Government’s Method of Assessing and Reporting Average Effective Corporate Tax Rates for Singapore Companies
Ministry of FinanceSpeakers
Summary
This question concerns the Government’s methodology for assessing and reporting average effective corporate tax rates (ETR) for Singapore companies, as raised by Mr Chua Kheng Wee Louis. Minister for Finance Lawrence Wong clarified that the ETR is calculated using chargeable income before applying group relief, loss carry back, or partial and startup tax exemptions. He explained that utilizing this pre-exemption figure ensures the ETR accurately reflects a company’s actual tax burden after factoring in the tax savings provided by these schemes. Minister for Finance Lawrence Wong noted that using this figure prevents the ETR from negating the impact of incentives, which would occur if the standard Section 38 definition were used. He further confirmed that ETRs are calculated individually for each company without netting off losses from unrelated companies against the income of profitable ones.
Transcript
104 Mr Chua Kheng Wee Louis asked the Minister for Finance with regard to the Government’s method of assessing and reporting average effective corporate tax rates for Singapore companies (a) whether chargeable income is that before or after the partial tax exemption and startup tax exemption; (b) whether there is any netting off of losses of loss-making companies against the chargeable income of other profitable but unrelated companies; and (c) whether the denominator is based on chargeable income as defined under section 38 of the Income Tax Act.
Mr Lawrence Wong: To compute the effective tax rate, we use chargeable income before group relief, loss carry back, partial tax exemption and startup tax exemption.
Chargeable income, defined under section 38 of the Income Tax Act, is the figure after taking into account group relief and loss carry back but not partial tax exemption and startup tax exemption. It is used for calculating the partial tax exemption and startup tax exemption that companies are eligible for, and, eventually, the corporate tax that companies are liable for.
We use chargeable income before these four schemes, so that the effective tax rate correctly reflects the tax burden of the company after factoring in the tax savings provided by these schemes. To illustrate:
Suppose a company’s chargeable income before these schemes is $100. If these schemes did not exist, it would pay $17 tax with our corporate tax rate at 17%. Its tax burden or effective tax rate is 17%.
Assuming that these schemes reduce the company’s chargeable income to $50, the company would pay 17% on $50 or $8.50.
By using chargeable income before these schemes or $100 in this example, the ETR is 8.5% ($8.50/$100). This correctly reflects the tax burden of the company after taking into account the effect of these schemes.
If we had used chargeable income after these schemes to compute the effective tax rate, we would have ended up with an ETR of 17%. This would have negated the effect of these schemes, which serve to reduce the tax burden of the company.
The effective tax rate is calculated for each company. There is no netting off of losses of loss-making companies against the chargeable income of other profitable but unrelated companies.