Government’s Method of Assessing and Reporting Average Effective Corporate Tax Rates for Singapore Companies

Mr Chua Kheng Wee Louis asked the Minister for Finance with regard to the Government’s method of assessing and reporting average effective corporate tax rates for Singapore companies (a) whether chargeable income is that before or after the partial tax exemption and startup tax exemption; (b) whether there is any netting off of losses of loss-making companies against the chargeable income of other profitable but unrelated companies; and (c) whether the denominator is based on chargeable income as defined under section 38 of the Income Tax Act.

To compute the effective tax rate, we use chargeable income before group relief, loss carry back, partial tax exemption and startup tax exemption.

Chargeable income, defined under section 38 of the Income Tax Act, is the figure after taking into account group relief and loss carry back but not partial tax exemption and startup tax exemption. It is used for calculating the partial tax exemption and startup tax exemption that companies are eligible for, and, eventually, the corporate tax that companies are liable for.

We use chargeable income before these four schemes, so that the effective tax rate correctly reflects the tax burden of the company after factoring in the tax savings provided by these schemes. To illustrate:

Suppose a company’s chargeable income before these schemes is $100. If these schemes did not exist, it would pay $17 tax with our corporate tax rate at 17%. Its tax burden or effective tax rate is 17%.

Assuming that these schemes reduce the company’s chargeable income to $50, the company would pay 17% on $50 or $8.50.

By using chargeable income before these schemes or $100 in this example, the ETR is 8.5% ($8.50/$100). This correctly reflects the tax burden of the company after taking into account the effect of these schemes.

If we had used chargeable income after these schemes to compute the effective tax rate, we would have ended up with an ETR of 17%. This would have negated the effect of these schemes, which serve to reduce the tax burden of the company.

The effective tax rate is calculated for each company. There is no netting off of losses of loss-making companies against the chargeable income of other profitable but unrelated companies.