Income Tax (Amendment) Bill

Order for Second Reading read.

5.18 pm

The Second Minister for Finance (Ms Indranee Rajah): Mr Speaker, I beg to move, "That the Bill be now read a Second time".

Mr Speaker, in addition to this Bill, the Income Tax (Amendment) Bill, I will also be moving later today the Multinational Enterprise (Minimum Tax) Bill, or the MMT Bill for short, and I seek your consent to have the two Bills debated together for the following reasons.

Both Bills are closely related because they levy taxes on businesses' income. The MMT Bill will also be construed as one with the Income Tax Act, if passed into law. It shares certain common provisions with the Income Tax Act, such as the powers of the Comptroller and service of summons. As such, I propose that both Bills be debated together, so that I may address issues from both Bills holistically, but we will still have a formal Second Reading of the MMT Bill to comply with the procedural requirements.

Mr Speaker: I give my consent.

Ms Indranee Rajah: Thank you, Mr Speaker.

The provisions of these two Bills are to implement the changes to our tax regime announced earlier this year in Budget 2024, as well as those arising from other policy reviews. They are intended to anchor and encourage high-quality investments in Singapore, to grow our economy and create good jobs for Singaporeans. They are also intended to ensure that our tax system remains relevant and fair to businesses and individuals and align Singapore's tax regime with international tax developments arising from the Base Erosion and Profit Shifting (BEPS) 2.0 initiative. Overall, the changes will sustain Singapore's economic competitiveness, provide better support to businesses and individuals, and ensure that Singapore keeps in step with international tax developments.

The Ministry of Finance (MOF) sought views from the public on the two draft Bills in June. We thank the respondents for their feedback and have taken onboard some of the suggestions.

Let me deal with the Income Tax (Amendment) Bill first.

I would like to elaborate on two key proposed changes. First, we will introduce the Refundable Investment Credit (RIC), which was announced by Prime Minister Lawrence Wong at Budget 2024 to enhance our tools for investment promotion.

The global economic landscape is becoming increasingly competitive, and Singapore needs to keep pace with the competition in order to continue attracting investments to grow our economy and create good jobs for our people. Other countries around the world are not standing still. Their governments are rolling out initiatives to attract investments, especially in strategic sectors such as semiconductors and advanced manufacturing.

For instance, the United States (US) CHIPS and Science Act sets aside US$53 billion, or about S$70 billion, to support semiconductor manufacturing, research and development (R&D) and workforce development in the US. In July last year, Germany announced plans to invest around 20 billion euros, or around S$29 billion, as part of the European Union (EU) Chips Act to bolster its semiconductor manufacturing sector. Japan also announced in November last year that it would allocate two trillion yen, or about S$18 billion to support its semiconductor industry.

Though we cannot match the financial resources of these large economies, we must continue to do our best to remain attractive to investments and encourage business growth in Singapore. The RIC will give us a useful tool to attract and support businesses that undertake substantive and high-value economic activities here. It will allow us to anchor and encourage high-quality investments, create good jobs for Singaporeans and support our green transition.

So, let me explain how the RIC will work. This is an expenditure-based grant delivered through the tax system. Companies awarded the RIC will receive tax credits to support their local expenditure in areas, such as capital investments, R&D, manpower, and freight and logistics, when they make new investments in high-value and substantive economic activities. These include the development or expansion of manufacturing facilities, setting up of headquarters and services, pursuit of R&D and innovation activities, commodity trading and decarbonisation. These activities and expenditure categories are aligned with the four pillars of our Singapore Economy 2030 vision – trade, enterprise, manufacturing and services – as well as to support our green transition.

The tax credits will be offset against corporate income tax payable in the first instance. If the RIC quantum exceeds the amount of taxes paid by the company, the unutilised credits will be refunded to the company within four years from the time the company makes the claim application in respect of the qualifying expenditures incurred. This feature is particularly useful for companies in an early stage of growth, where they have yet to turn a profit.

The RIC support will be commensurate with the size and quality of businesses' economic contributions to Singapore. This will be based on our economic agencies' assessment of how much the projects will bring in, in terms of new fixed asset investment, productive capacity and skilled jobs created for locals, as well as whether the investment involves state-of-the-art technological development, strengthens our competitiveness, builds resilience in our economy and creates broader economic spillovers.

Another key amendment in the Bill is on the Renovation and Refurbishment, or R&R scheme for short. This was also announced at Budget 2024.

Under our normal tax rules, R&R expenses are not tax-deductible because they are capital in nature. The R&R scheme specifically allows a deduction for such expenses, up to a cap of S$300,000 every three years. This is to support small and medium enterprises (SMEs) in customer-facing sectors, like food and beverage (F&B) and retail, which typically need to incur such expenses to enhance their customer service and experience.

We are enhancing the R&R scheme in three ways.

First, from Year of Assessment (YA) 2025, the scope of qualifying expenditure will be expanded to include designer and professional fees, as it is now common for such fees to be incurred for renovation works. Next, we will standardise the three-year period for determining the expenditure cap for all businesses, instead of having it commence when each business makes its first claim. The Bill will fix the relevant three-year period, with the first three-year period being from YA2025 to YA2027. This will simplify the process and reduce compliance costs for companies. The third enhancement provides all businesses with a permanent option to claim R&R deductions in one YA, instead of over three YAs. This will give businesses more flexibility to manage their cashflow needs.

Clauses 13 and 30 of the Income Tax (Amendment) Bill provide for these amendments.

Sir, let me now move on to the second Bill, the MMT Bill. This Bill implements two new top-up taxes, arising from the BEPS 2.0 initiative. These were also announced at this year's Budget. The two taxes are: first, the domestic top-up tax (DTT); and second, the multinational enterprise top-up tax (MTT). The MTT applies the Income Inclusion Rule, which is part of the BEPS Pillar Two Global Anti-Base Erosion, or GLoBE rules for short.

DTT and MTT will apply to large multinational enterprise (MNE) groups – those with annual group revenue of €750 million or more in at least two of the four preceding financial years. DTT and MTT will apply from businesses' financial years commencing on or after 1 January 2025.

DTT will apply to the Singapore entities of a large MNE group and will be payable if the group's effective tax rate in Singapore is below 15%. MTT will apply to large MNE groups that are parented in Singapore. If the effective tax rate of the MNE group's entities in any foreign jurisdiction is below 15%, MTT will be imposed to top up the effective tax rate to 15%.

The implementation of the DTT and MTT ensures that Singapore is aligned with the international implementation of BEPS 2.0. The EU, the United Kingdom (UK), Switzerland, Japan, Korea, Malaysia and Hong Kong, among other jurisdictions, have either implemented similar rules or intend to do so in 2025. If we do not impose the DTT and MTT, affected MNE groups would have to pay these taxes to other jurisdictions that have imposed the GLoBE rules. Hence, it is in Singapore's interest to impose the DTT and MTT, so that we can collect the tax, rather than cede it to other jurisdictions.

In the new environment where companies are subjected to a minimum level of tax wherever they operate, ecosystem factors will become increasingly important for companies' business decisions. We plan to reinvest the additional revenues from DTT and MTT to enhance our overall business environment in areas, such as upskilling our workforce, growing a vibrant innovation ecosystem, and providing quality infrastructure and connectivity.

Finally, the MMT Bill will also provide the Comptroller of Income Tax with the powers to administer, collect and enforce the DTT and MTT. Offences in the Bill include the failure to keep proper records, tax evasion and the obstruction of the Comptroller. These powers and offences mirror those that already exist under the Income Tax Act and ensure that the Inland Revenue Authority of Singapore (IRAS) has the necessary powers to enforce compliance with the DTT and MTT.

In conclusion, the provisions in both Bills will sustain Singapore’s economic competitiveness, provide better support to businesses and individuals, and ensure that Singapore keeps in step with international tax developments. Mr Speaker, I beg to move.

Question proposed.

Mr Speaker: Mr Yip Hon Weng.

5.30 pm

Mr Yip Hon Weng (Yio Chu Kang): Mr Speaker, Sir, I will touch on the MMT Bill. This is an important piece of legislation with wide-ranging implications for Singapore's economy. As someone who works in a global investment firm, I am deeply interested in how this Bill will impact both our local and international business environments. While I fully support the principle of global tax fairness as stated in the Bill, I have clarifications about the potential impact on our local businesses and Singapore’s competitive edge in the global market.

Mr Speaker, Sir, my first concern is the economic impact on local businesses, particularly SMEs. Although the Bill primarily targets MNEs, the effects could trickle down. If MNEs choose to relocate or scale back operations in Singapore, it could hurt SMEs that rely on these larger corporations for business.

Section 14 outlines the top-up tax chargeable on MNEs, but it is critical to consider the ripple effects that this might have on SMEs. These smaller businesses may lose significant revenue if MNEs move to more tax-friendly jurisdictions.

Are our local SMEs prepared to adapt if MNEs downsize or leave? What strategies are in place to help SMEs diversify their business models? Do we have initiatives to enhance their competitiveness so that they can remain resilient in this shifting landscape?

Mr Speaker, Sir, if MNEs do shift their operations due to this new tax regime, we must equip our SMEs to respond effectively. Government-SME partnerships and incentives for innovation within local industries will be key to help these businesses thrive. I would also urge that we build in support measures for SMEs to mitigate any negative effects from potential MNE relocations.

Mr Speaker, Sir, my second concern relates to the increased compliance burden on local subsidiaries of MNEs, particularly smaller subsidiaries. Sections 31 to 36 deal with registration and record-keeping requirements. These could be challenging for smaller entities with fewer resources.

Has the Government assessed the compliance costs for these smaller subsidiaries? Should we consider exemptions or reduced obligations for those that may struggle with these requirements? Additionally, section 36, which imposes surcharges for failure to register, could disproportionately affect these smaller entities.

Mr Speaker, Sir, we must find a balance between global tax fairness and the practical realities faced by smaller businesses. If not handled carefully, these compliance demands could lead to layoffs or reductions in employee benefits. It is important that we consider exemptions or reduced compliance burdens for smaller subsidiaries, to avoid placing unnecessary strain on local businesses and their employees.

Third, Mr Speaker, Sir, while the MTT is intended to generate additional revenue, there appears to be a lack of clarity on how this revenue will directly benefit Singaporeans. Section 58 touches on the recovery of unpaid MTT. However, it does not specify how these funds will be allocated for the public good.

What is the estimated additional revenue from enforcing this Bill in Singapore? How will these funds be directed to improve public infrastructure, healthcare and workforce development? I suggest the creation of a dedicated fund to ensure that MTT revenues are reinvested into areas that directly benefit Singaporeans. This would not only boost public confidence in the Bill, but also ensure transparency and accountability in how the revenue is spent.

Additionally, could the increased tax revenue be used to support initiatives, such as the RIC or the Research, Innovation and Enterprise (RIE) 2025 plan? These measures will help Singapore remain a competitive and attractive destination for investments while also benefiting our local workforce.

Mr Speaker, Sir, my fourth concern centres on Singapore’s global competitiveness. Section 17, which defines the effective tax rate for MNEs, could make Singapore less attractive to foreign investors. If MNEs find more tax-friendly environments elsewhere, we could see companies relocating their operations.

Presently, there have been MNEs moving their headquarters or downsizing their operations in Singapore. This could be due to a variety of factors, including costs of business. This tax regime could further diminish the allure of having a presence in Singapore.

What measures are in place to prevent this? How will the Bill ensure that Singapore remains an attractive hub for MNEs, even while adhering to global tax regulations? I suggest introducing additional tax incentives for MNEs to reinvest their savings into local workforce development, which will benefit both businesses and our workers. This would position Singapore as not only a tax-efficient jurisdiction, but also an innovation-driven economy.

Furthermore, we must not overlook Pillar One of BEPS 2.0, which reallocates taxing rights to the markets where consumers are based. This could have significant implications for Singapore. I would like to understand the Government’s plans to address these challenges and ensure that Singapore's economy remains resilient in the face of such global changes.

In conclusion, Mr Speaker, Sir, while this Bill aligns Singapore with global tax standards, we must ensure they do not place undue burdens on local businesses. I have proposed several measures in my speech. First, provide targeted relief and resources to help SMEs adapt if MNEs downsize or relocate. Second, consider exemptions or reduced compliance requirements for smaller subsidiaries to avoid excessive strain on local businesses. Third, introduce incentives for supporting initiatives, such as the RIC, and address the implications of Pillar One of BEPS 2.0 to maintain Singapore’s competitiveness.

Most importantly, we must guarantee that the benefits of this new tax regime are tangible within our own communities. Corporations that have thrived in Singapore on our good governance, infrastructure and talent pool should contribute to the public good. We must use the additional tax revenue to strengthen our public infrastructure, enhance healthcare services and upskill our workforce, ensuring that Singaporeans see and feel the direct benefits.

Mr Speaker, Sir, this is a moment for us to reaffirm Singapore’s commitment to fairness and sustainability. We must ensure that our policies support economic resilience and social equity while keeping Singapore an attractive hub for global businesses. I urge the Government to engage closely with MNEs, SMEs and the public to implement this Bill, ensuring it leads to sustainable growth, innovation and shared prosperity for all Singaporeans.

This is our opportunity to ensure that Singapore continues to lead on the global stage while protecting the interests of our people. Let us take decisive action to make sure that this Bill not only promotes global tax fairness, but also builds a more resilient and equitable future for Singapore. Mr Speaker, Sir. I support the Bill.

Mr Speaker: Assoc Prof Jamus Lim.

5.38pm

Assoc Prof Jamus Jerome Lim (Sengkang): Mr Speaker, the MMT Bill will put into legislative force the terms associated with the second pillar of the Organisation for Economic Cooperation and Development's (OECD's) BEPS Treaty. Given that Singapore has been a signatory of the original convention since mid-2017 and, four years thence, having signed on to the second phase, this is essentially a ratification of our pre-existing international commitments.

Moreover, the stipulations give effect to a corporate minimum tax that, absent action on our part, as Minister Indranee has shared, would simply afford other jurisdictions the opportunity to apply a top-up tax, if our effective rates were to fall below the minimum threshold of 15%. This will allow others to capture tax revenue that we otherwise could. Given our well-telegraphed future expenditure needs, this would be foolhardy.

For these reasons, the Workers’ Party supports the Bill. Even so, some may caution that subscribing to a corporate minimum tax will erode some of the cornerstones of Singapore’s global competitiveness: our attractiveness to foreign capital. In my speech, I will explain why such fears are probably misplaced and what we can do to avoid it.

Sir, there is a standard refrain for those who believe that BEPS 2.0 will herald an unrecoverable erosion of our nation’s competitive advantage. Absent low taxes, they say, we will be unable to attract the necessary investments from abroad which, in turn, will leave us adrift.

If there were any truth to such a claim, it would perhaps have been applicable half a century ago. It is no secret that, in Singapore, in our formative years as a nation, we did, indeed, rely heavily on attracting foreign direct investments via multinationals. This, in turn, hinged on factors, such as attractive corporate incentives, including tax holidays for multinationals, which kept the effective company tax rate as low as 10%.

Still, even a casual examination of statutory corporate tax rates would reveal that statutory rates were as high as 40% until the late 1980s. It was only later that they were progressively reduced to 32% through the early 1990s, then 26%, then to the 17% that prevails today. Whether this was a belated effort to chase the tail of low costs to sustain our competitive edge, or if it was driven by pressure from foreign businesses to keep rates attractive, I do not know.

What I do know is my belief that we should already have evolved away from such unvarnished tax competition. The determinants of foreign direct investments are, after all, rich and varied. But there is only some mild indication that the corporate tax rate, whether statutory or effective, matters. Indeed, one study that summarised the extant evidence suggests that factors like market size, trade openness and infrastructure quality are between four and seven times more important. Another concluded that: “the effect that tax policy had on foreign direct investment (FDI) was small compared to other factors” and that “tax policy cannot compensate for a negative investment climate”.

One important reason for this relatively muted effect of taxes on FDI is that sufficiently large MNCs will, ultimately, confront foreign taxes on their earnings when their profits are repatriated back to their home country anyway. This could even lead, paradoxically, to a situation where, depending on the tax regime of the home country, raising taxes may even stimulate more investment. Of course, tax treaties designed to mitigate the effects of double taxation may blunt this effect somewhat. However, such treaties have often been found to have little effect on actual FDI flows.

Such conditions are precisely what are being addressed by BEPS 2.0. The new regime targets large MNCs, many of which are already domiciled in higher-tax regimes. While these home countries can now officially apply a top-up tax, many firms would have faced such higher taxes anyway when profits were eventually booked at home for redistribution to shareholders. Furthermore, even compared to our ASEAN neighbors, a corporate tax rate at the 15% minimum remains below the regional average of a little more than 20%. Hence, my sense is that while BEPS 2.0 may hurt at the margin, it is far from being game-changing.

The bottom line, Sir, is simple. As a high-income economy, Singapore’s attractiveness as an investment destination is not, and should not, be fundamentally reliant on low corporate taxes, but on all the other things that set us apart. Lest one takes this as an idiosyncratic opinion, I should stress that this is not just my own conclusion.

According to the World Competitiveness Report, Singapore owes its competitiveness landscape more to our efficient labour market, openness to international trade and investment, and educational and technological infrastructure, all of which we rank in the top three globally, other than our tax policy, where we place 10th. Similarly, our score on the Global Competitiveness Report is due more to our country's transport and utility infrastructure, sophisticated and stable financial system and quality of institutions, as opposed to low taxes.

The reality is that our competitiveness is not anchored in low taxes and it is also reflected in real world investment advisory. PwC, the corporate advisory lists – in a 2022 report – 10 factors that make Singapore the best in class in the region and none of these 10 are about taxes, per se. To the extent that taxes were featured at all, it was in the context of double taxation agreements, which I agree should continue to be a priority for IRAS.

Mr Speaker, in addition to not bluntly competing for foreign capital inflows along the corporate tax margin, we should also be mindful that, given our status as a high-income country, we should not be blindly courting capital either. This is not to say that foreign investment is not important. Rather, it is that we should pursue FDI more for its secondary benefits, rather than for the financing itself.

Singapore is already a capital-rich economy. Where we have fallen short, rather, has been in bringing our levels of productivity and innovative capacity to the global frontier. What should, instead, become ever-more important is a focus on elevating the efficiency of our capital deployment and an upgrading of our technological capabilities. If that comes along with FDI, wonderful. But FDI should not be the goal.

The Government has, for its part, made it clear that it plans to reinvest any excess revenue garnered from participation in BEPS 2.0 back into the economy to ensure competitiveness. I could not agree more.

If we are not to expend our efforts in courting global capital, then, what should we do instead? We should reinvest as much as possible in the human capital of our people, of course, as this will bring not only more bang for the buck, it also comes with improved productivity and innovation. Notwithstanding how money is ultimately fungible, this implies that we should, nevertheless, seriously consider earmarking the funds for R&D, education, or, as my Sengkang colleague will suggest later in his speech, healthcare.

In prior interventions in this House, I had repeatedly emphasised the importance of placing the investment in human capital on at least the same footing as that of physical capital. I had suggested, for example, that funds targeted toward infrastructure development can and should be broadened to accommodate expenditure on training and education or warned that those deigned for productivity improvements do not somehow get diverted toward yet more physical capital accumulation. Even in the most recent context of Prime Minister Wong's Budget Statement this year, I cautioned against the Refundable Investment Credits scheme morphing into some kind of loophole for simply increasing production, rather than R&D or green transition efforts.

I will reiterate the appeal here: that as we reinvest the proceeds from the top-up taxes accruing from BEPS 2.0, we once again consciously channel these toward bolstering our intangible capital, the education and skills of our workers, to generate knowledge and ideas that would keep us at the forefront of the global competitiveness frontier.

At risk of oversimplification, Mr Speaker, let me offer an analogy to the points I am making. We can think of tax rates as parking fees one pays to access a mall. Sure, all else equal, one would probably choose a mall that charges less for parking or offers free parking for the first hour or two. But ultimately, we choose the mall we do because of the range of shops, the price of the goods that are sold there, the quality and service of its restaurants and how pleasant the overall shopping experience is. Such thrusts should be the focus of our investment regime, going forward.

In future, we are likely to see more, not less, of such multilateral economic agreements, led by the major economies. As frustrating as the lack of progress in carbon pricing worldwide has been, especially for those of us that are advocates of the approach, the go-it-first strategy of the EU in implementing its Carbon Border Adjustment Mechanism (CBAM), it is heartening to see how unilateral approaches have nevertheless sparked complementary legislation in other jurisdictions. Similar progress has been made, within the G20, on the rollout of a global wealth tax.

The reality is, international agreements that used to sting as a result of difficulties associated with free-riding, are now finding renewed life, via unilateral mechanisms by major players that better align the incentives of those that would previously have rankled at the prospect of such coordination. It behooves us to play to our nation's inherent advantages, as they exist today and not as they used to be, as we navigate this changing global geoeconomic and political landscape. For this reason, we should, nay, we must, not only embrace the spirit of BEPS 2.0 for our economy, but proactively channel our energies to refreshing our growth model toward the genuine drivers in the 21st century: our people and the knowledge embedded in them.

Mr Speaker: Ms Usha Chandradas.

5.50 pm

Ms Usha Chandradas (Nominated Member): Mr Speaker, I will be speaking on the Multinational Enterprise (Minimum Tax) Bill, or the MMT Bill. I support the Bill but I have some clarifications to seek from the Minister.

The rules under the MMT Bill implement Pillar Two of the OECD/G20 BEPS framework. These changes represent an important step in our ongoing efforts to align with international tax standards. They introduce a global minimum corporate tax rate of 15% for large MNEs. This move reflects our commitment to ensuring fair taxation while continuing to position Singapore as an attractive destination for business and investment. We are making these adjustments thoughtfully. I thank the Government for its long consultation period with tax professionals before putting these legislative changes forward.

My first clarification has to do with how these new rules fit in with our existing tax treaty network. According to IRAS, Singapore has signed a number of Avoidance of Double Taxation Agreements (DTAs) and these include limited DTAs and Exchange of Information Arrangements. At the moment, we have concluded treaties with around 100 jurisdictions. These treaties have set a firm foundation for us to do business with countries all over the world and they provide certainty on cross-border tax positions.

The new Pillar Two rules deviate from the traditional source and residence-based rules of taxation which our existing tax treaty network is built on and they introduce an additional layer of taxation on profits that may have already been allocated and taxed under treaties.

My first question for the Minister this. Will more detailed guidance be issued on how Pillar Two rules will affect the application of Singapore's current network of DTAs, if at all?

Secondly, to summarise very broadly, the success of the new Pillar Two framework depends on their collective adoption by a "critical mass" of countries. Presently, the United States (US) and China which are the two major economies in the world, as well as key trading partners of Singapore, these two countries have not yet adopted these rules. Does MOF have clarity on how Singapore might be affected if we enact the MMT Bill, but the US and China do not go ahead to implement Pillar Two?

Thirdly, I note that Pillar Two rules are generally enacted through domestic legislation in each participating country. Despite the OECD's Model Rules serving as a foundation, variations will inevitably arise between jurisdictions, in how the rules are written, interpreted and enforced. These differences could lead to prolonged disputes due to unintended consequences or inconsistent application of the Pillar Two rules across different jurisdictions.

MOF has replied in its response to the public consultation on this Bill that the dispute resolution process for Pillar Two matters is presently under discussion by the Inclusive Framework for the global implementation of the BEPS Project. Would the Minister be able to provide a timeframe as to when we can expect to see guidance being issued on these processes?

Prime Minister Lawrence Wong commented in this year's Budget Statement that the implementation of BEPS Pillar Two initiatives will provide additional revenues to the Government in the short term. However, he noted that it was "uncertain" as to how much this additional revenue would amount to, or for how long it would last. He stated that Singapore may even see a reduction in its tax base, should MNEs choose to shift some of their activities to other jurisdictions. Around 1,800 MNEs in Singapore with global revenues above €750 million have an effective tax rate below 15% and thee are the entities that will be affected by the new rules.

While the financial impact of the Pillar Two rules will only play out in FY2027, has the Government, at this stage, identified any specific industries or sectors within the country that are likely to be negatively impacted by the global minimum tax? If so, has the Government considered how to mitigate any employment or other losses that might result from MNEs leaving Singapore? Have any MNEs already indicated that they will relocate as a result of the MMT Bill and if so, what steps has the Government taken or will it be taking to manage any detrimental effects of these relocations?

Although Pillar Two targets large MNEs, its influence will also extend to other areas of Singapore's business landscape. Smaller firms connected to these MNEs, such as suppliers and service providers, could feel the indirect impact. This is a point that the hon Member Mr Yip Hon Weng has brought up as well. For example, if a major company adjusts its operations to better align with new tax requirements, for example, if it shifts its production to a different country or it alters its procurement strategies, this could significantly disrupt its current relationships with local businesses. Its local suppliers may face reduced demand for their products and service partners could see decreased revenue as well. And so my next question is this. What is the Government's outlook on these broader effects and are there any specific challenges that the Government can see at this point in time, which are coming for non-MNEs, with the introduction of the new Pillar Two rules?

To say that the new Pillar Two rules are Byzantine would really be a severe understatement. They import OECD principles and guidelines into our domestic legislation and these are extremely complicated rules. We are not alone in facing this challenge. Many other countries that have implemented Pillar Two rules also faced similar problems with implementation. In many ways, Pillar Two represents a fundamental shift in the way that we view international tax rules.

My next clarifications pertain to how ready businesses are to implement these rules. Compliance with Pillar Two rules will impose additional reporting requirements and prohibitive costs on MNEs. They will need to navigate much more complex tax regulations. As set out in clause 46 of the Bill, surcharges are imposed where MNE groups fail to register and Part 8 of the Bill lists a string of offences and penalties that entities could be exposed to under the new law. To this end, I would like to ask if the Government has any plans to assist to MNEs to meet their new enhanced compliance obligations.

Of course, where there are new and complicated rules to apply, there will also be plenty of opportunities. Trained tax professionals should be able to rise to the challenge of the expanded demand for well-qualified service providers. On this point, will the Government be committing any resources towards the training or re-training of local tax professionals so that they may be well-equipped to serve the demands of this changing tax environment.

Here, I declare my interest as a part-time lecturer in international tax and trade at the Nanyang Technological University. In my personal role as an educator, I see many young people with a keen interest in international tax developments. My own class enrolment has quadrupled over the space of around five years. As we move into a world defined by the developing rules of the BEPs project, would the Government consider devoting more resources to the development of international tax education in Singapore at the tertiary level and beyond?

Finally, many commentators have noted that with the arrival of Pillar Two, competition for foreign investment will no longer be tied to low rates of corporate taxation. Rather, in order to encourage and retain foreign investment, countries will need to present other attractive factors, such as a skilled workforce, political stability, excellent infrastructure, a strong legal system and perhaps, more importantly, a high quality of life. To the specific point of being able to offer our residents a good quality of life, let us not forget that a thriving arts and cultural scene is one of the linchpins of a vibrant and dynamic society. According to National Arts Council's 2023 Population Survey on the Arts, 75% of respondents agreed that arts and culture had the effect of improving one's quality of life.

As noted by a 2021 report from United Nations Educational, Scientific and Cultural Organization and the World Bank, culture and creativity contribute to a so-called "amenity effect" and this is where people and businesses prefer to dwell in places that "foster social interaction and knowledge spillovers". The report also refers to the work of urban economist Richard Florida, who has developed a gauge referred to as the "Bohemian Index". With it, he measures the numbers of certain types of creatives, such as writers, actors and musicians, who are located in different regions and cities. His studies have shown that a high number of creative occupations can be a strong predictor of a region's high-tech industry concentration, density and employment growth. In its assurance to potential foreign investors and expatriates that Singapore offers an excellent quality of life for its citizens and residents, the Economic Development Board (EDB) itself refers to the country's "lively creative arts scene."

As we move forward in a BEPS 2.0 tax environment for foreign investment, I hope the Government continues to prioritise the funding and development of our arts and cultural groups. This is a sector that is not only tied specifically to our creative economy, but to the general well-being of society and the attractiveness of Singapore as a whole. A thriving arts and cultural scene is the lifeblood of a vibrant city. It draws talent, inspires creativity and will make us a magnet for global talent and businesses. Notwithstanding my clarifications, I support the Bill.

Mr Speaker: Ms Hazel Poa.

6.00 pm

Ms Hazel Poa (Non-Constituency Member): Mr Speaker, Sir, the MMT Bill seeks to give effect to Pillar Two of BEPS 2.0. One of the key provisions of the Bill is the introduction of a minimum effective tax rate of 15% for large MNEs that have a consolidated group revenue of at least €750 million annually in at least two of the four preceding financial years.

This will mark a major shift in Singapore's taxation policy, which the Progressive Singapore Party (PSP) supports. PSP believes that more profitable companies should pay more taxes. I first articulated this policy position during my Budget speech in 2023. During that speech, I also spoke about the highly inequitable nature of our corporate tax system, where companies with the highest profits pay the lowest percentage of their profits as tax. For example, I pointed out that companies earning profits before tax of between $200,000 and $10 million paid on average 8% to 9% of their profits as taxes, whereas companies with profits beyond $1 billion pay less than 1% of their profits as taxes.

We hope that the introduction of a minimum effective tax rate for MNEs under this Bill will make for a more equitable corporate taxation system where large MNEs pay their fair share of taxes relative to their profits.

We have debated the impact of this Bill on tax revenue before in this House and it is likely to be substantial, especially considering recent data showing strong corporate earnings following the post-COVID-19 economic recovery. IRAS announced last month that corporate tax revenues increased by $5.9 billion in FY2023, reaching $29 billion or 36% of total tax revenues. The OECD's 2024 Corporate Tax Statistics report showed that large MNEs accounted for 73% of total corporate income tax revenue in 2021. The percentage is likely similar today. If investments and business activities in Singapore remain the same, then we are likely to soon see a very substantial increase in corporate tax revenues.

During the Budget debate in 2022, the Finance Minister cautioned that "BEPS 2.0 represents a fundamental change in the competitive environment for Singapore" and we would likely "need to find other ways to stay competitive, from investing even more in our workers to building new infrastructure and incentivising R&D", and any additional tax revenue from Pillars One and Two would need to be reinvested to ensure Singapore remains competitive. In 2023, he again said that "we cannot afford to price ourselves out of the competition, or else Singapore and Singaporeans will end up the biggest losers".

Singapore does have inherent disadvantages, such as limited land, a small population and a high-cost structure. But we also have strong advantages compared to other countries in the region, such as a highly educated workforce, a well-developed and globally-connected financial system, excellent international connectivity for the movement of people and cargo, respect for rule of law and strong property rights. These advantages will not go away, even after the provisions of the Bill come into effect. It is highly unlikely that all the MNEs in Singapore will pack up and leave overnight just because there will be a minimum effective tax rate after this Bill is passed. What this Bill does represent is a once-in-a-generation opportunity to reshape our tax and incentive structure for companies and our policy towards attracting foreign investments.

For many decades, we have used various tax incentives and schemes to lower effective corporate tax rates and attract foreign investments, especially from MNEs. But such a strategy could never have lasted forever. Other countries could and did replicate Singapore's tax incentives, in whole or in part, creating a destructive race to the bottom where governments across the world slashed corporate tax rates to attract businesses. This trend has only stabilised in recent years with BEPS 2.0.

This imposition of a global minimum corporate tax regime is a step in the right direction that has hastened the inevitable for our nation, which is, the need to make ourselves competitive and attractive to foreign investments in ways other than providing them with economic incentives and low taxes.

As I mentioned earlier, we still have strong advantages as a nation. But the additional economic resources that this Bill provides will allow us to do more. With the additional tax revenue from this Bill, we can help to create a more level playing field between domestic companies and MNEs. The OECD's Corporate Tax Statistics report found that we are the fourth-most dependent economy on large MNEs for corporate tax revenue. Many of the MNEs in Singapore are foreign-owned, and this dependency has increased in recent years.

Instead of pouring all the additional tax revenue back into more economic support for MNEs, we can invest part of the additional revenue in our SMEs, which employed 71% of our workforce as of 2023, and help them leverage on AI and other new technologies, so that they can become more productive and internationally competitive, and hopefully grow into local MNEs of our own. And finally, we can take steps to address our high cost structure. In particular, PSP feels that the rising rent and cost of property is an area that requires urgent attention. Mr Speaker, Mandarin, please.

(In Mandarin): [Please refer to Vernacular Speech.] Mr Speaker, Sir, the Multinational Enterprise (Minimum Tax) Bill we are debating today marks a significant change in Singapore's tax policy. PSP supports this Bill. We believe that more profitable companies should pay more taxes. As I have pointed out in my 2023 Budget speech, our current corporate tax system is highly inequitable, with the most profitable companies paying the lowest percentage of their profits in income tax. Companies with pre-tax profits between $200,000 and $10 million pay an average of 8% to 9% of their profits as taxes, while companies with profits exceeding $1 billion pay less than 1%.

The minimum effective tax rate introduced by this Bill will top up the effective tax rate of the high-profit multinational enterprises in Singapore to 15%. For a long time, our country has relied on low tax rates and tax incentives to attract foreign investments. After this Bill is passed, we will no longer be able to rely on these measures to attract foreign investment.

This Bill provides our country with a rare opportunity to transform our corporate tax and incentive structure as well as our policies for attracting foreign investment. Our corporate tax revenue currently heavily depends on foreign multinational enterprises. PSP believes that we should invest the additional tax revenue brought by this Bill into our SMEs, helping them utilise artificial intelligence and other new technologies to improve productivity and international competitiveness, potentially helping them to become multinational companies.

We must also create a fairer competition environment between local companies and multinational corporations. The additional tax revenue can also provide resources for the Government to take measures to help businesses reduce operating costs, help Singaporeans reduce living costs, and continue to attract foreign investment at a lower cost. In particular, the rise in property prices and rents needs urgent attention.

PSP sincerely hopes that our fourth-generation leaders will use this opportunity to reshape our economic structure, renew our social contract and create a better living environment for Singaporeans.

(In English): This Bill presents us with an opportunity to reshape our economic structure and refresh our social compact, instead of using it towards the same economic playbook that has been used for decades. PSP hopes that the 4G leadership will make full use of this opportunity. PSP supports the Bill.

Mr Speaker: Mr Louis Chua.

6.11 pm

Mr Chua Kheng Wee Louis (Sengkang): Mr Speaker, the time has come for us to debate this long awaited but keenly anticipated Bill, for us to implement the GLoBE Model Rules or Pillar Two of the OECD/G20 Inclusive Framework on BEPS. It is a topic which I feel strongly about and have spoken on many occasions, including the last four Budget debates from 2021 to 2024.

As Singapore is one of the 147 countries who are members of the OECD/G20 Inclusive Framework, it is important that at the heart of it all, we adhere to the principles of BEPS and why a global tax consensus on this matter is so important. The rules are designed to ensure that large MNEs pay a minimum level of tax on their income in each jurisdiction where they operate, thereby reducing the incentive for profit shifting and placing a floor under tax competition and bringing an end to the race to the bottom on corporate tax rates. This can only be beneficial to all countries, including Singapore.

In Singapore, corporate income tax is by far the single largest contributor to the Government's budget, more so than the Net Investment Returns Contribution, personal income taxes or even the Goods and Services Tax (GST). Any changes to our corporate income tax policies are going to have the most significant impact to our country's operating revenues, and by extension, our long-term fiscal position and fiscal strategies; that is, if we allow it to be as such, as I will be elaborating further in my speech.

Beyond the technicalities of the tax legislation to be implemented, my first question is on MOF's assessment of the scope and impact of this new legislation.

Broadly speaking, the GloBE rules apply to a multinational enterprises (MNE) group that has a consolidated group revenue of at least €750 million annually in at least two of the four preceding financial years. Just how many of such MNE groups are operating in Singapore as of today, what is their total reported revenues, profits before taxes, corporate income taxes paid to Singapore and their effective tax rates?

Moreover, as with the past decades, many MNEs operating here in Singapore are given various tax incentive schemes and these include the pioneer industries and service companies' incentive, development and expansion incentive, investment allowances, concessionary tax rates for global trading companies, finance and treasury centres, maritime sector incentives – just to name a few. How many of these incentive schemes will still be in force by the time this Bill is operationalised, and what would happen to the effective tax rates of the companies who are currently enjoying these preferential schemes? Would the top-up taxes prescribed by Pillar Two supersede these schemes?

I am reminded of an article on Bloomberg in 2021, which looked into the data collected by the US Internal Revenue Service on US companies' country-by-country filings on where they book their profits and pay taxes. According to the article, "65% of US firms foreign profits are in low-tax jurisdictions, such as Ireland and Singapore, tax-havens like Bermuda, or in stateless entities." What I find most interesting is the finding that the effective tax rate for US companies in Singapore based on the filings is a mere 4% instead of our statutory tax rate of 17%.

It is quite clear to everyone that our statutory corporate income tax rate of 17% in Singapore is low by global standards. But especially with the whole suite of tax incentives on offer, our effective corporate income tax rates are even lower, with some companies under the pioneer tax incentive scheme effectively paying no taxes for a number of years; and companies under various other schemes effectively having tax rates as low as 5%.

Mathematically speaking, it is thus not hard to imagine the potential increase in corporate income tax revenues from implementing a minimum tax rate of 15%, especially when many of these tax-incentivised companies are likely to be the ones who fall under the scope of the Pillar Two rules. What then is the Government's assessment of the potential increase in tax revenues when changes in this Act are implemented from 2025?

In my Budget 2024 debate speech, I shared that the OECD has published a working paper earlier this year, which finds that the global minimum tax "can raise between US$155 billion and US$192 billion of additional CIT revenues per year, with revenue gains accruing to all jurisdiction groups". Moreover, estimated participating countries categorised as "investment hubs", which includes Singapore, would have the largest expected gains from the reforms, with corporate income tax revenues rising from 14% minimum to up to 34%.

Subsequently in his round up speech, then-Deputy Prime Minister Lawrence Wong suggested that based on data points from the OECD, Hong Kong and Switzerland, the range for Singapore could be anywhere from around $2 billion to $11 billion a year and that the Government will provide its own detailed revenue estimates in due course. Will the Minister now be able to provide an update given that most other countries would have enacted or are in the process of enacting these legislations and MNEs would have to adhere to the same set of rules internationally from 2025?

My second question, is the Government's plan to effectively return any additional corporate income tax revenues back to these in-scope MNEs, such that we will not have any additional net revenues going forward?

In Budget 2024, RIC was introduced, which is to be awarded on qualifying expenditures incurred by a company in respect of a qualifying project, during the qualifying period. According to IRAS' website, the credits are to be offset against Corporate Income Tax payable. Any unutilised credits will be refunded to the company in cash within four years when the company satisfies the conditions for receiving the credits. This is introduced in the new section 93B under the Income Tax (Amendment) Bill.

The list of economic activities and qualifying expenditure categories specified by IRAS, however, appear to be notably broad-based in scope and wider than the tax credit schemes in some other jurisdictions, which primarily focus on R&D activities. Qualifying expenditure, for example, covers a whole range of categories including capital expenditure, manpower costs, training costs, professional fees, intangible asset costs, fees for work outsourced in Singapore, materials and consumables and freight and logistics costs.

While more information was said to be available on the EDB and EnterpriseSG websites by 3Q 2024, it is now mid-October and, to date, I have not been able to see any substantive information on RICs thus far. Are there expenditures that do not actually qualify and how would EDB or EnterpriseSG make such a determination as to what activities and expenditure would qualify under RIC and whether objective criteria on the assessment of the quantum of RIC to be awarded will be published in due course?

In my view, the effectiveness of the MNE Bill and the amount of net revenues we collect from in-scope MNEs will substantially depend on the extent of the generosity of EDB and EnterpriseSG towards these MNEs.

What I am also concerned about is that under subsection 51 of the Income Tax (Amendment) Bill, "The Minister may make regulations to carry out the purposes and provisions of this section". This gives the Minister a broad mandate to make regulations concerning RICs and there are two particular areas which I hope the Minister can provide further clarifications on.

First, even though each RIC award will have a qualifying period of up to 10 years and that the credits are supposed to be offset against Corporate Income Tax payable, subsections 30 to 32 effectively enables the company to choose to receive the RIC in cash ahead of the payout date specified, in lieu of being used to offset taxes. What is the rationale for this, how will this be applied and will the Government end up incurring out-of-pocket expenditure, as though it is a grant being given to the company?

Second, under subsection 46, the company can apply for RICs to be given to offset any taxes of one or more of its other related companies under the same group. Would this not go against the principle that RIC is granted to incentivise certain specific economic activities by certain entities and for certain qualifying expenditure only? Again, what is the rationale for this and how will this be applied?

My third question, which is arguably a rhetorical one, is does the Government see Singapore as just another a tax haven? For avoidance of doubt, I strongly believe that we are not a tax haven.

A few weeks ago, Singapore was ranked second in the IMD's World Talent Ranking and fourth in the world financial centres ranking. In June this year, Singapore took the top spot in the IMD World Competitiveness Ranking and, in January, Singapore was ranked the most liveable city for Asian expatriates, among others.

To quote an International Tax and Transaction Services Leader in one of the Big Four Accounting firms, "overall, for the smaller nations like Singapore, the curtailing of tax competition from the global minimum tax proposal will drive a greater focus on economic fundamentals. Singapore's long-standing merits in its institutions, infrastructure, labor market and financial and legal systems – qualities it has conscientiously nurtured for decades – would arguably be an even greater source of distinctiveness."

Should the rollout of the global minimum tax be proceeding as scheduled, I would say, yes, let us not be complacent, but we should take this window of opportunity to adapt and innovate when it comes to considering new economic development models that are more sustainable and less reliant on short-term tax incentives. Let us also be a bit prouder of our non-tax advantages, including our most important asset, Singaporeans themselves, and not fall prey to the thinking that without aggressive tax incentives, we would not be competitive to international MNEs.

Lastly, in addition to GloBE rules, Pillar Two also includes a Subject-to-Tax Rule (STTR). STTR allows a developing country to impose additional taxes of up to 9% on certain payments, such as interest and royalties, that an entity makes to related entities in another jurisdiction, if that payment is taxed at less than 9% in the other jurisdiction.

In September last month, I note that nine jurisdictions signed a new multilateral treaty that will allow early adopters to swiftly implement the new Pillar Two STTR, with 57 countries attending the first signing ceremony of the Multilateral Convention.

The OECD has stated that the STTR is an integral part of the consensus achieved on Pillar Two and is especially important for developing Inclusive Framework members. As such, may I ask the Minister what is the Government's position on STTR, given that this MNE Bill is, as far as I observe, silent on STTR? As the Government often reiterates that Singapore is a developing country, can I confirm with the Minister that Singapore is considered a developing country under STTR and will be able to benefit from this rule?

Allow me to conclude, Mr Speaker, by returning to the first principles of BEPS 2.0, which is that these reforms were introduced to stop the race to the bottom when it comes to sovereign tax policies and to facilitate international collaboration to end tax avoidance.

Should we decide not to adhere to the principles of BEPS 2.0, we once again return to the vicious race to the bottom where countries compete to offer the lowest tax rates in a bid to attract corporate profits, undermining fair competition, penalising smaller local SMEs that cannot engage in aggressive tax planning and, ultimately, weakens national and international economies by depriving it of the resources necessary for sustainable development.

It is only fair that MNEs, which benefit from our skilled workforce, advanced infrastructure and stable regulatory environment, pay their proportionate and fair share of taxes and contribute to our nation building. And by supporting BEPS 2.0, we not only promote a more equitable tax system but also signal our commitment to responsible global governance and economic fairness, thereby dissociating ourselves from the terms tax havens or tax-favoured jurisdictions.

Let me repeat once again that OECD expects all economies to benefit from extra tax revenues as a result of the Two-Pillar Solution. That is all economies. It is perfectly reasonable for the Government to reinvest additional tax revenues, such as through this landmark global tax reform into Singapore's developmental needs. After all, this is the function of Government, to direct our operating revenues, such as from income taxes, into operating and development expenditures across a range of areas, such as healthcare, education and defence. But it is an entirely different thing to roundtrip additional income received from in-scope corporates, back to the same corporates. I hope the additional tax revenues from BEPS 2.0 will not simply be in substance returned to MNEs through other forms but invested in Singaporeans and our collective future instead.

Mr Speaker: Mr Don Wee.

6.25 pm

Mr Don Wee (Chua Chu Kang): Mr Speaker, Sir, I rise today to support the Bill, specifically the Pillar Two of the OECD/G20 Inclusive Framework on BEPS. This Bill, through the introduction of MTT and DTT, represents a significant step in ensuring that MNEs pay a minimum tax of 15%, reinforcing Singapore's commitment to international tax transparency. Mr Speaker, Sir, in Mandarin.

(In Mandarin): [Please refer to Vernacular Speech.] The MTT provisions, from clauses 21 to 36, are aligned with the global consensus to combat tax avoidance strategies among large MNEs. While we welcome this alignment, I would like to ask the Minister: how will the Government ensure that these new rules, while in line with international standards, will prevent double taxation for Singapore-based entities? Are there robust mechanisms in place to ensure consistency across jurisdictions, avoiding discrepancies in tax treatment?

Singapore has built its success as a global hub for MNEs by maintaining an attractive tax environment. While the introduction of this global minimum tax is important, we must not lose sight of the competitive edge that has made Singapore a top choice for businesses. I urge the Government to consider complementary measures, such as enhancing R&D incentives and talent acquisition programmes, to continue attracting investment in key sectors. These additional policies can ensure that we remain competitive, despite the increasing global tax harmonisation.

Furthermore, if fewer MNCs come to Singapore, it will not benefit our SME ecosystem, and fewer good jobs will be created. Maintaining our appeal to MNEs is essential for supporting both the broader business landscape and job creation.

(In English): Clauses 37 to 94 introduce new registration and compliance requirements. I urge the Government to carefully assess the administrative burden this will place on both the Government and MNEs. Will the Comptroller's office be adequately resourced to manage this increased workload? Moreover, what measures are in place to assist businesses in navigating these complex compliance frameworks, especially in the early stages of the implementation? Clear guidance and streamlined processes will be crucial to ensure smooth compliance and avoid stifling business operations through excessive bureaucracy.

One specific area of concern is the treatment of joint ventures and investment entities. While the Bill includes joint ventures, where the parent holds 50% or more of the ownership interest, certain investment and insurance entities are excluded from the DTT. Could this exclusion incentivise certain entities to exploit the system and avoid paying their fair share of the top-up taxes? I seek clarification on how the Government plans to ensure that these exclusions do not inadvertently open doors to aggressive tax planning.

The Bill's provisions under clauses 49 to 55 allow for a 15-month filing period after the financial year-end, which aligns with the international norms. However, given the complexities of multi-jurisdictional operations, I ask: could we consider offering grace periods or additional guidance for entities facing exceptional circumstances?

Furthermore, the penalties for late payments and non-compliance should deter misconduct without overburdening businesses facing administrative challenges. I suggest that the Government explore a tiered penalty structure to balance enforcement with fairness.

It is anticipated that the introduction of the MTT and DTT will increase tax revenues for Singapore. I propose that we channel these funds into strategic areas that will directly benefit Singaporeans, such as sustainability initiatives, green infrastructure projects and education programmes. By investing in these areas, we can further strengthen our long-term economic goals while enhancing Singapore's competitiveness in the global arena.

In conclusion, Speaker, Sir, this Bill marks a crucial step in aligning Singapore with global tax efforts to ensure fair and transparent taxation of multinational enterprises. However, as we implement these changes, we must safeguard our competitive advantage and ensure that businesses are not unduly burdened by compliance requirements. I look forward to the Minister's response and trust that we can continue to strike a careful balance between global alignment and protecting Singapore's economic interests.

6.30 pm

Mr Speaker: Second Minister for Finance.

Resumption of Debate on Question [14 October 2024], "That the Bill be now read a Second time." – [Minister for Finance].

Question again proposed.

3.45 pm

Mr Mark Lee (Nominated Member): Madam, last November, I spoke about the need for the Government to continuously refine our tax incentive strategies and strengthen non-tax benefits to safeguard Singapore's competitive edge. This need is now more pressing as global tax trends rapidly shift with the implementation of the Base Erosion and Profit Shifting (BEPS) 2.0 guidelines.

Singapore's longstanding ability to attract global businesses is grounded in a combination of factors: our stable political climate, robust infrastructure, skilled workforce and competitive fiscal policies. However, we now face a critical moment where Singapore must balance these advantages with evolving international tax obligations to maintain our position as a premier hub for business and investment.

According to a recent The Straits Times article and data released by the Ministry of Manpower (MOM), while only 20% of firms in Singapore are foreign-owned, they employ 60% of Singapore residents in high-paying jobs. This highlights the importance of continuing to attract foreign investments and global talent that complement our local workforce and create good jobs for Singaporeans.

Let me first address the Multinational Enterprises (Minimum Tax) Bill 2024, or MMT Bill, which proposes a 15% minimum effective tax rate for large multinational enterprises (MNEs). It is a necessary step to align with international standards while continuing to combat aggressive tax planning practices. However, we must recognise that the impact on our business community will be significant and multi-faceted. While ensuring MNEs contribute fairly to our economy, we must be mindful of the challenges these new rules will bring.

Compliance costs and administrative burdens will likely rise for companies operating across multiple jurisdictions. Both parent entities of MNE groups in Singapore and Singapore subsidiaries of foreign MNEs will be directly impacted, as they will be subject to top-up taxes under the BEPS Pillar Two rules.

As our MNEs face higher compliance and administrative burdens, many jurisdictions, such as Switzerland, Ireland and Thailand, are implementing significant tax reforms in response to the global minimum tax. In light of these global shifts, I would like to ask the Minister how Singapore plans to mitigate any competitiveness concerns. Our competitors' actions may erode Singapore's traditional strengths.

Will the Government consider enhancing non-tax incentives in areas, such as infrastructure, talent development and support for research and development (R&D) and innovation to maintain our attractiveness for foreign investments?

While the BEPS Pillar Two taxation framework is largely standardised across implementing jurisdictions, the implementation and administrative rules are not as strictly defined by the Organisation for Economic Cooperation and Development (OECD). Could the Minister clarify whether Singapore has room for flexibility in these administrative processes? For instance, could Singapore adopt simplified compliance procedures or introduce a more lenient enforcement framework during the initial stages of the Bill's implementation to help businesses ease into the new regime?

Singapore has historically demonstrated an ability to adapt flexibly within global frameworks and we should continue to do so. Our transparent and predictable tax regime is a unique advantage that enhances our appeal as a jurisdiction. For example, companies can be assured of the non-taxation of capital gains on certain equity disposals, provided they meet specific criteria under the law.

The Inland Revenue Authority of Singapore (IRAS) has also provided useful guidance via its e-Tax Guide. Such clear guidelines, not easily found in other jurisdictions, offer businesses confidence and certainty in their operations. My recommendation is that we should build on these strengths by expanding and leveraging clear guidelines that offer businesses confidence and certainty, further solidifying Singapore as a business-friendly environment.

Moving on to the operational and compliance challenges posed by the MMT Bill, it is essential to recognise that MNE groups within the scope of Pillar Two will be required to register with the Comptroller within six months after the relevant financial year ends.

These groups will also need to designate local entities for filing GloBE information returns and the domestic top-up tax (DTT) returns. For MNE groups falling within the scope for the financial year ending 31 December 2025, the registration deadline will be 30 June 2026. Failure to meet this deadline could result in a penalty of 10% of the total top-up tax, which could amount to a significant sum for large corporations.

Furthermore, there are other surcharges and penalties which can apply as outlined in the Bill. For example, furnishing an incorrect tax return without reasonable excuse can result in penalties of up to two times the tax undercharged. While these penalties are meant to ensure compliance, their significant financial impact should not be underestimated.

Could the Minister clarify whether additional guidelines will be provided to streamline the registration process and explain when penalty might be waived? Given that this is a significant new requirement, many companies may face difficulties in meeting the deadline, particularly if they are cross-border entities with complex organisational structures.

Would the Minister consider introducing a grace period during the early stages of implementation, whereby penalties and sanctions would not apply if an MNE demonstrates that it made reasonable efforts to comply? This would alleviate concerns within the business community and offer some flexibility as companies adapt to the new requirements.

The Bill also mandates that MNE group entities keep sufficient records to allow the Comptroller to verify the top-up tax payable. However, different entities and periods may be subject to varying record-keeping requirements, potentially increasing the administrative burden on companies.

Could the Minister assure us that these variations in record-keeping periods will be minimised and aligned, as much as possible, with the existing five-year standard for income tax matters? This would help reduce administrative burden on businesses.

Finally, to support business community during this transition phase, I strongly recommend that the Government establish a dedicated helpdesk or advisory service specifically aimed at assisting businesses with their queries and compliance issues under the new tax framework. Additionally, investing in IRAS' capacity to administer and enforce these complex new rules effectively will be crucial to ensuring a smooth and efficient implementation process.

Turning to the Income Tax (Amendment) Bill, the Government's introduction of the Refundable Investment Credit (RIC), under a new section 93B of the Income Tax Act, is a timely and strategic measure. The RIC offers businesses tax credits of up to 50% of qualifying expenditure, which is particularly valuable for small and medium enterprises (SMEs).

SMEs, the backbone of our economy, often face challenges in securing capital for innovation, technology upgrades and productivity improvements. The refundability of the RIC provides much-needed liquidity, allowing them to reinvest in their businesses and address a core issue – cash flow management.

As we refine the RIC, it is crucial that it remains flexible in its design. High-value activities like R&D, digital transformation and sustainability initiatives often take time to yield results. A rigid, outcome-based approach could discourage investment in long-term projects with uncertain short-term returns. The RIC must allow businesses to pursue innovative activities without the fear of disqualification due to delayed results. This is especially critical for SMEs, which face significant upfront costs and may not see immediate success.

I would like to therefore propose that the RIC be based on both qualifying expenditures and economic outcomes, with businesses working with relevant agencies to use appropriate metrics at different stages of a project. This flexibility ensures that businesses can invest confidently in long-term growth without being constrained by rigid criteria.

The RIC should also support Singapore's transition to a sustainable economy. As part of the Singapore Green Plan 2030, the RIC should be expanded to cover green investments, such as energy efficiency projects, carbon reduction technologies and sustainable production practices.

Given our limited space, consideration could be given to overseas or cross border green projects as long as the ideation, key knowledge, project management and talent associated with the project remain in Singapore. Expanding the RIC to incentivise green investments will help align our fiscal policies with Singapore's sustainability goals, positioning us as a global leader in green innovation. By striking the right balance between flexibility and a focus on long-term outcomes and by expanding initiatives like the RIC to incentivise green investments, we can ensure that Singapore remains a leader in both economic, innovation and environmental stewardship.

In conclusion, looking at the broader picture of these amendments, maintaining an open dialogue with the business community will be key. It is important to continuously assess the impact of these changes and be agile in adapting our approach to ensure Singapore remains an attractive and competitive global business hub. Notwithstanding my clarification and recommendations, I support both the Bills.

Mdm Deputy Speaker: Mr Neil Parekh.

3.58 pm

Mr Neil Parekh Nimil Rajnikant (Nominated Member): Mdm Deputy Speaker, thank you for allowing me to join this debate on two important pieces of legislation that will strengthen Singapore's position as a global financial hub and as a responsible international player in tax regulation – the Income Tax (Amendment) Bill and the MMT Bill. I will cover both Bills today.

Both these Bills work hand in hand to ensure Singapore remains competitive in the global marketplace, yet they do so in complementary but contrasting ways – one offering relief, while the other enforces a stricter regime. Both promote fairness and transparency in our tax regime.

Mdm Deputy Speaker, the Income Tax (Amendment) Bill introduces targeted tax reliefs, particularly for sectors like financial services, shipping and real estate investment trusts (REITs). I believe these amendments will encourage foreign investment and help sustain our economic growth by enhancing Singapore's global competitiveness. The Bill also provides enhanced tax deductions for R&D, encouraging companies to invest in high-tech and green technologies. This will bolster Singapore's position as a leader in innovation and future industries, driving sustainable economic growth. Simplified tax administration will also make it easier for businesses to comply with tax regulations.

Moreover, the RIC benefits businesses and encourages investment and capital expenditures, R&D and talent development. The RIC also helps businesses offset the corporate tax liabilities, making it more attractive to establish many factoring facilities and regional headquarters in Singapore. Additionally, the Bill encourages focus on decarbonisation efforts, aligning with our broader sustainability goals. By keeping pace with global competition through these tax credits, Singapore enhances its abilities to attract substantial investments, ensuring long-term economic growth and segmenting its position as a premier business destination.

Mdm Deputy Speaker, the MMT Bill, on the other hand, focuses on enforcing a 15% minimum tax on MNEs with global consolidated revenues exceeding €750 million. This Bill is Singapore's response to the OECD's BEPS framework, particularly Pillar Two, which seeks to address tax avoidance and profit shifting by large corporations.

By adopting this Bill, Singapore aligns itself with global tax transparency efforts, ensuring that large MNEs contribute their fair share to our economy. The revenue generated through this minimum tax will safeguard the Government's financial base, allowing us to invest in infrastructure, social programmes and growth initiatives. These amendments will ensure that Singapore can create a more predictable and consistent tax landscape, a critical factor for MNEs that evaluate where to base their operations.

Additionally, the Bill promotes fairness by addressing the competitive disadvantages faced by local businesses, especially SMEs, when competing against MNEs. By enforcing a minimum tax, we are fostering fair competition and supporting the long-term sustainability of both our local businesses and our tax system. The 15% minimum tax helps Singapore protect its tax base by closing loopholes that allow profit shifting to lower-tax jurisdictions, ensuring that large corporations contribute to our nation's development.

Lastly, by complying with the OECD's global tax framework and aligning our income tax policies with international practices, Singapore strengthens its reputation as a transparent, ethical and business-friendly hub, which will continue to attract foreign investments.

However, despite many positive outcomes for the overall economy, these Bills could lead to certain challenges for businesses especially for SMEs. Mdm Deputy Speaker, I have a few clarifications for the Minister.

One, how will businesses currently benefiting from existing tax incentives be affected by these amendments? Will their exemptions continue under the new framework, or will they be required to re-apply?

Two, how will the minimum tax rate apply to industries with unique tax treatments, such as financial services, energy or digital businesses? Will specific sectors receive special considerations or exemptions?

Three, how do the new regulations align with Singapore's existing international tax treaties and agreements, specifically regarding parenting double taxation and resolving disputes? Will there be any adjustments required to ensure compatibility with the global minimum tax framework?

Four, what penalties will be imposed on businesses that fail to meet the compliance requirements, particularly in sectors like financial services and for Real Estate Investment Trusts (REITs)?

Five, can SMEs also benefit from the RIC or is it primarily designed for larger corporations? Are there limits or caps on the amount of tax credited can be refunded through the RIC?

In conclusion, both the Income Tax (Amendment) Bill and the MMT Bill represent forward-thinking steps that will secure Singapore's competitive edge in the global economy. By balancing the need for fairness, transparency and innovation, these Bills will help ensure our long-term economic growth while addressing the challenges posed by global tax trends. Mdm Deputy Speaker, notwithstanding my clarifications, this Bill has my full support.

Mdm Deputy Speaker: Mr Sharael Taha.

4.04 pm

Mr Sharael Taha (Pasir Ris-Punggol): Mdm Deputy Speaker, BEPS 2.0 seeks to close gaps in international tax rules, ensuring MNEs pay their fair share, particularly where they generate revenue. Pillar One reallocates taxing rights to market jurisdictions, posing a challenge for Singapore given our small domestic market. Pillar Two establishes a 15% minimum effective tax rate for MNEs.

In my speech, I will address three key points: firstly, the unintended consequences of implementing DTT and income inclusion rule under BEPS 2.0 Pillar Two; secondly, clarifications on the RIC; and thirdly, the timing of this implementation.

Mdm Deputy Speaker, investments are essential to Singapore's economic growth, job creation and long-term stability. Investments inject capital, create jobs and nurture local talent. They foster competitiveness, innovation and technology transfers through global partnerships.

To stay relevant, we must secure the right investments that refresh industries, attract expertise and adopt emerging technologies and shape our future economy. Investments across diverse sectors, such as the digital services and green technologies, strengthens resilience against economic shocks. The investments reinforce our role as a global hub and aligned with environmental plans, preparing Singapore for future challenges.

Mdm Deputy Speaker, today, we are debating two Bills: the MMT Bill, which implements DTT and income inclusion rule under BEPS 2.0 Pillar Two and the Income Tax Bill, which formalises changes to our tax regime, including the new RIC in section 93B.

While we support BEPS 2.0's goal of ensuring MNEs pay their fair share, implementing DTT and income inclusion rule could impact Singapore's attractiveness as an investment destination. Singapore remains a top investment destination, ranked 14th globally in the 2023 Milken Institute Global Opportunity Index, with foreign direct investment inflows rising from S$1.73 trillion in 2018 to S$2.62 trillion in 2022.

However, competition is intensifying. Countries are actively attracting investments: Japan announced a $18 billion package to boost its semiconductor industry; the United States (US) catalysed $450 billion in investments under the CHIPS Act; and Malaysia aims to secure US$107 billion in semiconductor investments.

Singapore's strategic location, skilled workforce and low corporate taxes are all critical to attracting investments. However, the 15% minimum effective tax rate could reduce the effectiveness of our tax incentives, making other jurisdictions more attractive. While the minimum effective tax rate may increase short-term tax revenue, MNEs could adjust strategies by relocating operations or headquarters, limiting sustainable gains. Competing countries may also improve other factors, such as access to land and skilled labour, where Singapore faces inherent constraints.

In the next investment cycle, if businesses scale back their investments into Singapore, or diversify their investments away from Singapore or explore other options, this could negatively affect employment and economic growth in sectors such as finance, technology and manufacturing. Following suit, sectors like logistics, pharmaceuticals and real estate may also feel the pressure.

Hence, we must strike a balance: closing international tax gaps while ensuring that BEPS 2.0 does not inadvertently disadvantage Singapore or limit future opportunities.

This brings me to my second point. As we comply with BEPS 2.0, the RIC strengthens our ability to attract investments. Prime Minister Lawrence Wong confirmed in his 2024 Budget Statement that the RIC qualifies as a qualified refundable tax credit. The Ministry of Finance (MOF) has also clarified that the RIC is treated as a grant under section 93B.

RIC incentivises activities such as new manufacturing plants and low-carbon energy projects, expansion in digital services, supply chain management, headquarters operations, R&D and decarbonisation efforts. More importantly, it also covers critical costs, including capital investments and investments in our workforce.

I have a few questions for the Minister.

Can qualifying activities include finance, insurance, aviation and investment in artificial intelligence (AI), given their importance to Singapore's economy? What criteria will the Economic Development Board (EBD) and EnterpriseSG use to determine the total RIC quantum a company is eligible for? Why is the RIC payout spread over four years? Could an earlier payout support higher investment hurdles? What is the total budget for RIC and how will it be funded?

The evolving global tax landscape requires us to monitor developments closely and adapt our strategies to attract investments vital to our economy's future.

Mdm Deputy Speaker, at this juncture, I would like to touch on some worrying views that has been propagated by some Members in this Chamber and beyond.

Firstly, on not approaching this with caution by downplaying the potential impact and over-estimating the benefits. Some Members shared the view that the implementation of BEPS 2.0 will be a windfall or generate clear net benefit for Singapore as it will have a muted effect on investments, a view by Member Assoc Prof Jamus Lim. And in some instances, Members go even as far as planning our operating expenditure from this uncertain perceived benefit.

Secondly, the mischaracterisation of investment incentives, propagating the view that we should restrict our investment toolkit so that we do not race to the bottom when it comes to sovereign tax policies and creating the false impression that grants may be another means for tax avoidance, a view shared by Member Mr Louis Chua.

I am glad that Members Assoc Prof Jamus Lim, Mr Louis Chua and Ms Hazel Poa, in their speeches yesterday have acknowledged the various factors that attract investments into Singapore. These include our skilled and educated workforce, robust infrastructure and technological advancements, political stability and a strong legal framework, including citing that Singapore is number one in IMD World Competitiveness Ranking. Their recognition highlights the effectiveness of the sound, long-term policies implemented by our People's Action Party (PAP) Government and our continued investments in our skilled workforce, advanced infrastructure and the importance of our tripartism.

Let me cite a few examples where these worrying views had been shared.

Firstly, in the Hammer newsletter titled "Why the GST Hike is Not Necessary?", Issue 22, released on 1 July 2022, which was written by Members of Parliament Assoc Prof Jamus Lim and Mr Leon Perera. It cites that the third lever of alternative sources of revenue to the GST hike is the increase in corporate taxation due to BEPS 2.0 and went on to mention "each of these levers [of which one of which is BEPS 2.0], when pulled, could yield more revenues, equal or more than the GST hike", implying that the uncertain perceived net outcome of BEPS 2.0 can, on its own, fund the certainty of our increased healthcare cost.

In the second example, Mr Louis Chua, in his Budget speech on 26 February, on the topic of RIC and BEPS 2.0, shared that "it would be a sad day if countries go against the spirit of the reforms in the first place" and hopes that "additional tax revenue from BEPS 2.0 will not simply be in substance returned to the MNEs through other forms", views which he reiterated against yesterday.

That said, in my professional capacity as someone who is from the industry whose responsibilities is to look at where and how MNEs invest in factories and technology developments globally, I do caution against propagating these two simplistic views.

Mdm Deputy Speaker, the competition to attract investments is indeed intensifying. While various factors contribute to a country's attractiveness, tax remains a factor to consider in building a compelling business case when trying to cut across the investment hurdle, especially when we consider the differential cost of labour, the cost of land, the cost of construction and the increasing grants that are offered in other jurisdiction. And other jurisdictions are not standing still.

And as Members rightfully pointed out, we need to increase spending to strengthen key attraction factors, such as investing more in our workforce and enhancing productivity, objectives that clearly align closely with the intent of the RIC.

Hence, the net effect of BEPS 2.0 remains uncertain at this point, especially when Pillar One has not been considered.

Given the uncertainty surrounding BEPS 2.0, we must avoid equating non-inevitable costs, such as rising healthcare expenses, with the uncertain outcomes of BEPS 2.0 implementation, which is still in its early stages. It is unwise to base essential fiscal policies like healthcare spending on unpredictable future revenues. And worse, double dipping an unpredictable revenue to cover both healthcare costs and grants for investment.

I would also like to caution against the mischaracterisation of investment incentives, such as the Refundable Investment Credit (RIC), as enabling avoidance of the minimum effective tax rate.

While we do our part and comply with the global BEPS 2.0 rollout, we must be cautious not to restrict our investment attraction toolkit. As the Prime Minister highlighted in his Budget speech, the RIC qualifies as a qualified refundable tax credit scheme. It is evident that the design of this initiative is not intended to provide a tax haven but rather to function as a grant aimed at attracting the right investments into Singapore.

This grant focuses on developing new productive capacity, advancing R&D, fostering innovation and supporting decarbonisation efforts. Most importantly, the grant also covers key costs, such as capital expenditure and investment in our workforce, an objective that many Members in this debate have also reiterated.

It is a grant to attract high-value, high-quality investments into Singapore, which are our lifeblood for our survival. In both examples, it is evident that we cannot gamble the future healthcare needs of Singapore with uncertain revenue streams, such as the perceived gains from BEPS 2.0, nor double dip it. Nor should we gamble the future opportunities for our next generation by restricting schemes, such as RIC, which will limit our ability to attract good, high-value investments to provide good jobs for our people, especially in light of increasing competition to attract investments.

On my last point on timing of implementing the MMT Bill, while countries like Hong Kong, Ireland, Switzerland, Malaysia, Vietnam and Australia have begun to move legislation to implement IRR and TTT, there are other countries which have not started implementation, such as the US, the United Arab Emirates, Indonesia, China and India. Given the competition for investment, is there an opportunity for us to delay the implementation? Would that be useful for Singapore?

Mdm Deputy Speaker, in summary, Singapore is committed to being a responsible global citizen by implementing BEPS 2.0. While some Members may opine that the effects may be muted, the criticality of it means that we must tread carefully to avoid the unintended consequences that could weaken our investment ecosystem and economic resilience. Our future relies on it.

The introduction of RIC is a vital tool in our strategy, helping us comply with global tax rules while attracting the right investments to sustain growth and innovation. It is an investment attraction tool that can help us shape our future economy. We must remain vigilant, adaptive and proactive in adjusting our investment toolkit to maintain Singapore's competitiveness in a rapidly changing global environment.

Mdm Deputy Speaker, we cannot afford to gamble our future on uncertain revenue streams, nor can we limit the tools needed to attract investments critical for job creation, economic sustainability and our survival. Our objective must be clear: close gaps in international tax rules, ensuring multinational enterprises (MNEs) pay their fair share, and safeguard Singapore's future opportunities, all while planning prudently for the long term. Notwithstanding the clarifications above, I stand in support of the Bill, Mdm Deputy Speaker.

Mdm Deputy Speaker: Second Minister for Finance.

4.18 pm

The Second Minister for Finance (Ms Indranee Rajah): Mdm Deputy Speaker, I thank Members on both sides of the House for their strong support of the Bills as well as for their comments and suggestions. Let me start by addressing the Income Tax (Amendment) Bill.

Most of the Members who had spoken touched on the newly introduced RIC. I am glad that Members agree that this is a timely and important move to ensure that we attract and support businesses that undertake substantive and high-value economic activities in Singapore. Members' questions generally related to: (a) the types of activities supported; (b) the design; (c) the total amount awarded; and (d) the budget. Let me take these in turn.

Mr Mark Lee spoke on the need to keep the RIC flexible such that it would also support high-value activities that can only realise benefits in the long term. Indeed, we recognise that investments in innovation, R&D and sustainability will take time to bear fruit. For these, we require the RIC to be awarded based on expenditure with clear outcomes, within a reasonable timeframe commensurate with the type of activity undertaken. This is to ensure that the RIC supports projects that benefit our economy.

Mr Sharael Taha and Mr Mark Lee also asked whether the RIC scope could be expanded to include activities, such as finance, insurance, aviation and overseas or cross-border green projects. For a start, we have designed the RIC to support the qualifying activities announced at Budget this year. Nevertheless, we thank Mr Lee and Mr Sharael for their suggestions and will continue to monitor industry demand and trends, and assess how the RIC can be updated to remain competitive and relevant.

Mr Sharael Taha asked about the payout schedule of the RIC. Tax credits under the RIC will be offset against corporate income tax payable in the first instance. This means that companies can start to benefit by using the RICs to offset their corporate income tax payable once they are awarded the credits. The refund of unutilised credits within four years from the time the company makes the claim application is consistent with the GLoBE rules for qualified refundable tax credits.

The Bill allows for regulations to enable RIC recipients to choose to receive the RIC in cash instead of being offset in taxes and Mr Louis Chua asked for the rationale for this. We are considering such a feature as some companies have provided feedback that an option for the RIC to be paid in cash over a fixed schedule would provide greater cash flow certainty. As explained in my opening speech, the RIC is an expenditure-based grant delivered through the tax system. The net fiscal impact to the Government is the same, whether the RIC is used to offset taxes or is refunded in cash.

Mr Louis Chua also asked about the rationale for allowing RIC recipients to offset the taxes of related companies in the same group. Sometimes, companies may set up separate legal entities to better reflect the structure of their business and for risk management purposes. By segregating business activities, companies can better limit their liabilities and protect the assets.

So, for instance, a parent Company A that invests in a new manufacturing plant in Singapore may choose to set up a subsidiary Company B to hire workers and hold the plant assets. By allowing the RIC to be offset against taxes of related companies, we provide flexibility for such business structures. For all intents and purposes, the parent company is still making the investment in Singapore, the net fiscal impact remains the same and the underlying principle of supporting qualifying local expenditure incurred also remains unchanged.

Mr Sharael Taha asked how our economic agencies would determine the total RIC quantum that a company would be eligible for and the total budget and funding for the RIC. The RIC support would be commensurate with the size and quality of businesses' economic contributions to Singapore. Companies that invest more in Singapore or commit higher quality investments will receive more support.

The RIC will draw from the same funding sources that support the other schemes in our economic toolkit. These include our economic agencies' annual budgets as well as the National Productivity Fund (NPF). The Member might recall that we had topped up the NPF at Budget 2024 with S$2 billion to support the RIC and other investment promotion efforts. Our economic agencies will be publishing more details of the RIC soon to provide further clarity to businesses.

Next, let me address Members' comments on the MMT Bill. These broadly relate to: (a) the operation of the Pillar Two rules; (b) the consistency of GLoBE implementation across jurisdictions; (c) the compliance burden of the DTT and multinational enterprise top-up tax (MTT); (d) estimated revenue impact and use of revenues; and (e) economic competitiveness.

Several Members have sought clarifications on how the DTT and MTT will operate. Mr Neil Parekh and Mr Louis Chua asked how the DTT and MTT would affect specific groups of businesses, such as existing tax incentive recipients and businesses in certain sectors.

The DTT and MTT will apply to all large MNE groups with a global revenue of at least €750 million in at least two of the four preceding financial years. DTT and MTT apply to such MNE groups in all sectors unless specific exclusions under the GLoBE rules are applicable, such as for international shipping income. DTT and MTT also apply, regardless of whether the large MNE group is a tax incentive recipient. If a large MNE group's effective tax rate on its Singapore profits is below 15%, the DTT will top up its effective tax rate to 15%.

Mr Don Wee asked how double taxation under the MTT would be prevented. The GLoBE rules provide for the order of imposition of top-up taxes. For example, DTT will apply before any MTT imposed by other jurisdictions. This ensures that taxing rights are coordinated and prevents multiple jurisdictions from imposing top-up taxes on the same income.

Mr Don Wee also asked about the exclusion of investment entities from the DTT. The exclusion is allowed under the GLoBE rules. Apart from Singapore, several other jurisdictions have also taken a similar approach. For an entity to qualify as an investment entity, it must meet the requirements specified in the GLoBE rules. The exclusion is to preserve tax neutrality such that the income of the investment entity is only taxed once at the investor level. As with all other rules, MOF and IRAS will monitor and ensure that the rules are applied as intended.

Mr Louis Chua also asked about the implementation of the subject-to-tax rule (STTR). The STTR defines "developing countries" for its purposes as those with gross national income per capita below a specified threshold level. Singapore does not qualify under this specific definition. As a member of the Inclusive Framework, Singapore is prepared to implement STTR in our tax treaties with developing Inclusive Framework members when requested by them. This can be done bilaterally or by signing the multilateral instrument. We are studying the best way to implement STTR.

Mr Don Wee asked about the mechanisms to ensure consistency in the implementation of GLoBE rules across jurisdictions. Ms Usha Chandradas also asked about the impact on Singapore's DTT and MTT if China and the US do not implement the GLoBE rules. Mr Sharael Taha shared the same concern and asked if we should delay our implementation of DTT and MTT.

As mentioned in my opening speech, many jurisdictions have either implemented similar rules or intend to do so in 2025. If we do not impose the DTT and MTT, affected MNE groups will have to pay the top-up tax to other jurisdictions instead. Hence, it is in Singapore's interest to push ahead with the implementation of both DTT and MTT so that we do not cede tax revenue to other jurisdictions.

The GLoBE rules have been agreed by more than 140 members of the OECD Inclusive Framework, including China and the US. Inclusive Framework members that implement the GLoBE rules must do so in a way that is consistent with the outcomes provided for under the rules. There will be a peer review process to assess jurisdictions' implementation for consistency with the rules. All Inclusive Framework members, including those that do not implement the GLoBE rules, are required to accept the application of the GLoBE rules by other jurisdictions.

Ms Usha Chandradas and Mr Neil Parekh also asked about the dispute resolution process for the GLoBE rules. There is broad international agreement that a robust dispute resolution mechanism is important for MNEs. However, discussions on the details are still ongoing at the Inclusive Framework. MOF and IRAS are participating in these discussions and will provide guidance when there is greater clarity.

Ms Usha Chandradas and Mr Neil Parekh also asked whether the GLoBE rules would affect Singapore's network of Avoidance of Double Taxation Agreements (DTAs). Based on guidance from the Inclusive Framework, the GLoBE rules are compatible with international taxation agreements like our DTAs. The vast majority of our treaty partners are members of the Inclusive Framework and have agreed to these rules.

Several Members, including Mr Yip Hon Weng, Ms Usha Chandradas, Mr Mark Lee and Mr Don Wee, have suggested simplifying the administration of the DTT and MTT to reduce the compliance burden on affected MNE groups. Let me assure Members that this is a priority for the Government. MOF and IRAS have simplified the administrative requirements where possible. For instance, an affected MNE group will only be required to register with IRAS once, for both DTT and MTT. We have also aligned the filing timelines for DTT and MTT returns to simplify compliance.

Like Ms Usha Chandradas and Mr Don Wee, we recognise that the new rules can be complex and MNEs may need time to become familiar with the rules. IRAS has been working closely with businesses and tax professionals over the last two years to prepare MNEs for the changes. This includes consulting businesses on the parameters for DTT and MTT and working with the industry and the Tax Academy to conduct training for tax professionals. This is an ongoing process. IRAS will learn from experience, continue to engage stakeholders and continue to provide guidance on MNEs’ obligations.

Several Members, including Mr Mark Lee and Mr Neil Parekh, had expressed concerns about penalties if businesses fail to comply with the new rules. To allay businesses’ concerns regarding penalties, IRAS will adopt a light-touch approach in the initial years of implementation, if an MNE group can demonstrate that it has taken reasonable measures to ensure the correct application of the GloBE rules. Mr Don Wee also asked if IRAS would be adequately resourced to administer the DTT and MTT. IRAS has set up dedicated teams to develop the necessary tax administration processes and IT systems to ensure smooth implementation of the DTT and MTT.

Next, moving on to comments on the potential revenue impact of the DTT and MTT. As mentioned by Prime Minister Lawrence Wong during the Budget debate this year, any DTT or MTT revenue will only be collected from FY2027. In the short term, the implementation of the DTT and MTT will likely lead to additional revenues. If so, then, as we have indicated, we will invest the revenue wisely to enhance our competitiveness, an approach that is supported by Ms Hazel Poa, Mr Don Wee, Mr Yip Hon Weng, Mr Louis Chua and Assoc Prof Jamus Lim.

However, what is still not clear is how much additional revenue we will collect and how long it will last. And this was the point that was raised by Mr Sharael Taha. This is because MNEs and other governments are also working out their responses to the GloBE rules. Whether we will have sustained revenue gains from BEPS and what our net position will be after taking into account our economic spending plans remains to be seen and is still uncertain.

Mr Yip Hon Weng and Mr Louis Chua have suggested that we use the revenue gains to support our healthcare expenditure. We agree that it is important to support our healthcare expenditure. But waiting to see what comes from DTT and MTT would be far too late. This would only be collected from FY2027.

By 2030, one in four Singaporeans will be aged 65 and above, with consequent increases in healthcare expenditure. That is why, rather than waiting for revenues that are uncertain and which would be too late, we have made structural revenue-raising moves, including the GST increase, to fund this expenditure. We have planned ahead for this and supported Singaporeans with a substantial Assurance Package to cushion the impact.

With respect to revenues from DTT and MTT, Members can be assured that the Government will see how to deploy revenues for the benefit of Singaporeans, to continue investing in our people, our economy and our infrastructure.

A few Members, including Assoc Prof Jamus Lim and Mr Louis Chua, had suggested that BEPS 2.0 would remove the race to the bottom for corporate tax rates. That is indeed the intent of BEPS 2.0. But we must also look at the reality. Whilst BEPS 2.0 may reduce the room for tax competition among countries, it does not reduce competition for investments.

Ms Hazel Poa was of the view that MNEs are highly unlikely to pack up and leave Singapore just because Singapore is implementing the DTT and MTT. While we certainly hope that that is the case, we would be wise not to take anything for granted or to be complacent. Again, a point that Mr Sharael Taha made. The global economic landscape has become even more competitive in recent years. As mentioned in my opening speech, major economies like the US, Germany and Japan are rolling out generous incentives to attract investments. That alone should tell you that investments are important to countries.

But to be clear, Singapore's competitive advantages have never been on tax factors alone, and this was recognised by Members of the House, including Assoc Prof Jamus Lim, Mr Louis Chua and Mr Mark Lee. For instance, Ms Hazel Poa acknowledged that we have strong advantages compared to other countries in the region, such as a highly educated workforce, a well-developed and globally connected financial system and excellent connectivity. Mr Louis Chua also highlighted other strengths, such as having robust infrastructure and a well-established legal system, and he cited many proof points, including the fact that Singapore was ranked second in the IMD World Talent Ranking, that we were fourth in the World Financial Centre's ranking and, in June 2024, Singapore took top spot in the IMD World Competitive Rankings.

So, I want to thank all Members, including the Opposition Members, for recognising the Government's efforts in establishing these advantages, which took a long time to build over many years and many decades, and these outcomes have been the result of consistent efforts on the part of the Government in order to create a vibrant and competitive economy over the years.

Assoc Prof Jamus Lim suggested that we channel DTT and MTT revenues towards developing productivity and innovative capacity, rather than foreign direct investments. I would make two points in response. First, foreign direct investments and productivity and innovation are not mutually exclusive. In fact, encouraging foreign direct investments is one way we can raise productivity and innovative capacity in our economy. Foreign direct investments have a strong value proposition. They bring with them new technologies, market access and business models that are internationally competitive. Second, productivity and innovation have always been mainstays of our economic strategy and take prominence in almost every Budget. So, in short, it is not one or the other, but we must have an array of economic strategies in order to grow our economy.

At the same time, we will continue to invest in our workers and local enterprise ecosystem, which form the backbone of our economy. SMEs and local companies with skilled workers and strong innovation capabilities will enhance Singapore's value proposition as an economic hub and strengthen our position in the global supply chain. We will also need to do more to sustain our other areas of competitive advantages, such as a skilled workforce, a vibrant innovation ecosystem, political stability, a strong legal system, quality infrastructure and connectivity, and also a vibrant arts and culture scene. These are important factors that businesses consider when making an investment.

We will use the additional revenue from the DTT and MTT to invest significantly in many of these areas. Our investments into future infrastructure, for example, put us in good stead for sustainable and resilient future growth. These include the upgrading of our nationwide broadband network and artificial intelligence infrastructure, Changi Airport Terminal 5, Tuas Mega Port, as well as critical infrastructure to facilitate Singapore’s transition to cleaner energy and safeguard our energy security.

Mr Louis Chua said he hoped that the additional tax revenues from DTT and MTT would not be effectively returned to the affected MNEs. Let me reiterate that we intend to fully comply with the GloBE rules and have no intention to collect DTT and MTT only to return it back to affected MNEs. Members should not mistake reinvesting the additional tax revenues from DTT and MTT into our broader economy, with returning DTT and MTT to affected MNEs. They are two separate things. We will reinvest revenues. But we have no intention to round trip anything in derogation of the GloBE rules.

Fundamentally, our economic philosophy has always been to support all companies that can bring value to Singapore, not just MNEs. This has been done through both tax and non-tax measures. Any company that wins in Singapore is a win for Singapore, regardless of whether it is an MNE or SME. These winners will strengthen our ecosystem and create better jobs for Singaporeans. This philosophy will not change with the introduction of the DTT and MTT.

If a company is prepared to make a substantive investment in Singapore, carry out high-value business activities here and provide good jobs for Singaporeans, we stand ready to support them, regardless of whether the company is an SME or MNE. Whatever support we give, we will ensure that it is compliant with the GloBE rules.

Ms Hazel Poa also suggested that MNEs benefit more than SMEs from our corporate tax system. We should look at this not only from the tax perspective, but also consider the amount of support that the Government provides to SMEs through grants and other schemes that we have. We have always supported our SMEs in their growth and productivity journey. Over the years, we have introduced many initiatives targeted at our SMEs, such as the double tax deduction for internationalisation, the SMEs Go Digital programme and the Productivity Solutions Grant. We have also set up SME Centres to support SMEs in exploring solutions to grow their businesses.

We have also introduced newer schemes more recently, for instance, the Singapore Global Enterprises initiative and the Enterprise Innovation Scheme at Budget 2023, and the enhancement of Partnerships for Capability Transformation scheme at Budget 2024. Many of these schemes are available only to SMEs, and, for many schemes, SMEs also receive higher support. This Bill also contains specific support for SMEs. As mentioned in my opening speech, the enhancements to the Renovation and Refurbishment scheme will simplify compliance and give SMEs more flexibility to manage their cash flow needs.

We will continue to do more. In April this year, the Government set up an Inter-Ministerial Committee for Pro-Enterprise Rules Review to oversee Government efforts to improve regulatory efficiency and reduce compliance burden for our SMEs and help them to better navigate Government rules and regulations. Rest assured we will continue to support our workers and SMEs to thrive in a more uncertain and competitive business environment. I encourage all SMEs to take advantage of available Government initiatives to grow, digitalise and internationalise.

To conclude, the two Bills introduce major changes to our corporate tax regime. The provisions seek to anchor high-quality investments in Singapore, ensure that our tax system remains relevant and fair to businesses and individuals, and keep Singapore in step with international tax developments. The Government will continue to work closely with all stakeholders to ensure a smooth transition. The Government will also continue to invest in our economic competitiveness so that Singapore remains one of the best places to do business. Mdm Deputy Speaker, I beg to move.

Mdm Deputy Speaker: Any clarifications? Assoc Prof Jamus Lim.

4.42 pm

Assoc Prof Jamus Jerome Lim (Sengkang): Mdm Deputy Speaker, I have two clarifications, first, for Mr Sharael Taha, and then one quick one for Second Minister Indranee Rajah.

For Mr Sharael Taha, I am wondering if he will first acknowledge that BEPS 2.0 will, at the minimum, lead to an increase in net revenue, as has been estimated by several independent studies, such as the OECD or academics like Gabriel Zucman at Berkeley, or perhaps he has his own estimates that would suggest that there would be a net revenue loss, in which case, I hope that he will be able to share this with the House. If so, I wonder if he would not also agree with me that we should at least plan for the possibility that such a revenue stream, however uncertain, should at least be appropriately channeled to specific uses. After all, we would expect our fine professionals at MOF to engage in such a scenario analysis, lest the Ministry ends up inadvertently with higher-than-expected revenues, which would implicitly suggest then that we are overtaxing the people over and above the nation's current expenditure needs and, hence, putting a crimp on private economic activity.

Finally, my question for Second Minister Indranee is that while I do not think for a moment that foreign direct investments and improvements in technology are exclusive – indeed, I had explicitly referred to that complementarity in my speech – I hope she would at least accept my argument that we should not be pursuing capital for its own sake, but rather to focus on the importance of reinvesting not just in building up more physical capital, but importantly also the human capital of our people.

Mdm Deputy Speaker: Mr Sharael Taha.

Mr Sharael Taha: Thank you, Mdm Deputy Speaker. Just to answer the query that Member Assoc Prof Jamus Lim asked. If he would have heard my speech, I mentioned that while it may increase short-term revenue, MNEs could adjust strategies by relocating operations of headquarters, limiting the sustainable gains – something which Minister Indranee Rajah has also mentioned.

So, yes, it may increase the short-term revenue. However, because we do not know how MNEs will react to it, there may be a possibility that it is not a sustainable gain.

The point I was truly making was about how we approach this situation when investments are such a critical thing to the survival of Singapore. The point I was making was not to approach this in a simplistic manner and underplay the effect of it and overestimate the benefits of it, to the extent of banking it in such that the increase in corporate taxes alone because of BEPS 2.0 can by itself cover the revenue that is generated by the increase in GST.

So, it is about how do we approach this situation and about us being more cautious about it, and not count the chickens before the eggs hatch.

Mdm Deputy Speaker: Minister Indranee Rajah.

Ms Indranee Rajah: I thank Assoc Prof Jamus Lim for his clarification. He asked whether I could agree that we should not invest in capital for the sake of capital and also to acknowledge the importance of human capital.

This Government never does anything just for the sake of a single thing. This Government is driven, first and foremost, by the well-being of Singaporeans, the importance of making sure that Singaporeans have personal growth, good development that will enable them to have good jobs, good incomes and, therefore, to have good standards of living and to be healthy and to do well in life.

And so, if you look at all that the Government has done, not just in the past years but in the past decades, at the heart of it has been the development of Singaporeans. Nowadays, we call it human capital. When we first started out, we talked about education. If you look at the amount that we put into education, I mean, it is the second highest amount in our Budget. And then, from primary and secondary, which was the initial investments into our human capital, we then went, in the last decade, into SkillsFuture, recognising that as people come out into the workforce, they will need to continue to learn to grow. [Please refer to "Clarification by Second Minister for Finance", Official Report, 15 October 2024, Vol 95, Issue 143, Correction By Written Statement section.]

And then, in this year's Budget do not forget we had the ITE Progression Award as well as the various SkillsFuture programmes. So, I think where I can wholeheartedly agree with Assoc Prof Jamus Lim is the importance of investment in human capital, which we will do.

But we also obviously have to do investments into hard capital because we have just spent about two hours discussing the MRT. If we want people to have a good quality of life, you must have good quality infrastructure. So, we do need to make sure that we have good capital investments as well. Buildings, making sure we have homes, making sure that the city is a city in nature. All of those things. So, we can certainly agree that we want the best for Singaporeans and will invest in our human resource.

Mdm Deputy Speaker: Mr Louis Chua.

Mr Chua Kheng Wee Louis (Sengkang): Thank you, Mdm Deputy Speaker. Just a few related clarifications on RIC.

What is the current fiscal impact of our existing tax incentives and how will this change with the passing of the Bill? Correspondingly, what is the estimated net fiscal impact of the RIC on an annual basis? In other words, is there guidance by MOF to EnterpriseSG or the EDB on the budget for RIC, as this will be directly linked to some of the targets of EDB, such as your fixed asset investment, job creation and so on.

The other question is, in terms of the potential companies that could qualify for the RIC. In terms of the guidance to be published, would the criteria on the assessment be also published? And is there any timeline for this, as it was previously mentioned that it was going to be out by the third quarter?

Ms Indranee Rajah: Let me see if I got his questions correctly. On the RIC, Mr Louis Chua's question was on who would get it and what would be the criterion for getting RIC, is that right?

I had mentioned that in my opening speech. Essentially, the ones that can get the RIC credits would be those who make investments in high-value and substantive economic activities. So, we have kept it broad at the moment, but there is a certain sense to that – the development or expansion of manufacturing facilities, setting up of headquarters and services, pursuit of R&D, innovation activities, commodity trading, decarbonisation. All of these are part of how they can basically add to or grow our economy and support our green transition.

And on the question of guidance and timelines, give IRAS a little time to work on that. We will put it out, but as I mentioned in my speech, we are working and engaging with the stakeholders. But we will make sure that there is appropriate guidance when the time comes for them to implement it.

Mdm Deputy Speaker: Ms Usha Chandradas.

Ms Usha Chandradas (Nominated Member): Thank you, Mdm Deputy Speaker. I have one clarification for Minister Indranee. Does the Government have any plans at this point in time to devote more resources to the development of international tax education in Singapore at the tertiary level or beyond?

Ms Indranee Rajah: The short answer is that we would love to, but we are always being called upon to give people education on many things. And every time we are asked, Minister Chan Chun Sing flinches because it always goes back to the Ministry of Education (MOE). So, we have to educate on mental health, we have to educate on being green. We have to educate on many things. We will do our best on this.

It is a technical subject; it can be quite complex. Just on ordinary tax, it is tough enough, let alone international tax rules. But the key thing is to put it out in as ordinary, plain layman language as we can. Where possible, we will work with MOE to see what can be included in the general Economics modules. Obviously, students in the Institutes of Higher Learning will have to deal with it, if they are dealing with tax modules. But other than that, I would say that the IRAS website is a good place to start and so are the BEPS websites.

4.53 pm

Mdm Deputy Speaker: Any further clarifications? I see none.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. – [Ms Indranee Rajah].

Bill considered in Committee; reported without amendment; read a Third time and passed.