Round Up Speech by MOS Alvin Tan for the Economic Expansion Incentives (Relief from Income Tax) (Amendment) Bill

1. Mr Speaker Sir, I thank Members Mark Lee as well as Associate Professor Jamus Lim for their support of the Bill and also for giving me the opportunity to make some clarifications. Let me start as there is a lot going on in both their speeches, so allow me to take them one by one.

2. Mr Mark Lee asked for greater clarity on the activities supportable under the Approved Royalties Incentive (ARI) scheme, and highlighted the importance of refreshing our slate of incentives to align with BEPS 2.0 rules. These are quite similar to what the Associate Professor had also mentioned.

Clarification on the Approved Royalties Incentive

3. Allow me to first clarify on the ARI. There is no change in the scope and intent in terms of what the Government seeks to support under ARI with this enhancement of the approval approach, from an agreement-based approach, as I mentioned earlier on, to an activity-based approach. I agree with the Member on the need for clarity over the scope of an “approved activity”, and I wish to assure Members that this new approach would be no different from the approach we already take for other tax incentives such as the Development and Expansion Incentive or DEI as I mentioned earlier on. Given that we aim to attract investments of different profiles and across sectors, the approved activity could vary from project to project. EDB will indeed work with companies to define what the “approved activity” would mean in the context of a particular investment. And it is in the interest of both the company as well as the Government for this to be very clearly articulated.

Ensuring relevance of our incentives in light of BEPS 2.0

4. Mr Mark Lee also correctly noted the implementation of Pillar 2 of BEPS 2.0 could reduce the effectiveness of certain tax incentives, since Multi-National Enterprises (MNEs) with consolidated annual revenues of at least €750mil will have to bear a METR minimum effective tax rate of 15% wherever they operate.

5. Professor Jamus Lim mentioned this as well - while this means that we must work even harder to secure Singapore’s competitiveness as an investment location, I would like to emphasise that tax incentives will remain an important tool for us for two reasons.

6. First, multinationals under the revenue threshold of €750mil are not in-scope of Pillar 2, and would thus continue to benefit from concessionary tax rate incentives. That’s the first one. Second, the Minimum Effective Tax Rate (METR) of 15% under Pillar 2 does not apply in fact to withholding taxes, which the Approved Foreign Loan and Approved Royalties Incentive ARI seek to reduce. Members can be assured that the Government maintains a high bar in terms of the commitments expected from recipients of these incentives. And we will in fact hold the incentive recipients accountable for their commitments and will not hesitate to amend or withdraw the incentive in the event of breaches, especially if these breaches are wilful ones.

7. I would also like to thank Members for the suggestions on the different types of incentives that may comply with the Pillar 2 of Global Anti-Base Erosion (GloBE) rules. The Government reviews and refreshes our incentive toolkit on an ongoing basis, even as we strengthen our non-incentive advantages such as the ones that Professor Jamus Lim had mentioned, our talent pool, our infrastructure and our connectivity. And we will take the Members’ suggestions into account during these reviews.

8. Now, companies take the total costs of the business into account. They don’t look at withholding taxes just in isolation. And we consider providing concessionary withholding tax only if that’s necessary to anchor the investment here in Singapore, for the benefit for Singaporeans.

9. To Professor Jamus Lim’s question, there is actually no change in the intent of ARI. The aim is and has always been to anchor economic benefits into Singapore, and we are just making it easier to administer it for companies, and that helps to spur investments into Singapore. I hope that clarifies.

10. We consider tax investments notional in nature. If not for these incentives there is very real potential that investments may not be here, in which case there is just no tax to collect in the first place. So I fully agree on the need to strengthen our tax proposition and we are working hard on all of the national advantages that Singapore has, that I think this House and Professor Jamus Lim in the past had also mentioned. So I thank both Members for their views.

Importance of tax incentives in spurring economic development

11. Let me reiterate in closing that our tax incentives are really useful tools through which our economic agencies like Enterprise Singapore, EDB, and the rest are able to attract new investment commitments into Singapore. And we know for this that we would provide tangible economic benefits in the form of value-added, in the form of business expenditure, and ultimately what we want in this House, good jobs for Singaporeans. And among the variety of support tools available, tax incentives have been one of the most economically efficient as the tax benefit is premised on the company being profitable, and we have good success in securing substantive business investments and also generating positive economic outcomes. Regardless of their country of origin or the size, firms can stand to benefit from tax incentives as long as their investments are able to generate substantive economic outcomes like the ones I just mentioned. And I hope that we can continue to anchor more firms and new capabilities in Singapore as the economy grows, and as developments including the METR as well as BEPS evolve over time. Through the use of these incentives, there will also be benefits generated to the local ecosystem through the transfer of tech capabilities and skillsets to SMEs, as Mr Mark Lee had mentioned and we emphasised.

Conclusion

12. Mr Speaker, I would like to emphasise and assure Members of this House that the Government is committed to maintaining a business-friendly environment here in Singapore. We will continue to take in Members’ views, requests and comments in reviewing the effectiveness of our incentives regularly, in order to better influence investors’ investment decisions, and ultimately help Singaporeans and Singapore businesses capture economic value generated through these investments. We look forward to the continued support of this House in our endeavours.

13. Thank you.