Deloitte’s Singapore Budget 2024 recommendations: A prudent time to reshape Singapore’s tax incentives and grants framework

SINGAPORE, 26 December 2023 – Deloitte Singapore (“Deloitte”) has put forward its recommendations for the Singapore Budget 2024 (“Budget”), in anticipation of a landmark year for international tax reform marked by the implementation of the OECD’s BEPS 2.0 initiatives. Central to these recommendations is a consideration to reshape Singapore’s tax incentives and grants regime in light of the GloBE rules which impose an effective tax rate floor of 15% on the operations of large multinational enterprises wherever they operate. The introduction of new fiscal subsidies, such as refundable tax credits, should be considered to enable Singapore’s tax incentives to continue to foster an environment conducive to investment.

Emphasising the importance of innovation, Deloitte suggests a meticulous refinement of R&D incentive structures, which can solidify Singapore’s standing as a global innovation hub. Deloitte has also made suggestions to bolster existing business tax measures to maintain the country’s competitive edge in the global market.

Additionally, Deloitte is advocating for an enhanced focus on green financing within the Budget to address sustainability and climate issues. This strategy is geared towards promoting environmentally friendly business practices and accelerating investments in renewable energy.

“While we expect economic expansion in 2024, it is essential to formulate a Budget that is adaptable to the uncertain macro environment. This includes changes to international tax laws, the emergence of AI and new technologies, a stronger focus on sustainability and climate, geopolitical tensions, and the complexities associated with rising inflation. The recommendations we have proposed underscore the commitment to ensuring the welfare of Singapore’s households, workers, businesses, and the broader community amidst these evolving circumstances,” said Mr Daniel HO (何仁奇), Tax & Legal Leader (税务领导), Deloitte Singapore (德勤新加坡).

Strengthening tax measures (page 5)

Section 10L of the Income Tax Act 1947, effective from 2024, is aimed at aligning Singapore’s rules with international standards on the taxation of gains from the sale of foreign assets, particularly the guidelines laid out by the EU Code of Conduct Group. Diluting the position of not taxing capital gains is a significant change in Singapore’s corporate taxation regime.

This new law positions the satisfaction of economic substance requirements as one potential key factor for non-taxation of (foreign) asset disposal gains.

Mr LOH Eng Kiat (卢英杰), Tax Partner (税务合伙人), Deloitte Singapore (德勤新加坡), said, “Our recommendations aim to not only smoothen the teething issues expected with the start of a new law, but also to sharpen the tool of using economic substance requirements as a key lever to ensure tax-favorable outcomes.

“Deferring income tax collection when foreign assets are transferred between related Singapore entities pursuant to internal group restructuring situations can also help minimise fiscal strain. It may be noteworthy that a similar deferral approach is adopted by Hong Kong in a broadly equivalent context.

“We can also leverage the newly created law by allowing the fulfilment of economic substance requirements to become an additional pathway for certain foreign income streams to be exempt from taxation. Apart from widening taxpayers’ alternatives, this would also align with the general focus on anchoring real economic activities in Singapore.

“Recognising that Section 10L is legislated amidst an increasingly multilateral tax policy-making environment, these recommendations aim to ensure that Singapore’s fiscal policies remain robust, equitable, and in step with global economic and tax developments."

Evaluating and refining tax incentives and IP incentives in light of international tax developments (Page 9)

With the OECD's BEPS 2.0 initiatives taking effect, 2024 will be a landmark year in international tax reform. Singapore is proactively finalising its domestic legislation aligned with Pillar Two and plans to implement such legislation from 1 January 2025, while keeping a close watch on the international tax arena to ensure that our economic and tax policies remain competitive and conducive to investment.

As multinational entities face a potential Minimum Effective Tax Rate (METR) of 15% regardless of where they operate, Singapore must adapt and possibly shift from traditional tax incentives to alternative investment-promoting measures. This strategic pivot will ensure Singapore remains a compelling hub for foreign investment without compromising on the emerging international tax compliance and fairness standards.

“As Singapore progresses with the implementation of the GloBE rules and domestic top-up tax, providing clear guidelines and support for companies impacted by the rules will be crucial. This will reinforce Singapore’s commitment to global tax standards while maintaining its status as an attractive and stable business environment," said Ms LIEW Li Mei (刘丽梅), International Tax Leader (国际税主管), Deloitte Singapore (德勤新加坡).

Tax incentives and grants and their interactions with international tax developments (Page 9)

“As Singapore continues to future-proof its business environment and incentive regime to remain globally competitive, the upcoming Budget 2024 is particularly significant as we anticipate the announcement of new incentive tools such as Qualified Refundable Tax Credits (QRTCs). If designed and implemented well, QRTCs could offer substantial support to businesses, ensuring that while we uphold our commitments to a fair minimum tax rate, we also maintain a supportive, growth-oriented fiscal environment. We hope that Budget 2024 will provide clear guidelines on QRTCs, with flexibility incorporated to cater to a broad range of potential investors, accommodating their specific circumstances and business models. These proactive measures highlight our dedication to a balanced and resilient economic framework, allowing Singapore to confidently navigate the complexities of the global economic landscape while fostering sustainable development and inclusivity,” said Ms Yvaine GAN (颜心怡), Global Investment & Innovation Incentives Leader (全球投资与创新激励主管), Deloitte Singapore (德勤新加坡).

Mr LEE Tiong Heng (李忠兴), Global Investment & Innovation Incentives Leader (全球投资与创新激励主管), Deloitte Southeast Asia (德勤东南亚) said, "As we adapt to the evolving global tax landscape, our strategy emphasises fostering innovation and protecting intellectual property in Singapore. Amongst others, our recommendations relate to expanding grant programs and redefining the scope of R&D, ensuring that these initiatives not only comply with international standards but also robustly support creative and technological advancements. By enhancing policies to encourage a broader range of innovative activities and reinforcing the protection of intellectual property, we are committed to cultivating a dynamic environment where breakthrough ideas and their ownership are both valued and safeguarded. This dual focus on innovation and intellectual property is crucial for maintaining Singapore's standing as a leading hub for ingenuity and technological progress."

Cementing Singapore’s position at the forefront of global climate action (Page 13)

Mr WONG Meng Yew (王明耀), Tax & Legal Sustainability & Climate Leader (可持续发展与气候变化税主管), Deloitte Southeast Asia (德勤东南亚) said, “It is imperative for Singapore to intensify its commitment to sustainability and climate. We recommend allocating a significant portion of our budget to bolster our fight against climate change. A key focus should be the efficient administration of the increased carbon tax, now at S$25 per tonne, which is projected to cover 80% of our national emissions. This tax hike, expected to generate substantial revenue, should be strategically reinvested into supporting decarbonisation efforts and promoting a circular economy.

“Further, we advocate for directing funds towards enhancing our international trade agreements, particularly in the clean energy sector, to solidify Singapore’s role as a leader in ASEAN’s climate action. Additionally, the refinement of the International Carbon Credit framework and the development of ‘transition credits’ should be prioritised to align with our new tax regime.

“Given the global shifts, like the EU’s Carbon Border Adjustment Mechanism, we must also allocate resources for understanding and adapting to these international developments and ensuring they complement our national goals. Finally, increased investment towards upskilling our workforce for a sustainable future is crucial. This involves not only technical training but also enhancing communication skills to effectively transition towards sustainable business models. These recommendations will solidify Singapore’s position at the forefront of global climate action and sustainability.”

Driving Singapore’s ambition to be a leading financial services hub in Asia (Page 16)

The financial services industry in Singapore has continued to demonstrate robust agility and resilience, navigating an environment marked by heightened uncertainty and volatility. This steadfastness highlights the industry's capacity for flexibility and innovation, bolstered by the government’s forward-thinking approach, particularly as the country advances in the digital economy.

Mr Jun TAKAHARA, Financial Services Industry Tax Leader, (金融服务业税务主管), Deloitte Singapore and Southeast Asia (德勤新加坡及东南亚), noted: “The shifting global dynamic will lead to an enhanced focus on refining and guiding tax policies in the realms of fund management and banking. This refinement is vital in driving Singapore's ambition to establish itself as a preeminent financial center and a hub for asset management in Asia.”

Staying responsive and relevant to the needs of society (Page 17)

Ms Sabrina SIA (佘爱玲), Global Employer Services Tax Leader (全球雇主服务主管), Deloitte Singapore and Southeast Asia (德勤新加坡及东南亚) shared, “We have proposed measures to strategically refine and optimise our progressive personal tax system amidst persistent inflationary pressures to be more responsive and relevant to our society’s needs. We believe that it would be timely to introduce a tax relief for mortgage interest on owner-occupied homes. Such a tax relief would not only alleviate financial pressures associated with homeownership but also reinforce the government’s encouragement of home ownership.”

Enhancing Singapore’s appeal as a destination for exceptional talent (Page 19)

“The evolution of work has accelerated, with the ‘digital nomad’ model becoming a mainstay, signifying a new era where highly skilled professionals leverage technology to work from any locale. This paradigm shift intensifies the global race to attract, nurture, and retain exceptional talent. Our strategies are designed to further solidify Singapore’s appeal as a premier hub for international talent and their kin, while also providing innovative solutions to help local enterprises navigate and thrive amidst the global talent crunch. We propose relooking at qualifying salary requirements for Employment Passes and greater clarity on the COMPASS qualification points framework,” said Ms Christina KARL, Immigration Leader (出入境签证服务主管), Deloitte Singapore, Southeast Asia, and Global (德勤新加坡，东南亚及全球).

Conclusion

Deloitte’s recommendations for the Budget are designed to steer Singapore steadily through the tides of financial uncertainty, environmental change, and shifting global dynamics. They are crafted to encourage early action and harness potential opportunities. At the heart of our proposals is a commitment to economic resilience, social stability, and innovation. We place our confidence in the government's dedication to growth that reaches all and building a sense of unity and collective pride. Looking towards 2024, we stand ready to move forward together, guided by innovation and solidarity.

More details of our recommendations are available in Deloitte’s Singapore Budget 2024 Feedback report here.

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