Deloitte Singapore’s response to the “Charting our New Way Forward Together” Singapore Budget 2022

Singapore, 18 February 2022- Deloitte Singapore’s subject matter experts share their reactions and comments to the Singapore Budget 2022 announced today:

Overview of Singapore Budget 2022:

Mr CHEUNG Pui Yuen (鍾培源), Chief Executive Officer (首席执行官), Deloitte Singapore (德勤新加坡):

“As expected, this was a Budget that addressed the ongoing residual sectoral and social impacts of COVID-19, but still placed the focus firmly on the long-term vision of our nation: enhancing the drive towards the Green Plan, and continuing to encourage upskilling and digital transformation. However, there was also a clear message that the Singapore tax system will need to evolve in the years to come to maintain incoming revenues – with changes to the corporate tax and wealth taxes promised; and while the GST increase has been staggered, progressive Personal Tax rates and property taxes are scheduled to increase. The Finance Minister trod a fine line, balancing providing support to the livelihood of all Singaporeans with targeted taxation actions to fulfil the need to ‘manage the uncertainties’ and ‘think about tomorrow’.”

Mr LOW Hwee Chua (刘辉泉), Tax & Legal Leader (税务区域领导), Deloitte Singapore (德勤新加坡):

“The headline will be that we finally have a timing for the GST increase – but beyond that, from a tax perspective this was one of the most lively Budget speeches in several years. The Minister announced progressive taxation changes in personal income tax and property taxes, and a commitment to review the corporate tax framework and wealth taxes in the coming years to continue to evolve to keep pace with global developments. The message was clear – ‘every need must be paid by someone’ – but Singapore aims to have a fair and progressive tax system.”

"Goods and Services Tax, property tax, carbon tax and personal income tax were all addressed in Budget 2022. The next challenge facing the country would be to navigate a new world order where tax incentives may no longer be effective in attracting foreign investments, and for that you can be sure that Corporate Income Tax will be the central focus of Budget 2023.”

GST:

Mr Richard MACKENDER (马克德), Indirect Tax Leader (间接税领导), Deloitte Singapore (德勤新加坡):

“We had predicted that the GST increase would be in 2023, and businesses will need time to make these changes, especially since the last rate change was back in 2007, so a date of 1 January 2023 for the first increase will be welcomed. The nine months or so that Businesses now have will give valuable time to work through all the steps that are needed to get ready and be compliant.”

"The government has announced the GST rate change will take place in 2 stages. The first, to 8% will take place in January 2023. The second, 1 year later, will take the rate to 9%. Businesses will need to get ready to make the necessary changes, not once, but twice. In the broad sense, having to make two lots of system changes will add some costs to businesses because they will need to revisit their systems to adjust during the coming months and again in 2023, so the 2-step increase can be seen more from the perspective of easing the impact on consumers than helping businesses. In addition, the anti-profiteering committee will be there to ensure that unnecessary costs are not passed on, so it is likely that any further cost impact will necessarily be contained within the business environment.”

Carbon Tax/Sustainability:

Mr LOW Hwee Chua (刘辉泉), Tax & Legal Leader (税务区域领导), Deloitte Singapore (德勤新加坡):

"The sharp increase in carbon tax is a shrewd move by the government. Eventually the world will come around to a 'net zero' future as we only have one planet to live on, and by then Singapore should be ahead of the curve and taking advantage of opportunities in a green economy."

Ms Yvonne ZHANG (张一煌), Risk Advisory Climate & Sustainability Leader, Deloitte Southeast Asia (德勤东南亚):

“Singapore’s announcement on carbon tax is promising - the $80/mt upper limit of the 2030 target is comparable to the IMF recommended international 2030 price floor of $75 a ton for advanced economies. The Transition Framework to come into effect from 2024 to support adoption and integration of carbon tax impact on businesses should come with clear guidelines, along with making transparent allowance calculation and implementing an assignment process to avoid the pitfalls of previous iterations of Cap and Trade schemes in developed economies.”

“Finance Minister Lawrence Wong also shared that businesses will be able to use "high-quality, international carbon credits" to offset up to 5 per cent of taxable emissions, in lieu of paying the carbon tax as a way to "moderate the impact for companies.” We would welcome clarity from policies and standards to be announced after public consultation and technical studies on the types of eligible carbon credits. It is difficult to write the definitive rulebook on trial and error - we can lean on cross-regional and cross industry experiences to ensure that emissions reductions are permanent, traceable and additional, in line with the long-held standards for effective abatement from UNFCCC.”

“On the significance of the government establishing a green bond framework to issue up to S$35bn green bonds by 2030 - we observe that government bonds are already highly rated (thus have less room to benefit from any rate discounts from going “green”). The significance of this announcement is that the government green bond framework may take the lead to push for greater accountability in use of proceeds and having measurable impact of sustainability efforts in financing generally. This development is in-line with the leadership role that Singapore took in the establishment of the ASEAN Green taxonomy, which we anticipate will become the backbone of the transition towards net-zero by 2050 for this region.”

Mr WONG Meng Yew (王明耀), Tax & Legal Climate & Sustainability Leader, Deloitte Southeast Asia (德勤东南亚):

“While there were indications in the last Budget for this rate to be progressively raised from 2024, the government did reveal in recent months that it was reviewing this trajectory in line with Singapore’s efforts to go green(er) for the nation to meet the Green Plan 2030 timeline. With the announcement of a much steeper trajectory (i.e., a jump from the current rate of $5 to $25 from 2024), with a view to reaching $50-80 per tonne by 2030, this would result in a much higher cost of doing business, especially for larger emitters, although this would be in line with the government’s efforts and push towards encouraging businesses to use carbon credits to offset the taxable emissions. Notwithstanding the rise, by announcing the roadmap early, it also allows companies to plan ahead and make the necessary investments for their businesses to be more green and sustainable. Internationally, this move is also aligned with the World Bank’s recommendation that the cost of CO2 needed to meet the Paris Agreement is estimated at USD$50-100 per tonne by 2030.”

Wealth Tax:

Ms Shantini RAMACHANDRA, Deloitte Private Tax Leader (德勤私人税务主管), Deloitte Singapore (德勤东南亚):

“There is clearly a need to redress the wealth inequality which has been increasing in recent years, even during the pandemic. As such, the hikes in the property tax rates for investment properties and owner-occupied properties, with higher rates for higher value properties, are not unexpected. Property tax, where structured as a progressive tax, is certainly an equitable and targeted way to tax wealth. In addition, property tax cannot be avoided by taxpayers and is easy to administer by the tax authorities. More importantly, it does not impede Singapore’s competitiveness.”

Global Minimum Tax:

Mr LOW Hwee Chua (刘辉泉), Tax & Legal Leader (税务区域领导), Deloitte Singapore (德勤新加坡):

“With the introduction of 15% Global Minimum Tax starting 2023, many countries around the world are looking at some form of domestic minimum tax in order not to cede revenue to other countries. Hence, Singapore is right to consider introducing the Minimum Effective Tax Rate (METR). Looking into the future, gone are the days where Singapore can use our low tax rate or tax incentives as a competitive edge. We would need to work harder on our other non-tax strengths – stable political environment, strong rule of law, world class infrastructure, hard-working and skilled labor force, business friendly environment etc. Key is also to look at arresting rising cost of business and labor/talent shortage.”

Ms LIEW Li Mei (刘丽梅), International Tax Leader (国际税主管), Deloitte Singapore (德勤新加坡)

“Whilst there have been murmurs of whether Singapore will introduce a domestic top-up tax in response to Pillar Two, this now seems to be taking shape and will likely be the case. It would be helpful if the government could provide further details on this earlier rather than later to help businesses determine the potential financial impact and allow them to plan for it. Aside from the possible introduction of the minimum effective tax rate, potential areas of guidance for businesses includes expected changes to the tax regime for tax (e.g., cash-based forms of incentives) and non-tax incentives (e.g., payroll incentives, reducing regulatory compliance burdens) to encourage investments, as well as a roadmap for the transition period for Singapore businesses would be welcomed.”

Mr Daniel HO (何仁奇), Mergers & Acquisition Tax Leader, Deloitte Singapore (德勤新加坡)

“For the first time, Singapore's position on BEPS2.0 was revealed. As expected, a domestic top-up tax is planned for MNCs affected by the new rules. Affected companies will be wondering next how this will affect them practically, and will be looking for other forms of support for their local operations given that the additional tax burden was not planned when they expanded their operations in Singapore.”

Support for businesses:

Mr WONG Chee Ming (黄志明), Tax Partner (税务合伙人), Deloitte Singapore (德勤新加坡):

“It is a welcomed move for SME in the affected sectors to receive S$1,000 per local employee, up to a cap of $10,000 per firm, given the border restriction due to COVID-19. This will definitely reduce the cost for the small businesses and also place less reliance on foreign hiring.

Mr Larry LOW (刘俊彬), Tax Partner (税务合伙人), Deloitte Singapore (德勤新加坡)

“To strengthen SMEs digital capabilities and build a digital competitive workforce, the 70% funding support for qualifying costs of digital solutions would definitely encourage and benefit SMEs which are looking to digitise to remain competitive, as Singapore moves to being a smart city with world class infrastructure.”

Mr James WALTON, Transportation, Hospitality and Services Sector Leader, Deloitte Singapore (德勤新加坡):

“As we hoped, tourism and hospitality businesses continued to get COVID-19 support as the slow recovery continues. SMEs and sole proprietors – including our proud hawkers – will be eligible for grants and the Jobs Growth Incentive is being extended. However, these measures now are tailing off, and our retail, F&B, tourism and hospitality businesses can only hope that Singapore continues to open up, domestically and internationally, as Thursday’s ‘simplification’ of the rules promises a brighter future.”

Mr Rohan SOLAPURKAR, Tax Partner (税务合伙人), Deloitte Singapore (德勤新加坡):

“The greater support to local firms for R&D is a very welcomed move. It would encourage local companies to invest more in R&D.”

“Bespoke assistance, like the newly formed Singapore Global Enterprises that provides for local companies to expand overseas, will spur local companies to expand overseas and internationalise.”

Mr Richard MACKENDER (马克德), Indirect Tax Leader (间接税领导), Deloitte Singapore (德勤新加坡):

“It is heartening to see the government focusing on innovation in crucial areas to make Singapore a centre for innovation in the region.”

Individual tax rates:

Ms Sabrina SIA (佘爱玲), Global Employer Services Tax Leader (全球雇主服务领导), Deloitte Singapore (德勤新加坡)

“While it is surprising that the Minister has announced changes to the individual tax rates given that the implementation dates for GST rate increases have also been announced, the increase in individual tax rates only apply to high income earners with annual chargeable income of S$500,000 or more. This is intended to make our individual tax regime more progressive and is aligned with broad principles that those who earn more should contribute more towards enhancing our social safety net.”

Mr Daniel HO (何仁奇), Mergers & Acquisition Tax Leader, Deloitte Singapore (德勤新加坡)

“The increase in top marginal PIT rates may push more business owners to think of corporatisation, now that the gap between the corporate tax rate of 17% and the top marginal rate of 24% has increased. One potential issue will be how much salary such business owners should pay themselves under a corporate structure as the salary will remain taxable at the personal tax rate.”

Manpower:

Ms Christina KARL, Immigration Leader (出入境签证服务主管), Deloitte Global (德勤全球)

“The Budgets of previous years have focused on reductions in foreign manpower quotas for specific sectors, whilst changes to work pass criteria have been announced piece meal throughout the year. We are pleasantly surprised that significant changes to work pass criteria are part of this year’s Budget. Industries will welcome this alignment to assist with their workforce planning and greater transparency of the Work Pass framework. Today’s announcement makes clear Singapore is committed to staying open to attracting top talent from around the world, whilst this is balanced with companies continuing to build a strong Singaporean core workforce.”

Singapore’s Green Plan:

Mr Andrey BERDICHEVSKIY (白安哲), Deloitte Global Future of Mobility Solution Centre Leader:

“I support the importance given to the investments in decarbonisation as moving to net-zero emissions is ‘a cost we cannot skimp on as it is existential’. With Singapore being a model nation for many countries because of its developments in transportation, logistics and financial services, the innovation in emission reduction and the transition to more sustainable business practices will be a crucial catalyst for global climate action. Singapore has high potential and the best preconditions to implement the world's first system-of-systems approach to a low-carbon economy.”

“While we welcome the implementation of significant incentives provided for adoption of Electric Vehicles (EVs) annonunced in Budget 2021 as well as the commitment to build more charging points closer to where people live, further decarbonisation of public transportation as well as the light commercial vehicle and taxi / ridehailing fleet is required to shift to more sustainable mobility in Singapore. What Paris is for fashion, Singapore is for mobility! As the model nation for transportation, we need to showcase systemic innovation in mobility, cultivating consumer travel behaviour to reduce the frequency of trips, distances travelled and shifting to the most efficient transport modes. Further implementations towards open mobility data and a holistic mobility operating system in Singapore would help to cultivate such behaviour.”

Support for sports and the arts:

Mr James WALTON, Sports Business Group Leader, Deloitte Singapore (德勤新加坡); and Board Member of Netball Singapore and Singapore Repertory Theatre :

“While it was good to see the One Team Singapore Fund – which provides fund-matching for donations to support local athletes – extended and the Cultural Matching Fund for the arts receive a top-up, more must still be done to attract individuals and corporates to make those donations to sports and the arts in the first place. These sectors continue to suffer and while there is now light at the end of the tunnel at last, both sectors continue to need the support of all Singaporeans.”