Reason for Increase in Difference between Corporate Tax Rate and Rate of Effective Tax Payable between FY2014 and FY2015
Ministry of FinanceSpeakers
Summary
This question concerns MP Dennis Tan Lip Fong’s inquiry into the gap between the 17% corporate tax rate and effective tax rates for FY2014 and FY2015, alongside industry-specific tax variations. Minister for Finance Tharman Shanmugaratnam stated that FY2015 data was not yet available and explained that effective rates depend on adjustments to accounting profits to determine chargeable income. He noted that factors such as corporate tax rebates, credits for foreign-sourced income, and time-bound tax incentives for specific activities contribute to rates being lower than the headline rate. The Minister clarified that industry-specific effective tax rates generally vary by only one to two percentage points from the national average. These differences reflect the unique circumstances of individual companies, including their eligibility for tax deductions, allowances, and the nature of their economic contributions.
Transcript
24 Mr Dennis Tan Lip Fong asked the Minister for Finance (a) what is the reason for the increase in the difference between the corporate tax rate and the rate of effective tax payable between FY2014 and FY2015; and (b) why is there a significant gap between the chargeable income and effective tax paid depending on the industry sector.
Mr Tharman Shanmugaratnam: As corporate tax returns for the financial year (FY) ending 2015 are only required to be filed by 30 November 2016 , the effective tax rates for companies relating to FY2015 or Year of Assessment (YA) 2016 are not available yet.
The corporate tax rate of 17% is applied to the chargeable income of a company to arrive at the tax payable. Chargeable income is derived after making the necessary adjustments to accounting net profits, such as for non-taxable gains of capital nature, unutilised losses carried forward from past years, as well as for allowable and non-allowable tax deductions and tax allowance.
A company's effective tax rate can be lower than 17% of its chargeable income due to a variety of factors, for example, corporate tax rebates that impact firms with different levels of profits differently and tax credits allowed for foreign-sourced income which is remitted to Singapore. It may also reflect tax incentives granted for limited duration for qualifying economic activities in Singapore.
As each company's situation is different, rates of effective tax payable may vary across years and across industries. In general, effective tax rates among different industries vary by between one and two percentage points from the average across all industries.