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Maintaining Singapore’s competitiveness
Singapore has been one of the best places in the world for business and remains so. Based on the International Institute for Management Development’s World Competitiveness Ranking 2022, Singapore ranked first among 63 countries in 2022 in terms of international trade, with an overall country ranking at third place. The country has also been commended for its balanced handling of the pandemic, which added to its allure as a place to center business operations.
The Occasional Paper on Medium-Term Fiscal Projections released by the Ministry of Finance noted that the base erosion and profit shifting (BEPS 2.0) initiative spearheaded by the Organisation for Economic Co-operation and Development could result in a net fiscal impact that “may not be favorable” to Singapore.1
Indeed, BEPS 2.0 impedes Singapore’s use of tax incentives to attract new investments, potentially impacting the nation’s competitiveness. Pillar 1 aims to reallocate tax revenue from where activities are conducted to where consumers are located, impacting small economies like Singapore. Under Pillar 2, large multinational enterprises (MNEs) with an effective tax rate (ETR) in Singapore less than the global minimum corporate tax rate of 15% may see other jurisdictions collect the difference of up to 15%.
DPM Wong announced that the implementation of Singapore’s Domestic Top-up Tax (DTT) is currently planned for 2025, subject to further alignment with broader international developments. The DTT will be required to preserve Singapore’s tax integrity once BEPS 2.0 is implemented and seeks to top up the MNE’s Singapore ETR to 15%.
Both the Pioneer Certificate Incentive and Development and Expansion Incentive award schemes will be extended to 31 December 2028. This continues to encourage companies to anchor high value-added activities in Singapore. Although the effectiveness of these schemes after the DTT implementation would need to be evaluated, the government is keeping the toolkit comprehensive and tax incentives available for companies that find them useful. Companies can assess these incentives in conjunction with other available industry development schemes.
Transformation amid slower growth and higher costs is challenging. In a recent Singapore Business Federation survey, 97% of businesses expect inflationary pressures to persist in 2023.2 The top challenges faced by businesses include increases in business costs as well as the availability and retention of manpower.
There is no silver bullet for the long-standing manpower woes of businesses. Budget 2023 provides support measures, such as Jobs-Skills Integrators, employment credits for hiring senior workers, people with disabilities and ex-offenders as well as a top-up for the Progressive Wage Credit Scheme by S$2.4b. Businesses should take the opportunity to make the most of available government support.