Corporate Tax Rate and Rate of Effective Tax Payable Between FY2014 and FY2015

Parliamentary Question by Mr Dennis Tan Lip Fong:

To ask the Minister for Finance (a) what is the reason for the increase in the difference between the corporate tax rate and the rate of effective tax payable between FY2014 and FY2015; and (b) why is there a significant gap between the chargeable income and effective tax paid depending on the industry sector.

Reply by Deputy Prime Minister Tharman Shanmugaratnam:

1. As corporate tax returns for the financial year (“FY”) ending 2015 are only required to be filed by 30 November 2016^[1] , the effective tax rates for companies relating to the FY 2015 or Year of Assessment (“YA”) 2016 are not available yet.

2. The corporate tax rate of 17% is applied to the chargeable income of a company to arrive at the tax payable. Chargeable income is derived after making the necessary adjustments to accounting net profits, such as for non-taxable gains of capital nature, unutilised losses carried forward from past years, as well as for allowable and non-allowable^[2] tax deductions and tax allowance.

3. A company’s effective tax rate can be lower than 17% of its chargeable income due to a variety of factors, for example, corporate tax rebates that impact firms with different levels of profits differently, and tax credits allowed for foreign-sourced income which is remitted to Singapore. It may also reflect tax incentives granted for limited duration for qualifying economic activities in Singapore.

4. As each company’s situation is different, rates of effective tax payable may vary across years and across industries. In general, effective tax rates among different industries vary by between one and two percentage points from the average across all industries.

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^[1] This filing deadline is extended to 15 December 2016 if businesses e-File their tax returns. 

^[2] Non-allowable expenses have to be added back to the company’s accounting net profits to arrive at the chargeable income. For example, deductions for expenses that are capital in nature or not incurred in the production of income are not allowable. These include bad debts (from non-trade debtors) and goodwill payments.