AFTER rising 17 per cent to a new high in the last fiscal year, Singapore’s tax revenue is expected to increase further this year – but more slowly, say tax specialists.
Harvey Koenig, partner, telecommunications, media and technology and tax at KPMG Singapore, said: “There is unlikely to be a significant jump in corporate tax collections next year, in view that the Ministry of Trade and Industry recently narrowed its gross domestic product growth forecast for 2024 to 2 to 3 per cent.”
He added that this forecast is being made amid downside risks, with geopolitical and trade developments possibly dampening business sentiment.
Changes to corporate taxes, entailing the introduction of top-up taxes on multinational enterprises (MNEs), kick in from Jan 1, 2025, and are likely to increase takings.
However, they will not do so until FY2027/2028, due to the timing of tax filing requirements.
These top-up taxes will subject overseas profits of MNEs parented in Singapore to a minimum effective tax rate of 15 per cent, wherever they operate; a minimum rate of 15 per cent will also be imposed on the Singapore profits of these MNEs.
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Corporate income tax (CIT) accounts for the largest share of government revenue, at over a third. Next is personal income tax, which made up more than a fifth in FY2023/2024.
Paul Lau, Asia-Pacific tax policy leader at PwC Singapore, said: “The main driver for an open economy like Singapore’s is the level of economic activity, which is underpinned by foreign direct investments (FDI) and international trade, including the impact of the introduction of a top-up tax on FDI.”
EY Asean international tax and transaction services leader Chester Wee agreed that any increase in tax collections would be “moderated due to a sluggish economic outlook”.
OCBC chief economist Selena Ling pointed out that the US presidential elections could disrupt global trade and investments, given Donald Trump’s threat of tariffs against China and the rest of the world.
Most analysts declined to give specific forecasts. But Sumit Agarwal, a professor of finance, economics and real estate at the National University of Singapore (NUS), said that an 8 to 10 per cent increase in tax revenue in FY2024/2025 would be “very reasonable”, considering growth forecasts.
Ling agreed that the double-digit year-on-year growth in total operating revenue registered for FY2021 to FY2023 is unlikely to be repeated in the next two financial years.
“A more modest, single-digit pace is more realistic,” she said, citing the 4.2 per cent rate budgeted for in Budget 2024.
Still attractive for corporations
Singapore is implementing changes in global tax rules, with legislation for this being introduced in September, including top-up taxes under Pillar 2 of the Base Erosion and Profit Shifting (BEPS) 2.0 framework.
These are expected to bring additional revenue – but it is uncertain how much, or for how long. Furthermore, the increase will not happen yet.
Though the changes kick in on Jan 1, tax collection relating to revenues earned from Jan 1 to Dec 31, 2025 – or in the 2025/2026 financial year, for companies where the financial year does not match the calendar year – will take place only from 2027.
This is due to the requirement that tax filings be done 15 months after the close of the financial year, or 18 months in the case of a transitional year, said Wee.
Meanwhile, the Refundable Investment Credit scheme – a tax credit effective July 2024 awarded to qualifying expenditures – could lower CIT revenues, depending on its take-up, noted KPMG’s Koenig.
Laying out the changes in his Budget 2024 speech, Finance Minister Lawrence Wong said it could shrink Singapore’s tax base if affected multinationals move some of their activities elsewhere in response.
So while top-up tax revenue will not enter coffers yet, indirect effects on investments and economic activity might appear earlier, said the experts.
Lau said: “Investment cycles do not necessarily follow the timing of the introduction of global minimum tax or when top-up taxes are due.”
He added: “That said, Singapore is not the only country having to introduce a top-up tax. Our response to this new tax measure, particularly in offering certainty as multinational enterprises deal with a set of very complex rules, could be a differentiating factor.”
As BEPS 2.0 changes were tabled internationally as early as 2019, they “ought to have been factored into business considerations for new investments”, said EY’s Wee.
He noted that though companies would have known of the upcoming tax, “Singapore’s FDI continues to remain healthy in 2023, demonstrating that businesses are looking beyond just tax in their location assessments”.
Indeed, Prof Sumit expects the Republic’s corporate tax base to continue growing in the near term, given fundamentals such as its stable currency, easy movement of capital, rule of law and good governance.
MNEs are still relocating to Singapore from, for example, Hong Kong, which is continuing to lose its shine as a financial centre.
Prof Sumit noted “waves” of such exits during the protests of 2019, during Covid-19, and now, as China’s geopolitical tensions raise questions about how Hong Kong-based businesses will be treated.
Chua Kong Ping, tax partner at Deloitte Singapore, noted that Singapore’s government has stressed that it will reinvest the revenue from the new taxes to maintain competitiveness – reflecting its awareness of the growing importance of non-tax factors in attracting and retaining MNEs.
Pick-up in personal income tax
Personal income tax is expected to continue growing as salaries go up.
Median wage growth is still expected in a tight labour market, and this should continue to boost personal income tax revenues, said Sabrina Sia, global employer services leader at Deloitte South-east Asia and Singapore.
These collections could also be boosted by changes to tax reliefs and the removal of some concessions, said Panneer Selvam, EY Asean people advisory services tax leader.
The number of tax residents with chargeable incomes of more than S$1 million continues to rise. It was 8,365 in FY2023/2024, up from 7,766 in the preceding FY, going by data from the Inland Revenue Authority of Singapore (Iras).
Ding Suk Peng, workforce tax leader at PwC Singapore, said: “Notably, Singapore’s policy of not taxing individual taxpayers on investment income, such as capital gains and dividends, continues to be a significant attraction for these individuals.”
Furthermore, the highest marginal tax rate for such individuals has been raised to 24 per cent from the Year of Assessment 2024, which should boost takings.
Still, NUS’ Prof Sumit said that the growth in the number of such individuals “may not move the needle much”, as the numbers remain small overall.
“It’s not going to make money so big that it’s going to fund even one of the social welfare programmes Singapore runs,” he said. Their effect on revenue is more likely to be through property taxes, as they buy up expensive properties, he added.
Property tax collections rose 16.5 per cent to S$5.9 billion for FY2023/2024.
Iras said in November 2023 that it expects taxes for most residential properties to rise in 2024, due to higher market rents and annual values, as well as an increase in property tax rates for higher-value private properties.
The government is providing a tiered rebate to cushion this impact, considering higher cost-of-living concerns.
But Ling also noted that property taxes will likely be weighed down by property cooling measures. Last month, the authorities lowered the maximum loan that home buyers can take from the Housing and Development Board to purchase their flats.
