Income Tax (Amendment) Bill

Mr Speaker, Sir, I will touch on the MMT Bill. This is an important piece of legislation with wide-ranging implications for Singapore's economy. As someone who works in a global investment firm, I am deeply interested in how this Bill will impact both our local and international business environments. While I fully support the principle of global tax fairness as stated in the Bill, I have clarifications about the potential impact on our local businesses and Singapore’s competitive edge in the global market.

Mr Speaker, Sir, my first concern is the economic impact on local businesses, particularly SMEs. Although the Bill primarily targets MNEs, the effects could trickle down. If MNEs choose to relocate or scale back operations in Singapore, it could hurt SMEs that rely on these larger corporations for business.

Section 14 outlines the top-up tax chargeable on MNEs, but it is critical to consider the ripple effects that this might have on SMEs. These smaller businesses may lose significant revenue if MNEs move to more tax-friendly jurisdictions.

Are our local SMEs prepared to adapt if MNEs downsize or leave? What strategies are in place to help SMEs diversify their business models? Do we have initiatives to enhance their competitiveness so that they can remain resilient in this shifting landscape?

Mr Speaker, Sir, if MNEs do shift their operations due to this new tax regime, we must equip our SMEs to respond effectively. Government-SME partnerships and incentives for innovation within local industries will be key to help these businesses thrive. I would also urge that we build in support measures for SMEs to mitigate any negative effects from potential MNE relocations.

Mr Speaker, Sir, my second concern relates to the increased compliance burden on local subsidiaries of MNEs, particularly smaller subsidiaries. Sections 31 to 36 deal with registration and record-keeping requirements. These could be challenging for smaller entities with fewer resources.

Has the Government assessed the compliance costs for these smaller subsidiaries? Should we consider exemptions or reduced obligations for those that may struggle with these requirements? Additionally, section 36, which imposes surcharges for failure to register, could disproportionately affect these smaller entities.

Mr Speaker, Sir, we must find a balance between global tax fairness and the practical realities faced by smaller businesses. If not handled carefully, these compliance demands could lead to layoffs or reductions in employee benefits. It is important that we consider exemptions or reduced compliance burdens for smaller subsidiaries, to avoid placing unnecessary strain on local businesses and their employees.

Third, Mr Speaker, Sir, while the MTT is intended to generate additional revenue, there appears to be a lack of clarity on how this revenue will directly benefit Singaporeans. Section 58 touches on the recovery of unpaid MTT. However, it does not specify how these funds will be allocated for the public good.

What is the estimated additional revenue from enforcing this Bill in Singapore? How will these funds be directed to improve public infrastructure, healthcare and workforce development? I suggest the creation of a dedicated fund to ensure that MTT revenues are reinvested into areas that directly benefit Singaporeans. This would not only boost public confidence in the Bill, but also ensure transparency and accountability in how the revenue is spent.

Additionally, could the increased tax revenue be used to support initiatives, such as the RIC or the Research, Innovation and Enterprise (RIE) 2025 plan? These measures will help Singapore remain a competitive and attractive destination for investments while also benefiting our local workforce.

Mr Speaker, Sir, my fourth concern centres on Singapore’s global competitiveness. Section 17, which defines the effective tax rate for MNEs, could make Singapore less attractive to foreign investors. If MNEs find more tax-friendly environments elsewhere, we could see companies relocating their operations.

Presently, there have been MNEs moving their headquarters or downsizing their operations in Singapore. This could be due to a variety of factors, including costs of business. This tax regime could further diminish the allure of having a presence in Singapore.

What measures are in place to prevent this? How will the Bill ensure that Singapore remains an attractive hub for MNEs, even while adhering to global tax regulations? I suggest introducing additional tax incentives for MNEs to reinvest their savings into local workforce development, which will benefit both businesses and our workers. This would position Singapore as not only a tax-efficient jurisdiction, but also an innovation-driven economy.

Furthermore, we must not overlook Pillar One of BEPS 2.0, which reallocates taxing rights to the markets where consumers are based. This could have significant implications for Singapore. I would like to understand the Government’s plans to address these challenges and ensure that Singapore's economy remains resilient in the face of such global changes.

In conclusion, Mr Speaker, Sir, while this Bill aligns Singapore with global tax standards, we must ensure they do not place undue burdens on local businesses. I have proposed several measures in my speech. First, provide targeted relief and resources to help SMEs adapt if MNEs downsize or relocate. Second, consider exemptions or reduced compliance requirements for smaller subsidiaries to avoid excessive strain on local businesses. Third, introduce incentives for supporting initiatives, such as the RIC, and address the implications of Pillar One of BEPS 2.0 to maintain Singapore’s competitiveness.

Most importantly, we must guarantee that the benefits of this new tax regime are tangible within our own communities. Corporations that have thrived in Singapore on our good governance, infrastructure and talent pool should contribute to the public good. We must use the additional tax revenue to strengthen our public infrastructure, enhance healthcare services and upskill our workforce, ensuring that Singaporeans see and feel the direct benefits.

Mr Speaker, Sir, this is a moment for us to reaffirm Singapore’s commitment to fairness and sustainability. We must ensure that our policies support economic resilience and social equity while keeping Singapore an attractive hub for global businesses. I urge the Government to engage closely with MNEs, SMEs and the public to implement this Bill, ensuring it leads to sustainable growth, innovation and shared prosperity for all Singaporeans.

This is our opportunity to ensure that Singapore continues to lead on the global stage while protecting the interests of our people. Let us take decisive action to make sure that this Bill not only promotes global tax fairness, but also builds a more resilient and equitable future for Singapore. Mr Speaker, Sir. I support the Bill.

Mr Speaker, the MMT Bill will put into legislative force the terms associated with the second pillar of the Organisation for Economic Cooperation and Development's (OECD's) BEPS Treaty. Given that Singapore has been a signatory of the original convention since mid-2017 and, four years thence, having signed on to the second phase, this is essentially a ratification of our pre-existing international commitments.

Moreover, the stipulations give effect to a corporate minimum tax that, absent action on our part, as Minister Indranee has shared, would simply afford other jurisdictions the opportunity to apply a top-up tax, if our effective rates were to fall below the minimum threshold of 15%. This will allow others to capture tax revenue that we otherwise could. Given our well-telegraphed future expenditure needs, this would be foolhardy.

For these reasons, the Workers’ Party supports the Bill. Even so, some may caution that subscribing to a corporate minimum tax will erode some of the cornerstones of Singapore’s global competitiveness: our attractiveness to foreign capital. In my speech, I will explain why such fears are probably misplaced and what we can do to avoid it.

Sir, there is a standard refrain for those who believe that BEPS 2.0 will herald an unrecoverable erosion of our nation’s competitive advantage. Absent low taxes, they say, we will be unable to attract the necessary investments from abroad which, in turn, will leave us adrift.

If there were any truth to such a claim, it would perhaps have been applicable half a century ago. It is no secret that, in Singapore, in our formative years as a nation, we did, indeed, rely heavily on attracting foreign direct investments via multinationals. This, in turn, hinged on factors, such as attractive corporate incentives, including tax holidays for multinationals, which kept the effective company tax rate as low as 10%.

Still, even a casual examination of statutory corporate tax rates would reveal that statutory rates were as high as 40% until the late 1980s. It was only later that they were progressively reduced to 32% through the early 1990s, then 26%, then to the 17% that prevails today. Whether this was a belated effort to chase the tail of low costs to sustain our competitive edge, or if it was driven by pressure from foreign businesses to keep rates attractive, I do not know.

What I do know is my belief that we should already have evolved away from such unvarnished tax competition. The determinants of foreign direct investments are, after all, rich and varied. But there is only some mild indication that the corporate tax rate, whether statutory or effective, matters. Indeed, one study that summarised the extant evidence suggests that factors like market size, trade openness and infrastructure quality are between four and seven times more important. Another concluded that: “the effect that tax policy had on foreign direct investment (FDI) was small compared to other factors” and that “tax policy cannot compensate for a negative investment climate”.

One important reason for this relatively muted effect of taxes on FDI is that sufficiently large MNCs will, ultimately, confront foreign taxes on their earnings when their profits are repatriated back to their home country anyway. This could even lead, paradoxically, to a situation where, depending on the tax regime of the home country, raising taxes may even stimulate more investment. Of course, tax treaties designed to mitigate the effects of double taxation may blunt this effect somewhat. However, such treaties have often been found to have little effect on actual FDI flows.

Such conditions are precisely what are being addressed by BEPS 2.0. The new regime targets large MNCs, many of which are already domiciled in higher-tax regimes. While these home countries can now officially apply a top-up tax, many firms would have faced such higher taxes anyway when profits were eventually booked at home for redistribution to shareholders. Furthermore, even compared to our ASEAN neighbors, a corporate tax rate at the 15% minimum remains below the regional average of a little more than 20%. Hence, my sense is that while BEPS 2.0 may hurt at the margin, it is far from being game-changing.

The bottom line, Sir, is simple. As a high-income economy, Singapore’s attractiveness as an investment destination is not, and should not, be fundamentally reliant on low corporate taxes, but on all the other things that set us apart. Lest one takes this as an idiosyncratic opinion, I should stress that this is not just my own conclusion.

According to the World Competitiveness Report, Singapore owes its competitiveness landscape more to our efficient labour market, openness to international trade and investment, and educational and technological infrastructure, all of which we rank in the top three globally, other than our tax policy, where we place 10th. Similarly, our score on the Global Competitiveness Report is due more to our country's transport and utility infrastructure, sophisticated and stable financial system and quality of institutions, as opposed to low taxes.

The reality is that our competitiveness is not anchored in low taxes and it is also reflected in real world investment advisory. PwC, the corporate advisory lists – in a 2022 report – 10 factors that make Singapore the best in class in the region and none of these 10 are about taxes, per se. To the extent that taxes were featured at all, it was in the context of double taxation agreements, which I agree should continue to be a priority for IRAS.

Mr Speaker, in addition to not bluntly competing for foreign capital inflows along the corporate tax margin, we should also be mindful that, given our status as a high-income country, we should not be blindly courting capital either. This is not to say that foreign investment is not important. Rather, it is that we should pursue FDI more for its secondary benefits, rather than for the financing itself.

Singapore is already a capital-rich economy. Where we have fallen short, rather, has been in bringing our levels of productivity and innovative capacity to the global frontier. What should, instead, become ever-more important is a focus on elevating the efficiency of our capital deployment and an upgrading of our technological capabilities. If that comes along with FDI, wonderful. But FDI should not be the goal.

The Government has, for its part, made it clear that it plans to reinvest any excess revenue garnered from participation in BEPS 2.0 back into the economy to ensure competitiveness. I could not agree more.

If we are not to expend our efforts in courting global capital, then, what should we do instead? We should reinvest as much as possible in the human capital of our people, of course, as this will bring not only more bang for the buck, it also comes with improved productivity and innovation. Notwithstanding how money is ultimately fungible, this implies that we should, nevertheless, seriously consider earmarking the funds for R&D, education, or, as my Sengkang colleague will suggest later in his speech, healthcare.

In prior interventions in this House, I had repeatedly emphasised the importance of placing the investment in human capital on at least the same footing as that of physical capital. I had suggested, for example, that funds targeted toward infrastructure development can and should be broadened to accommodate expenditure on training and education or warned that those deigned for productivity improvements do not somehow get diverted toward yet more physical capital accumulation. Even in the most recent context of Prime Minister Wong's Budget Statement this year, I cautioned against the Refundable Investment Credits scheme morphing into some kind of loophole for simply increasing production, rather than R&D or green transition efforts.

I will reiterate the appeal here: that as we reinvest the proceeds from the top-up taxes accruing from BEPS 2.0, we once again consciously channel these toward bolstering our intangible capital, the education and skills of our workers, to generate knowledge and ideas that would keep us at the forefront of the global competitiveness frontier.

At risk of oversimplification, Mr Speaker, let me offer an analogy to the points I am making. We can think of tax rates as parking fees one pays to access a mall. Sure, all else equal, one would probably choose a mall that charges less for parking or offers free parking for the first hour or two. But ultimately, we choose the mall we do because of the range of shops, the price of the goods that are sold there, the quality and service of its restaurants and how pleasant the overall shopping experience is. Such thrusts should be the focus of our investment regime, going forward.

In future, we are likely to see more, not less, of such multilateral economic agreements, led by the major economies. As frustrating as the lack of progress in carbon pricing worldwide has been, especially for those of us that are advocates of the approach, the go-it-first strategy of the EU in implementing its Carbon Border Adjustment Mechanism (CBAM), it is heartening to see how unilateral approaches have nevertheless sparked complementary legislation in other jurisdictions. Similar progress has been made, within the G20, on the rollout of a global wealth tax.

The reality is, international agreements that used to sting as a result of difficulties associated with free-riding, are now finding renewed life, via unilateral mechanisms by major players that better align the incentives of those that would previously have rankled at the prospect of such coordination. It behooves us to play to our nation's inherent advantages, as they exist today and not as they used to be, as we navigate this changing global geoeconomic and political landscape. For this reason, we should, nay, we must, not only embrace the spirit of BEPS 2.0 for our economy, but proactively channel our energies to refreshing our growth model toward the genuine drivers in the 21st century: our people and the knowledge embedded in them.

Mr Speaker, I will be speaking on the Multinational Enterprise (Minimum Tax) Bill, or the MMT Bill. I support the Bill but I have some clarifications to seek from the Minister.

The rules under the MMT Bill implement Pillar Two of the OECD/G20 BEPS framework. These changes represent an important step in our ongoing efforts to align with international tax standards. They introduce a global minimum corporate tax rate of 15% for large MNEs. This move reflects our commitment to ensuring fair taxation while continuing to position Singapore as an attractive destination for business and investment. We are making these adjustments thoughtfully. I thank the Government for its long consultation period with tax professionals before putting these legislative changes forward.

My first clarification has to do with how these new rules fit in with our existing tax treaty network. According to IRAS, Singapore has signed a number of Avoidance of Double Taxation Agreements (DTAs) and these include limited DTAs and Exchange of Information Arrangements. At the moment, we have concluded treaties with around 100 jurisdictions. These treaties have set a firm foundation for us to do business with countries all over the world and they provide certainty on cross-border tax positions.

The new Pillar Two rules deviate from the traditional source and residence-based rules of taxation which our existing tax treaty network is built on and they introduce an additional layer of taxation on profits that may have already been allocated and taxed under treaties.

My first question for the Minister this. Will more detailed guidance be issued on how Pillar Two rules will affect the application of Singapore's current network of DTAs, if at all?

Secondly, to summarise very broadly, the success of the new Pillar Two framework depends on their collective adoption by a "critical mass" of countries. Presently, the United States (US) and China which are the two major economies in the world, as well as key trading partners of Singapore, these two countries have not yet adopted these rules. Does MOF have clarity on how Singapore might be affected if we enact the MMT Bill, but the US and China do not go ahead to implement Pillar Two?

Thirdly, I note that Pillar Two rules are generally enacted through domestic legislation in each participating country. Despite the OECD's Model Rules serving as a foundation, variations will inevitably arise between jurisdictions, in how the rules are written, interpreted and enforced. These differences could lead to prolonged disputes due to unintended consequences or inconsistent application of the Pillar Two rules across different jurisdictions.

MOF has replied in its response to the public consultation on this Bill that the dispute resolution process for Pillar Two matters is presently under discussion by the Inclusive Framework for the global implementation of the BEPS Project. Would the Minister be able to provide a timeframe as to when we can expect to see guidance being issued on these processes?

Prime Minister Lawrence Wong commented in this year's Budget Statement that the implementation of BEPS Pillar Two initiatives will provide additional revenues to the Government in the short term. However, he noted that it was "uncertain" as to how much this additional revenue would amount to, or for how long it would last. He stated that Singapore may even see a reduction in its tax base, should MNEs choose to shift some of their activities to other jurisdictions. Around 1,800 MNEs in Singapore with global revenues above €750 million have an effective tax rate below 15% and thee are the entities that will be affected by the new rules.

While the financial impact of the Pillar Two rules will only play out in FY2027, has the Government, at this stage, identified any specific industries or sectors within the country that are likely to be negatively impacted by the global minimum tax? If so, has the Government considered how to mitigate any employment or other losses that might result from MNEs leaving Singapore? Have any MNEs already indicated that they will relocate as a result of the MMT Bill and if so, what steps has the Government taken or will it be taking to manage any detrimental effects of these relocations?

Although Pillar Two targets large MNEs, its influence will also extend to other areas of Singapore's business landscape. Smaller firms connected to these MNEs, such as suppliers and service providers, could feel the indirect impact. This is a point that the hon Member Mr Yip Hon Weng has brought up as well. For example, if a major company adjusts its operations to better align with new tax requirements, for example, if it shifts its production to a different country or it alters its procurement strategies, this could significantly disrupt its current relationships with local businesses. Its local suppliers may face reduced demand for their products and service partners could see decreased revenue as well. And so my next question is this. What is the Government's outlook on these broader effects and are there any specific challenges that the Government can see at this point in time, which are coming for non-MNEs, with the introduction of the new Pillar Two rules?

To say that the new Pillar Two rules are Byzantine would really be a severe understatement. They import OECD principles and guidelines into our domestic legislation and these are extremely complicated rules. We are not alone in facing this challenge. Many other countries that have implemented Pillar Two rules also faced similar problems with implementation. In many ways, Pillar Two represents a fundamental shift in the way that we view international tax rules.

My next clarifications pertain to how ready businesses are to implement these rules. Compliance with Pillar Two rules will impose additional reporting requirements and prohibitive costs on MNEs. They will need to navigate much more complex tax regulations. As set out in clause 46 of the Bill, surcharges are imposed where MNE groups fail to register and Part 8 of the Bill lists a string of offences and penalties that entities could be exposed to under the new law. To this end, I would like to ask if the Government has any plans to assist to MNEs to meet their new enhanced compliance obligations.

Of course, where there are new and complicated rules to apply, there will also be plenty of opportunities. Trained tax professionals should be able to rise to the challenge of the expanded demand for well-qualified service providers. On this point, will the Government be committing any resources towards the training or re-training of local tax professionals so that they may be well-equipped to serve the demands of this changing tax environment.

Here, I declare my interest as a part-time lecturer in international tax and trade at the Nanyang Technological University. In my personal role as an educator, I see many young people with a keen interest in international tax developments. My own class enrolment has quadrupled over the space of around five years. As we move into a world defined by the developing rules of the BEPs project, would the Government consider devoting more resources to the development of international tax education in Singapore at the tertiary level and beyond?

Finally, many commentators have noted that with the arrival of Pillar Two, competition for foreign investment will no longer be tied to low rates of corporate taxation. Rather, in order to encourage and retain foreign investment, countries will need to present other attractive factors, such as a skilled workforce, political stability, excellent infrastructure, a strong legal system and perhaps, more importantly, a high quality of life. To the specific point of being able to offer our residents a good quality of life, let us not forget that a thriving arts and cultural scene is one of the linchpins of a vibrant and dynamic society. According to National Arts Council's 2023 Population Survey on the Arts, 75% of respondents agreed that arts and culture had the effect of improving one's quality of life.

As noted by a 2021 report from United Nations Educational, Scientific and Cultural Organization and the World Bank, culture and creativity contribute to a so-called "amenity effect" and this is where people and businesses prefer to dwell in places that "foster social interaction and knowledge spillovers". The report also refers to the work of urban economist Richard Florida, who has developed a gauge referred to as the "Bohemian Index". With it, he measures the numbers of certain types of creatives, such as writers, actors and musicians, who are located in different regions and cities. His studies have shown that a high number of creative occupations can be a strong predictor of a region's high-tech industry concentration, density and employment growth. In its assurance to potential foreign investors and expatriates that Singapore offers an excellent quality of life for its citizens and residents, the Economic Development Board (EDB) itself refers to the country's "lively creative arts scene."

As we move forward in a BEPS 2.0 tax environment for foreign investment, I hope the Government continues to prioritise the funding and development of our arts and cultural groups. This is a sector that is not only tied specifically to our creative economy, but to the general well-being of society and the attractiveness of Singapore as a whole. A thriving arts and cultural scene is the lifeblood of a vibrant city. It draws talent, inspires creativity and will make us a magnet for global talent and businesses. Notwithstanding my clarifications, I support the Bill.

Mr Speaker, Sir, the MMT Bill seeks to give effect to Pillar Two of BEPS 2.0. One of the key provisions of the Bill is the introduction of a minimum effective tax rate of 15% for large MNEs that have a consolidated group revenue of at least €750 million annually in at least two of the four preceding financial years.

This will mark a major shift in Singapore's taxation policy, which the Progressive Singapore Party (PSP) supports. PSP believes that more profitable companies should pay more taxes. I first articulated this policy position during my Budget speech in 2023. During that speech, I also spoke about the highly inequitable nature of our corporate tax system, where companies with the highest profits pay the lowest percentage of their profits as tax. For example, I pointed out that companies earning profits before tax of between $200,000 and $10 million paid on average 8% to 9% of their profits as taxes, whereas companies with profits beyond $1 billion pay less than 1% of their profits as taxes.

We hope that the introduction of a minimum effective tax rate for MNEs under this Bill will make for a more equitable corporate taxation system where large MNEs pay their fair share of taxes relative to their profits.

We have debated the impact of this Bill on tax revenue before in this House and it is likely to be substantial, especially considering recent data showing strong corporate earnings following the post-COVID-19 economic recovery. IRAS announced last month that corporate tax revenues increased by $5.9 billion in FY2023, reaching $29 billion or 36% of total tax revenues. The OECD's 2024 Corporate Tax Statistics report showed that large MNEs accounted for 73% of total corporate income tax revenue in 2021. The percentage is likely similar today. If investments and business activities in Singapore remain the same, then we are likely to soon see a very substantial increase in corporate tax revenues.

During the Budget debate in 2022, the Finance Minister cautioned that "BEPS 2.0 represents a fundamental change in the competitive environment for Singapore" and we would likely "need to find other ways to stay competitive, from investing even more in our workers to building new infrastructure and incentivising R&D", and any additional tax revenue from Pillars One and Two would need to be reinvested to ensure Singapore remains competitive. In 2023, he again said that "we cannot afford to price ourselves out of the competition, or else Singapore and Singaporeans will end up the biggest losers".

Singapore does have inherent disadvantages, such as limited land, a small population and a high-cost structure. But we also have strong advantages compared to other countries in the region, such as a highly educated workforce, a well-developed and globally-connected financial system, excellent international connectivity for the movement of people and cargo, respect for rule of law and strong property rights. These advantages will not go away, even after the provisions of the Bill come into effect. It is highly unlikely that all the MNEs in Singapore will pack up and leave overnight just because there will be a minimum effective tax rate after this Bill is passed. What this Bill does represent is a once-in-a-generation opportunity to reshape our tax and incentive structure for companies and our policy towards attracting foreign investments.

For many decades, we have used various tax incentives and schemes to lower effective corporate tax rates and attract foreign investments, especially from MNEs. But such a strategy could never have lasted forever. Other countries could and did replicate Singapore's tax incentives, in whole or in part, creating a destructive race to the bottom where governments across the world slashed corporate tax rates to attract businesses. This trend has only stabilised in recent years with BEPS 2.0.

This imposition of a global minimum corporate tax regime is a step in the right direction that has hastened the inevitable for our nation, which is, the need to make ourselves competitive and attractive to foreign investments in ways other than providing them with economic incentives and low taxes.

As I mentioned earlier, we still have strong advantages as a nation. But the additional economic resources that this Bill provides will allow us to do more. With the additional tax revenue from this Bill, we can help to create a more level playing field between domestic companies and MNEs. The OECD's Corporate Tax Statistics report found that we are the fourth-most dependent economy on large MNEs for corporate tax revenue. Many of the MNEs in Singapore are foreign-owned, and this dependency has increased in recent years.

Instead of pouring all the additional tax revenue back into more economic support for MNEs, we can invest part of the additional revenue in our SMEs, which employed 71% of our workforce as of 2023, and help them leverage on AI and other new technologies, so that they can become more productive and internationally competitive, and hopefully grow into local MNEs of our own. And finally, we can take steps to address our high cost structure. In particular, PSP feels that the rising rent and cost of property is an area that requires urgent attention. Mr Speaker, Mandarin, please.

(In Mandarin): [Please refer to Vernacular Speech.] Mr Speaker, Sir, the Multinational Enterprise (Minimum Tax) Bill we are debating today marks a significant change in Singapore's tax policy. PSP supports this Bill. We believe that more profitable companies should pay more taxes. As I have pointed out in my 2023 Budget speech, our current corporate tax system is highly inequitable, with the most profitable companies paying the lowest percentage of their profits in income tax. Companies with pre-tax profits between $200,000 and $10 million pay an average of 8% to 9% of their profits as taxes, while companies with profits exceeding $1 billion pay less than 1%.

The minimum effective tax rate introduced by this Bill will top up the effective tax rate of the high-profit multinational enterprises in Singapore to 15%. For a long time, our country has relied on low tax rates and tax incentives to attract foreign investments. After this Bill is passed, we will no longer be able to rely on these measures to attract foreign investment.

This Bill provides our country with a rare opportunity to transform our corporate tax and incentive structure as well as our policies for attracting foreign investment. Our corporate tax revenue currently heavily depends on foreign multinational enterprises. PSP believes that we should invest the additional tax revenue brought by this Bill into our SMEs, helping them utilise artificial intelligence and other new technologies to improve productivity and international competitiveness, potentially helping them to become multinational companies.

We must also create a fairer competition environment between local companies and multinational corporations. The additional tax revenue can also provide resources for the Government to take measures to help businesses reduce operating costs, help Singaporeans reduce living costs, and continue to attract foreign investment at a lower cost. In particular, the rise in property prices and rents needs urgent attention.

PSP sincerely hopes that our fourth-generation leaders will use this opportunity to reshape our economic structure, renew our social contract and create a better living environment for Singaporeans.

(In English): This Bill presents us with an opportunity to reshape our economic structure and refresh our social compact, instead of using it towards the same economic playbook that has been used for decades. PSP hopes that the 4G leadership will make full use of this opportunity. PSP supports the Bill.

Mr Speaker, the time has come for us to debate this long awaited but keenly anticipated Bill, for us to implement the GLoBE Model Rules or Pillar Two of the OECD/G20 Inclusive Framework on BEPS. It is a topic which I feel strongly about and have spoken on many occasions, including the last four Budget debates from 2021 to 2024.

As Singapore is one of the 147 countries who are members of the OECD/G20 Inclusive Framework, it is important that at the heart of it all, we adhere to the principles of BEPS and why a global tax consensus on this matter is so important. The rules are designed to ensure that large MNEs pay a minimum level of tax on their income in each jurisdiction where they operate, thereby reducing the incentive for profit shifting and placing a floor under tax competition and bringing an end to the race to the bottom on corporate tax rates. This can only be beneficial to all countries, including Singapore.

In Singapore, corporate income tax is by far the single largest contributor to the Government's budget, more so than the Net Investment Returns Contribution, personal income taxes or even the Goods and Services Tax (GST). Any changes to our corporate income tax policies are going to have the most significant impact to our country's operating revenues, and by extension, our long-term fiscal position and fiscal strategies; that is, if we allow it to be as such, as I will be elaborating further in my speech.

Beyond the technicalities of the tax legislation to be implemented, my first question is on MOF's assessment of the scope and impact of this new legislation.

Broadly speaking, the GloBE rules apply to a multinational enterprises (MNE) group that has a consolidated group revenue of at least €750 million annually in at least two of the four preceding financial years. Just how many of such MNE groups are operating in Singapore as of today, what is their total reported revenues, profits before taxes, corporate income taxes paid to Singapore and their effective tax rates?

Moreover, as with the past decades, many MNEs operating here in Singapore are given various tax incentive schemes and these include the pioneer industries and service companies' incentive, development and expansion incentive, investment allowances, concessionary tax rates for global trading companies, finance and treasury centres, maritime sector incentives – just to name a few. How many of these incentive schemes will still be in force by the time this Bill is operationalised, and what would happen to the effective tax rates of the companies who are currently enjoying these preferential schemes? Would the top-up taxes prescribed by Pillar Two supersede these schemes?

I am reminded of an article on Bloomberg in 2021, which looked into the data collected by the US Internal Revenue Service on US companies' country-by-country filings on where they book their profits and pay taxes. According to the article, "65% of US firms foreign profits are in low-tax jurisdictions, such as Ireland and Singapore, tax-havens like Bermuda, or in stateless entities." What I find most interesting is the finding that the effective tax rate for US companies in Singapore based on the filings is a mere 4% instead of our statutory tax rate of 17%.

It is quite clear to everyone that our statutory corporate income tax rate of 17% in Singapore is low by global standards. But especially with the whole suite of tax incentives on offer, our effective corporate income tax rates are even lower, with some companies under the pioneer tax incentive scheme effectively paying no taxes for a number of years; and companies under various other schemes effectively having tax rates as low as 5%.

Mathematically speaking, it is thus not hard to imagine the potential increase in corporate income tax revenues from implementing a minimum tax rate of 15%, especially when many of these tax-incentivised companies are likely to be the ones who fall under the scope of the Pillar Two rules. What then is the Government's assessment of the potential increase in tax revenues when changes in this Act are implemented from 2025?

In my Budget 2024 debate speech, I shared that the OECD has published a working paper earlier this year, which finds that the global minimum tax "can raise between US$155 billion and US$192 billion of additional CIT revenues per year, with revenue gains accruing to all jurisdiction groups". Moreover, estimated participating countries categorised as "investment hubs", which includes Singapore, would have the largest expected gains from the reforms, with corporate income tax revenues rising from 14% minimum to up to 34%.

Subsequently in his round up speech, then-Deputy Prime Minister Lawrence Wong suggested that based on data points from the OECD, Hong Kong and Switzerland, the range for Singapore could be anywhere from around $2 billion to $11 billion a year and that the Government will provide its own detailed revenue estimates in due course. Will the Minister now be able to provide an update given that most other countries would have enacted or are in the process of enacting these legislations and MNEs would have to adhere to the same set of rules internationally from 2025?

My second question, is the Government's plan to effectively return any additional corporate income tax revenues back to these in-scope MNEs, such that we will not have any additional net revenues going forward?

In Budget 2024, RIC was introduced, which is to be awarded on qualifying expenditures incurred by a company in respect of a qualifying project, during the qualifying period. According to IRAS' website, the credits are to be offset against Corporate Income Tax payable. Any unutilised credits will be refunded to the company in cash within four years when the company satisfies the conditions for receiving the credits. This is introduced in the new section 93B under the Income Tax (Amendment) Bill.

The list of economic activities and qualifying expenditure categories specified by IRAS, however, appear to be notably broad-based in scope and wider than the tax credit schemes in some other jurisdictions, which primarily focus on R&D activities. Qualifying expenditure, for example, covers a whole range of categories including capital expenditure, manpower costs, training costs, professional fees, intangible asset costs, fees for work outsourced in Singapore, materials and consumables and freight and logistics costs.

While more information was said to be available on the EDB and EnterpriseSG websites by 3Q 2024, it is now mid-October and, to date, I have not been able to see any substantive information on RICs thus far. Are there expenditures that do not actually qualify and how would EDB or EnterpriseSG make such a determination as to what activities and expenditure would qualify under RIC and whether objective criteria on the assessment of the quantum of RIC to be awarded will be published in due course?

In my view, the effectiveness of the MNE Bill and the amount of net revenues we collect from in-scope MNEs will substantially depend on the extent of the generosity of EDB and EnterpriseSG towards these MNEs.

What I am also concerned about is that under subsection 51 of the Income Tax (Amendment) Bill, "The Minister may make regulations to carry out the purposes and provisions of this section". This gives the Minister a broad mandate to make regulations concerning RICs and there are two particular areas which I hope the Minister can provide further clarifications on.

First, even though each RIC award will have a qualifying period of up to 10 years and that the credits are supposed to be offset against Corporate Income Tax payable, subsections 30 to 32 effectively enables the company to choose to receive the RIC in cash ahead of the payout date specified, in lieu of being used to offset taxes. What is the rationale for this, how will this be applied and will the Government end up incurring out-of-pocket expenditure, as though it is a grant being given to the company?

Second, under subsection 46, the company can apply for RICs to be given to offset any taxes of one or more of its other related companies under the same group. Would this not go against the principle that RIC is granted to incentivise certain specific economic activities by certain entities and for certain qualifying expenditure only? Again, what is the rationale for this and how will this be applied?

My third question, which is arguably a rhetorical one, is does the Government see Singapore as just another a tax haven? For avoidance of doubt, I strongly believe that we are not a tax haven.

A few weeks ago, Singapore was ranked second in the IMD's World Talent Ranking and fourth in the world financial centres ranking. In June this year, Singapore took the top spot in the IMD World Competitiveness Ranking and, in January, Singapore was ranked the most liveable city for Asian expatriates, among others.

To quote an International Tax and Transaction Services Leader in one of the Big Four Accounting firms, "overall, for the smaller nations like Singapore, the curtailing of tax competition from the global minimum tax proposal will drive a greater focus on economic fundamentals. Singapore's long-standing merits in its institutions, infrastructure, labor market and financial and legal systems – qualities it has conscientiously nurtured for decades – would arguably be an even greater source of distinctiveness."

Should the rollout of the global minimum tax be proceeding as scheduled, I would say, yes, let us not be complacent, but we should take this window of opportunity to adapt and innovate when it comes to considering new economic development models that are more sustainable and less reliant on short-term tax incentives. Let us also be a bit prouder of our non-tax advantages, including our most important asset, Singaporeans themselves, and not fall prey to the thinking that without aggressive tax incentives, we would not be competitive to international MNEs.

Lastly, in addition to GloBE rules, Pillar Two also includes a Subject-to-Tax Rule (STTR). STTR allows a developing country to impose additional taxes of up to 9% on certain payments, such as interest and royalties, that an entity makes to related entities in another jurisdiction, if that payment is taxed at less than 9% in the other jurisdiction.

In September last month, I note that nine jurisdictions signed a new multilateral treaty that will allow early adopters to swiftly implement the new Pillar Two STTR, with 57 countries attending the first signing ceremony of the Multilateral Convention.

The OECD has stated that the STTR is an integral part of the consensus achieved on Pillar Two and is especially important for developing Inclusive Framework members. As such, may I ask the Minister what is the Government's position on STTR, given that this MNE Bill is, as far as I observe, silent on STTR? As the Government often reiterates that Singapore is a developing country, can I confirm with the Minister that Singapore is considered a developing country under STTR and will be able to benefit from this rule?

Allow me to conclude, Mr Speaker, by returning to the first principles of BEPS 2.0, which is that these reforms were introduced to stop the race to the bottom when it comes to sovereign tax policies and to facilitate international collaboration to end tax avoidance.

Should we decide not to adhere to the principles of BEPS 2.0, we once again return to the vicious race to the bottom where countries compete to offer the lowest tax rates in a bid to attract corporate profits, undermining fair competition, penalising smaller local SMEs that cannot engage in aggressive tax planning and, ultimately, weakens national and international economies by depriving it of the resources necessary for sustainable development.

It is only fair that MNEs, which benefit from our skilled workforce, advanced infrastructure and stable regulatory environment, pay their proportionate and fair share of taxes and contribute to our nation building. And by supporting BEPS 2.0, we not only promote a more equitable tax system but also signal our commitment to responsible global governance and economic fairness, thereby dissociating ourselves from the terms tax havens or tax-favoured jurisdictions.

Let me repeat once again that OECD expects all economies to benefit from extra tax revenues as a result of the Two-Pillar Solution. That is all economies. It is perfectly reasonable for the Government to reinvest additional tax revenues, such as through this landmark global tax reform into Singapore's developmental needs. After all, this is the function of Government, to direct our operating revenues, such as from income taxes, into operating and development expenditures across a range of areas, such as healthcare, education and defence. But it is an entirely different thing to roundtrip additional income received from in-scope corporates, back to the same corporates. I hope the additional tax revenues from BEPS 2.0 will not simply be in substance returned to MNEs through other forms but invested in Singaporeans and our collective future instead.

Mr Speaker, Sir, I rise today to support the Bill, specifically the Pillar Two of the OECD/G20 Inclusive Framework on BEPS. This Bill, through the introduction of MTT and DTT, represents a significant step in ensuring that MNEs pay a minimum tax of 15%, reinforcing Singapore's commitment to international tax transparency. Mr Speaker, Sir, in Mandarin.

(In Mandarin): [Please refer to Vernacular Speech.] The MTT provisions, from clauses 21 to 36, are aligned with the global consensus to combat tax avoidance strategies among large MNEs. While we welcome this alignment, I would like to ask the Minister: how will the Government ensure that these new rules, while in line with international standards, will prevent double taxation for Singapore-based entities? Are there robust mechanisms in place to ensure consistency across jurisdictions, avoiding discrepancies in tax treatment?

Singapore has built its success as a global hub for MNEs by maintaining an attractive tax environment. While the introduction of this global minimum tax is important, we must not lose sight of the competitive edge that has made Singapore a top choice for businesses. I urge the Government to consider complementary measures, such as enhancing R&D incentives and talent acquisition programmes, to continue attracting investment in key sectors. These additional policies can ensure that we remain competitive, despite the increasing global tax harmonisation.

Furthermore, if fewer MNCs come to Singapore, it will not benefit our SME ecosystem, and fewer good jobs will be created. Maintaining our appeal to MNEs is essential for supporting both the broader business landscape and job creation.

(In English): Clauses 37 to 94 introduce new registration and compliance requirements. I urge the Government to carefully assess the administrative burden this will place on both the Government and MNEs. Will the Comptroller's office be adequately resourced to manage this increased workload? Moreover, what measures are in place to assist businesses in navigating these complex compliance frameworks, especially in the early stages of the implementation? Clear guidance and streamlined processes will be crucial to ensure smooth compliance and avoid stifling business operations through excessive bureaucracy.

One specific area of concern is the treatment of joint ventures and investment entities. While the Bill includes joint ventures, where the parent holds 50% or more of the ownership interest, certain investment and insurance entities are excluded from the DTT. Could this exclusion incentivise certain entities to exploit the system and avoid paying their fair share of the top-up taxes? I seek clarification on how the Government plans to ensure that these exclusions do not inadvertently open doors to aggressive tax planning.

The Bill's provisions under clauses 49 to 55 allow for a 15-month filing period after the financial year-end, which aligns with the international norms. However, given the complexities of multi-jurisdictional operations, I ask: could we consider offering grace periods or additional guidance for entities facing exceptional circumstances?

Furthermore, the penalties for late payments and non-compliance should deter misconduct without overburdening businesses facing administrative challenges. I suggest that the Government explore a tiered penalty structure to balance enforcement with fairness.

It is anticipated that the introduction of the MTT and DTT will increase tax revenues for Singapore. I propose that we channel these funds into strategic areas that will directly benefit Singaporeans, such as sustainability initiatives, green infrastructure projects and education programmes. By investing in these areas, we can further strengthen our long-term economic goals while enhancing Singapore's competitiveness in the global arena.

In conclusion, Speaker, Sir, this Bill marks a crucial step in aligning Singapore with global tax efforts to ensure fair and transparent taxation of multinational enterprises. However, as we implement these changes, we must safeguard our competitive advantage and ensure that businesses are not unduly burdened by compliance requirements. I look forward to the Minister's response and trust that we can continue to strike a careful balance between global alignment and protecting Singapore's economic interests.