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Opening Address by Ms Indranee Rajah, Minister in the Prime Minister's Office, Second Minister for Finance and Education at the IFA Singapore Branch - Tax Academy 2019 Digital Tax Conference on Friday, 4 October 2019 at Sheraton Towers

04 Oct 2019

Mr. Allen Tan, Chairman of the International Fiscal Association (IFA) Singapore Branch,

Mrs. Eng-Tay Geok Lee, Chief Executive Officer of the Tax Academy, 

Distinguished guests,

Ladies and Gentlemen,

1. A very good morning to everyone. I am extremely pleased to join you at the IFA Singapore Branch – Tax Academy 2019 Digital Tax Conference.

2. Digitalisation is a major force of change, bringing in its wake many novel business models. Blockchain technology, artificial intelligence, augmented reality – these are some examples of technological advances in recent years, which are transforming how we live, work and play. But that is not all there is to digitalisation.

3. The digitalisation of the economy has also elicited tax policy responses from governments all over the world, in the domains of direct and indirect taxation. Today, I will focus largely on the international tax policy developments on direct taxation.

International developments on indirect taxation

4. On indirect taxation, Singapore has made changes to our Goods and Services Tax (GST) regime.  These ensure that local and overseas service providers are accorded the same GST treatment when they sell to local consumers and businesses. Like many jurisdictions before us, we will introduce GST on imported services from 1 January 2020. 

5. Some jurisdictions, such as Australia and New Zealand, have also introduced Value-Added Tax (VAT) on imported goods, including those sold via digital platforms. We are reviewing these international developments before deciding whether to extend a similar GST treatment on low-value imported goods. 

International developments on direct taxation

6. In 2015, the Organisation for Economic Co-operation and Development (OECD) finalised the 15-point Action Plan to combat Base Erosion and Profit Shifting, also known as BEPS. Singapore, as a member of the Inclusive Framework on BEPS, has been an active participant in the work. 

7. Fast forward to June 2019, and the G20 endorsed a Programme of Work for the Inclusive Framework on BEPS to develop a global consensus solution by 2020, to address the tax challenges arising from the digitalisation of the economy.

8. Many in the audience would now be familiar with the two-pillar approach under the Programme of Work. Pillar 1 reviews rules which determines where and how much corporate profits are allocated and taxed; and Pillar 2 proposes a minimum effective tax on businesses, regardless where they operate in. Some have called these measures “BEPS 2.0”.  

9. The two pillars currently being studied under “BEPS 2.0” affect economies across the board, and are not limited to just highly digitalised business models. “BEPS 2.0” essentially seeks to (i) re-allocate taxing rights to jurisdictions where consumers are (“market jurisdictions”) and (ii)  to put a floor on tax competition.

10. With the advent of new, digitally-intensive business models, there are merits to the notion that international tax rules may need to be modified to capture new forms of value creation in the economy to ensure that countries can get their fair share of taxes. The crux is how do we do so in a principled way, so that our tax rules can keep evolving with new business models?

11. The existing principle underpinning the allocation of taxing rights provides that profits are taxed where the underlying activities are performed, in other words, where economic substance reside.

12. Under Pillar 1 being studied for “BEPS 2.0”, the proposed re-allocation of taxes to market jurisdictions means that the basis for allocation of taxing rights starts to move away from substance towards the size of the market. This move carries with it far-reaching implications, especially for smaller economies or developing countries. Beyond short-term gains in tax revenue, what do we see in the longer run? Without a sound basis underlying the re-allocation of taxing rights, can there be an enduring equilibrium, and certainty for businesses and governments? Will there still be a level playing field for all economies?

13. Singapore has been actively participating in discussions at the Inclusive Framework on BEPS. These discussions have benefitted from the industry’s feedback provided to the OECD at the Public Consultation exercise in March 2019, as well as feedback obtained through our ongoing engagement efforts. Ultimately, it is in the collective interest of all stakeholders to ensure that the consensus-based solution is anchored on sound economic principles, given the fundamental nature of the proposed changes. 

14. What then is Singapore’s position on “BEPS 2.0” developments? As a small open economy, Singapore believes in a rules-based international order. The domain of international tax is no exception. We advocate that the global consensus solution be based on two principles.

a. First, the international tax framework must continue to support global economic growth and innovation.

b. Second, any change in tax rules must continue to give room for jurisdictions to pursue their own policy mix appropriate to their circumstances and developmental needs.   

15. Let me take each of them in turn.  Firstly, on the international tax framework and its role in supporting global economic growth and innovation. The cross-border allocation of corporate profits has long been anchored on the concept of value creation – that profits should be taxed where value is created. This is one of the cornerstones of international taxation. 

16. The value creation concept has its merits. Chiefly, it aligns tax outcomes with companies’ deployment of economic substance and more broadly, economic realities. Equally vital is the effect of applying the value creation concept – any jurisdiction that is able to develop its competitive advantages such as having a skilled labour force and quality infrastructure can ascend the global value chain. Accordingly, they are rewarded for their competitiveness in anchoring substantive economic activities. Big and small economies alike. This is sound and it is fair. 

17. As detailed in the OECD’s 2018 interim report, some view the value creation concept as being inadequate in fully capturing the characteristics of highly digitalised businesses. For these newer and highly digitalised business models, Singapore supports a robust discussion on how improvements can and should be made to the existing tax framework to reflect the new forms of value creation. The pillar of value creation underpinning the current international tax framework should continue to stand strong, by incorporating new features. 

18. In contrast to the value creation approach, a destination-based approach, which allocates taxing rights and corporate profits, based on the size of consumers’ markets would distort firms’ and governments’ behaviour. If “BEPS 2.0” focuses excessively on allocating profits towards where the market is, firms would have reduced incentives to invest in innovation activities as well as research and development. Governments that have previously invested in building a conducive business environment might find less motivation to continue doing so. It is therefore vital that any changes must continue to encourage firms and governments to invest and innovate, so that we can grow the global economic pie to everyone’s benefit. 

19. Let me now speak on the second principle.  Singapore supports a consensus-based solution that continues to give room for jurisdictions to pursue their own policy mix appropriate to their circumstances and developmental needs. Every government is sovereign in determining how much to spend and how it raises its revenue to finance such spending. The optimal revenue mix for one jurisdiction may simply not work for another. For example, a country with an aged population and an unequal wealth distribution may decide to focus more on consumption- and wealth-based taxes. Its income tax rates may then be lower than other countries. But this should be a decision for its own government to make, and to retain popular support for.

20. For smaller or developing economies looking to attract investment and stimulate growth, there is scope for them to have at their disposal a range of policy tools which include certain tax incentives to attract new economic activities with substance. Such activities can range from needed new infrastructure like power stations, to manufacturing plants with high standards of environmental protection.

Singapore is committed to working with businesses and workers to transform our economy. 

21. The international tax development is one of the aspects of current global uncertainties such as ongoing trade tensions between the US and China, growing risks from the rise of economic protectionism, and the slowdown in the global economy, just to mention a few. 

22. Singapore has taken and will continue to take steps to strengthen our competitiveness. We have constantly made efforts to make Singapore a conducive place for doing business. Whether it is through maintaining a skilled workforce, creating a vibrant ecosystem for businesses, or upholding the rule of law, we are committed to ensuring that it is easy to do business here.

23. We have always invested and will continue to invest heavily in developing our human capital, providing Singaporeans with good education to enable them to have good jobs and opportunities. Firms thus have access to a skilled workforce. With increasing technology disruption, we are focusing on lifelong learning through initiatives like SkillsFuture and the Adapt and Grow initiatives. They help workers keep up with rapid industry and technological changes. Businesses also have a part to play in stepping up training and job redesign for their workers. Highly skilled workers make companies stronger and vice versa.

24. The Government will also continue to work with businesses to augment their ability to transform and become world-beaters. Be it in venturing into new markets abroad, or working with research institutes to pioneer new product lines, the Government will partner businesses in their transformation journey. We are working on making our initiatives more enterprise-centric, for example, by allowing businesses to access various schemes through a single touchpoint. The aim is to create an eco-system where businesses can flourish and complementary services such as logistics and cold chains are of high quality and readily available. This places Singapore as a suitable base for businesses looking to invest in one of the most rapidly developing regions of the world – ASEAN and Asia.

25.   More importantly, businesses must continue to recognise the value of collaborating with each other. Firms are not alone in their challenges, and can partner each other to achieve better outcomes. To facilitate such collaboration at the industry-level, the Government works actively with Trade Associations and Chambers (TACs) to build industry-wide capabilities, to help individual firms overcome their limitations of size. With Singapore Together, our businesses will be well-supported in their growth and competitiveness.


26. As we commemorate our Bicentennial, let us take heart that we have overcome many difficulties and blazed bold new trails. The future may sometimes seem uncertain, but as long as we all work together as one Singapore, I am confident that we will be able to forge ahead and emerge stronger, come what may.

27. With this, I would like to wish all participants a fruitful conference ahead. And to our guests who have travelled to Singapore to attend the conference, I hope you have a pleasant stay here. 

28. Thank you all very much.