Singapore Budget 2022 Feedback

The COVID-19 pandemic remains part of our daily lives in 2021 but there are many reasons to be optimistic. Vaccinations in many parts of the world are gathering pace, providing hope of a resumption of normalcy. Singapore has transited to “endemic living” with the virus and has adopted a measured approach in re-opening its economy. However, two years of COVID-19 have changed Singapore forever―the pandemic has caused a tectonic shift in the business landscape including the digitalisation of business, the rise of intangible assets, mobile workforce, reverse globalisation, and a renewed emphasis on climate and sustainability. All these developments have profound implications on Singapore’s future economic growth.

While the world grapples with COVID-19, the OECD pressed on with its BEPS 2.0 initiative. The framework, which aims to address the tax challenges posed by digitalisation, is divided into two pillars: Pillar One deals with the allocation of taxing rights between jurisdictions, while Pillar Two aims to implement a global minimum tax rate. It is anticipated that Pillar One may have a negative revenue impact on Singapore, being a hub economy with a comparatively smaller market, and the global minimum tax rate under Pillar Two may potentially limit the effectiveness of tax incentives as the icing to encourage foreign direct investments into Singapore. The eventual impact and Singapore's response could largely be dependent on how MNE groups and governments in other jurisdictions respond to these international developments. Whilst Singapore has largely followed international developments, particularly in the area of international taxation, it may be required to make innovative policy decisions in line with its national interests.

Against this backdrop, our proposals will address how Singapore can remain relevant for companies seeking to capitalise on new opportunities and achieve new levels of growth in the post-BEPS 2.0 environment. We attempt to address the following issues, some raised by our clients:

• Clarify existing tax rules and/or request for advance notification of impending changes to existing tax rules in Singapore. Clarification of existing tax rules may be necessitated by an evolving business landscape, such as companies' shift toward decentralised decision-making and hybrid work arrangements made possible by technological advancement.
• Propose tax changes to assist businesses and workers in Singapore to adapt and thrive in the endemic.
• Explore ideas to strengthen and leverage Singapore's innovation and IP ecosystem, resulting in a multiplier effect in the local economy.
• Discuss the relevance and effectiveness of Singapore’s tax incentive regime in the post-BEPS 2.0 world, including analysing whether the tax schemes or aspects of our general tax regime should be rationalised or phased out.
• Propose changes to existing policies for the fund management, insurance, and financial industries in Singapore, with a renewed emphasis on green finance and the Environmental, Social, and Governance (ESG) initiatives.
• Ensure that the resilience of the fiscal system and the progressivity of Singapore’s tax system, including considering the introduction of alternative revenue sources and the recalibration of tax reliefs for lower- and middle-income earners.

While the previous year's budget focused on issues concerning businesses' immediate survival, we anticipate that this year's budget will likely focus on a much broader range of issues that are likely to arise in the immediate, short, and long term as the economy begins to recover and businesses transition from responding to thriving in COVID-19.

Underpinning all of the above is the need to make tough decisions for Singapore to restructure, reorganise and reposition itself for new and better opportunities. Yes, the competition will be tougher, but we will take it in stride and transition to thriving in the endemic, together, as always.