Impact of G7 Agreement for Global Minimum Corporate Tax Rate on Singapore's Ability to Attract MNCs

Mr Speaker, as the Finance Minister has mentioned, last week, about 130 countries and jurisdictions, including Singapore, agreed to reform international taxation rules under the Base Erosion and Profit Shifting (or BEPS) 2.0 Project. Details on the final parameters, design and implementation will need to be discussed in the coming months. Therefore, there remains significant uncertainty in terms of the possible impact on Singapore and the sectors which will be most affected.

When the details have been finalised, all jurisdictions will need to adjust their tax regimes to be compliant with the new rules, or cede tax revenue to other jurisdictions. We are closely monitoring developments and have been engaging industry stakeholders to understand their needs so that we can better formulate our response. As we adjust our tax system, we will aim to minimise the compliance burden for businesses and ensure that Singapore continues to be an attractive place for business.

After all, Singapore’s competitiveness goes beyond our taxation rates. Key fundamentals such as our strategic location and international connectivity, excellent infrastructure, the rule of law and skilled workforce remain strong. However, we must not be complacent. We are, therefore, redoubling our efforts to enhance our competitiveness and improve our business environment, for example, through upgrading our Industry Transformation Maps (ITMs). We are confident that investors will continue to find Singapore a compelling place to do business, and our economy can continue to thrive in the new environment.

Mr Speaker, I thank the Minister for answering my question. I have two supplementary questions. The first is a simple question: the impact of Pillar Two. Will there be a risk of existing firms moving out? And I am referring to the United States (US) Inland Revenue Service filings which indicated that Singapore's share of US firms' foreign income taxed is second highest in the world at about 7.5% after Bermuda, and which indicates that US firms' here, for example, have about 165,136 people working for them, not to mention the cascading effects of some of these US firms in terms of subsidiary employment for Singaporeans. So, my first question is: will there be risk of these US firms moving out?

The second question is whether the Ministry of Trade and Industry (MTI) is reviewing its strategies to attract multinational corporations (MNCs) in light of this change and what are those strategies? I think the Minister has mentioned briefly the non-tax factors but how much more can we improve to enhance even further those non-tax factors and to attract more firms coming in, year after year.

I thank the Member for the two important questions. Yes, indeed, US firms play a very important role in Singapore's economy. They provide significant employment and good employment to Singaporean workers. But it is not just the US firms. I think BEPS 2.0 is going to affect all countries and, therefore, it is important for us to take a holistic approach, look at the entire business environment. We are doing quite a few things to ensure that we remain competitive.

Mr Saktiandi asked whether there is a risk of firms moving out of Singapore. The risk exists and they exist today even. Companies will do their calculations and they do that almost yearly to decide whether they are going to continue to be in Singapore, to continue to invest more in Singapore or to move somewhere else. That is why we cannot take it for granted, as I mentioned, and as the Finance Minister also underscored. We need to continue to ensure that our business environment remains effective and competitive.

What are the things that MTI is looking at doing? First, we have to continue to invest in our infrastructure, to ensure that we provide a very efficient infrastructure to allow our companies to operate here in a very cost-effective way. Secondly, we need to extend our connectivity. I have entered into several Free Trade Agreements (FTAs) and we continue to sign FTAs. We are looking at the various new opportunities for us to enter into new trade agreements including in areas such as renewable energy, green and digital economy.

Over the last few weeks since I took on the job, I have been talking to our counterparts in other countries almost on a daily basis to develop new connections, to allow our companies to expand beyond the confines and the limitation of our physical size.

We also want to encourage companies to invest in productivity and upgrading, so that they can continue to be cost-effective, and there are many schemes that we have offered. I cannot detail all of them here; I am sure Members are aware there are a lot of support schemes to encourage and support companies to become more productive. Particularly, for tech companies, we have a lot of incentives and support for investment in research and development. This will anchor a knowledge-based economy, an innovation-driven economy, in Singapore. We have to do all of these in order to keep Singapore competitive.

We must remember that BEPS 2.0 is one of many threats that could affect our competitiveness and we cannot remain static. There is a Chinese saying: 逆水行舟, 不进则退. In business, it is the same. If we stop at where we are and hope that we will continue to thrive and to be vibrant, we will be in trouble. We have to constantly be on the move, look out for opportunities, continue to restructure, reorganise and reposition ourselves for new opportunities that will come our way.