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Securing Singapore’s Revenue Base Amid New BEPS Environment

A Precious Window To Invest In Attracting, Retaining MNEs

If last year’s Budget was a Valentine’s Day present, Budget 2024 could perhaps be called a generous birthday gift, falling as it did on the auspicious seventh day of the Chinese New Year known as “Renri”, or every man’s birthday.

On Friday, February 16, Deputy Prime Minister and Finance Minister Lawrence Wong laid out how the government projects to spend S$131.4 billion (US$97.5 billion) in the financial year 2024. The biggest chunk will go to social spending to refresh our social compact and uplift the living standards of the low-income.

Managing a nation’s budget is no mean feat. Yet, there is a simple truth at the heart of it: to be able to spend, the government must have sufficient and sustainable revenue sources.

Corporate income tax revenue continues to be the main source of government revenue, putting aside the Net Investment Returns Contribution (NIRC) – and the recurrent debates about how much of the investment returns of our reserves should supplement the annual Budget – which is less predictable.

In the financial year 2023, corporate income tax collections were higher than expected at S$28.38 billion, which made up 27% of the total operating revenue.

The immediate challenge is to maintain this reliable source of revenue, given that there is little leeway to work on the Goods and Services Tax (GST) or wealth taxes after recent hikes.


A similar target of S$28 billion set for the coming year may well be in sight – as long as companies remain profitable and the economy grows at the projected range of 1% to 3%. But there are external risks that may threaten this revenue base.

Notably, the Base Erosion and Profit Shifting (BEPS) 2.0 initiative will fundamentally change international tax rules.

BEPS 2.0 is an Organisation for Economic Co-operation and Development (OECD) project that aims to ensure multinational enterprises (MNEs) pay a fair share of tax instead of avoiding it though loopholes and mismatches in a global operating environment. It comprises two pillars.

On Budget Statement delivery day, DPM Wong announced Singapore will go ahead with plans to implement two components of Pillar Two from 1 January 2025. Pillar Two establishes a global floor on corporate tax for large MNE groups – with global annual revenue of at least €750 million (US$808 million) – with a 15% minimum effective tax rate regardless of where they operate.

The first component – the Income Inclusion Rule (IIR) – means MNE groups parented in Singapore will have their overseas profits subjected to the 15% minimum effective tax rate here, even if they operate overseas. The second component – the Domestic Top-up Tax (DTT) – applies to MNE groups operating in Singapore that are parented elsewhere. Instead of paying the 15% minimum effective tax rate in their parent jurisdictions, they will pay any top-up tax in Singapore.

So long as the affected MNE groups stay put in Singapore, there should be additional revenue in the short term.


But it will be hard to project how much and how long the additional corporate income tax revenue will last. Will the affected MNEs stay in Singapore or move to jurisdictions that they find more favourable?

DPM Wong was clear in reiterating that any additional revenues that may result from Pillar Two will be reinvested, for Singapore to stay competitive in a post-BEPS world.

More importantly, while we protect our revenue base by keeping the MNE groups here, we should also aim for gradual growth of this corporate tax revenue by enticing MNE groups not currently operating in Singapore to relocate here.

This is where the newly introduced Refundable Investment Credit (RIC) plays an important role, to help Singapore remain competitive and attract investments from global companies. Promoted activities may include innovation and research and development, investing in a new manufacturing plant or establishing headquarters. The credits can be used to offset against corporate income tax payable. Any unutilised credits will be refunded to the company in cash within four years from when it satisfies the conditions for receiving the credits.

With the implementation of Pillar Two, MNE groups may feel that any benefit that they may potentially derive from tax incentives currently offered in Singapore – historically an integral part of the fiscal toolkit in attracting foreign investments – will be negated with the top-up to the minimum effective tax, whether payable in their home jurisdictions or Singapore.

However, with RIC which will be designed within BEPS 2.0 rules, this dilution of the benefit will be minimised. The cash feature, which acts like a grant, will help to cushion the huge expenditure that they would have to commit to, to anchor their activities in Singapore.


Time will tell how the MNE groups will respond to the changing business environment and whether the RIC will bear fruit.

In the meantime, Pillar One of BEPS 2.0 has been delayed, and its implementation date is still unclear. This is in Singapore’s favour.

When implemented, Pillar One will certainly result in revenue losses. A portion of the affected MNE groups’ profits would no longer be taxed in Singapore for conducting their economic activities here but instead be taxed in the jurisdictions where their customers are. Singapore would be at a disadvantage due to its smaller domestic market, unlike populous countries such as China and India.

So this is a precious window for Singapore to invest in attracting and retaining MNEs in Singapore, to secure its corporate tax revenue base.

Government expenditure is expected to continue rising. Budget 2024 is the first instalment of programmes under the Forward Singapore roadmap to build our shared future together.

Besides securing the corporate tax base, we will need to continue relying on the full range of taxes – GST, individual tax, and wealth taxes such as stamp duty and property tax, and perhaps even consider new ones down the road – to ensure we have the means to make the shared vision a reality.

Simon Poh is Associate Professor (Practice), Department of Accounting, NUS Business School, National University of Singapore (NUS). An edited version of this commentary was first published in CNA online on 19 February 2024.

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