Tax strategy for digitalisation and ESG proposed to Singapore

KPMG and SBF propose new tax initiatives to bolster Singapore's competitiveness ahead of Budget 2024.

In the lead-up to Singapore's Budget 2024, KPMG, in collaboration with the Singapore Business Federation (SBF), has outlined a comprehensive proposal aimed at restoring Singapore's enterprise sector amidst evolving global tax reforms and economic challenges. 

The proposal focuses on digitalisation, environmental, social, and governance (ESG) upskilling, and strategic tax adjustments to maintain and enhance Singapore's competitive edge on the international stage.

Yong Jiahao, Partner of IGH & Manufacturing, Tax at KPMG Singapore, highlighted the pressing challenges Singapore faces, including stagnating international performance, rising business costs, and uncertainties in overseas demand.

"Singapore must elevate its regional leadership in innovation, digitalization, and ESG to attract foreign direct investments," Yong stated, emphasising the critical need for a strategic overhaul to counter these challenges effectively.

The KPMG-SBF proposal introduces a "three ‘E’ framework" targeting elevating innovation and digitalization, equipping local enterprises with necessary skills and tools, and enhancing resilience against rising business costs. 

"These initiatives are designed to foster local talent and establish Singapore as a global hub for technology and ESG expertise," Yong elaborated.

Harvey Koenig, Partner of Telecommunications, Media & Technology, Tax at KPMG Singapore, shared a proposed several tax initiatives in response to the Organisation for Economic Co-operation and Development's (OECD) implementation of a global minimum tax rate of 15 percent.

"While the new tax rules primarily impact large multinationals, it's imperative for Singapore to continue enhancing its tax regime to maintain its attractiveness as an investment location," Koenig explained. 

He said that the proposed tax initiatives included a refundable tax credit scheme for R&D and sustainability activities, which could offer a more favourable outcome under the new global tax framework.

The proposal suggests reevaluating current tax incentive schemes and introducing production tax credits to support renewable energy and green manufacturing, aligning with global shifts towards sustainability. 

Koenig said these measures aim to mitigate the potential erosion of Singapore's tax incentive effectiveness due to the global minimum tax, ensuring the city-state remains a compelling destination for both established and emerging sectors.

Yong and Koenig also recommended revising the participation exemption rules to lower the shareholding threshold from 20% to 5%, potentially increasing investment holding activities in Singapore. 

“[This] will put Singapore in line with the participation exemption rules in various other countries, and hopefully this can potentially then lead to an increase in investment holding activities in Singapore, even in the post BEPS era,” Yong said.