond tax factors, companies can benefit from these attractive returns when they do business in Singapore.

While MNCs suffer from disrepute for not paying their fair share elsewhere, businesses in Singapore are regarded as stabilisers in society during times of uncertainty, according to a 2021 ‘Brands in Motion’ study by global public relations agency, WE Communications.

Today, around half of the top 100 global companies have already chosen to set up their regional headquarters in the city-state.

Already the home to more than 4,000 technology start-ups, over half of the 11 unicorns from Southeast Asia are presently either based or have expanded their operations to Singapore. These figures are a testament to the strength of Singapore’s strong compact between the government and businesses.

Budget 2022 may have charted a new way forward for more MNCs to play a bigger role in Singapore’s next growth chapter. But such a compact must be assiduously preserved, strengthened, and — from time to time — renewed.

ABOUT THE AUTHOR:

Marcus Loh is the group executive director of WE Communications and the former president of the Institute of Public Relations of Singapore.