Budget 2023: Top consultancy firm wants re-evaluation of tax incentives for businesses

Deloitte made the call amidst developments in the BEPS 2.0 initiative.

Ahead of the 2023 budget, Deloitte has called on the government to re-evaluate the tax incentive landscape for business given that there had been developments to the Base Erosion and Profit Shifting (BEPS) 2.0 initiative

The consultancy firm, particularly, recommended that the government study what other tax jurisdictions are doing or intend to do in response to BEPS 2.0.

It also proposed that the government introduce expenditure-based rather than income-based tax incentives and a targeted activity incentive framework rather than a broad-based incentive framework. 

“We propose that the Singapore Government commissions a study or analysis of what similar tax jurisdictions are doing or plan to do in response to a post-BEPS environment. This study could explore the potential pros and cons of using Qualified Refundable Tax Credits (QRTCs), Research and Development (R&D) tax credits and other fiscal and non-fiscal support to attract investments,” said Yvaine Gan, Global Investment & Innovation Incentives Leader, Deloitte Singapore.

The government has earlier announced that it will consider implementing a Minimum Effective Tax Rate (METR) in response to the BEPS 2.0. Such a move will top up a multinational enterprise group’s effective tax rate in Singapore to 15%

“We understand that there is no desire to introduce the METR as a matter of urgency, and support this approach. It would not be in Singapore’s best interest to be the first mover in enacting the Pillar Two rules domestically,” Deloitte said.

“Instead, it would be more prudent to wait until international consensus on domestic implementation options are formed while studying the impact and design of the rules in the meantime. This will give Singapore the ability to quickly enact the rules when required,” Deloitte added. 

Deloitte explained that whilst Singapore currently provides many tax incentives as one of the key policy tools to attract foreign investments, “such tax incentives may no longer be as effective in light of Pillar Two, which requires large multinational entities to pay a minimum Effective Tax Rate of 15% regardless of where they are earned.”

“Singapore may need to shift away from traditional tax incentives and consider other measures to promote investments. Pillar Two and its potential impact are high on the agendas of many,” the firm added.

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