Second Reading Speech by Second Minister for Finance, Ms Indranee Rajah, on the Income Tax (Amendment) Bill and Multinational Enterprise (Minimum Tax) Bill

1.   Mr Speaker, I beg to move, ‘That the Bill be now read a second time’.

2.   Mr Speaker, in addition to this bill, Income Tax (Amendment) Bill, I will also be moving later today, the Multinational Enterprise Minimum Tax Bill, or the MMT Bill for short. And I seek your consent to have the two Bills debated together for the following reasons.

3.   Both Bills are closely related because they levy taxes on businesses’ income. The MMT Bill will also be construed as one with the Income Tax Act, if passed into law. It shares certain common provisions with the Income Tax Act, such as the powers of the Comptroller and service of summons. As such, I propose that both Bills be debated together, so that I may address issues from both Bills holistically. But we will still have a formal Second Reading of the MMT Bill to comply with the procedural requirements.

Introduction

4.   The provisions of these two Bills are to implement the changes to our tax regime announced earlier this year in Budget 2024, as well as those arising from other policy reviews. They are intended to:

a.   Anchor and encourage high-quality investments in Singapore, to grow our economy and create good jobs for Singaporeans;

b.   They are also intended to ensure that our tax system remains relevant and fair to businesses and individuals; and

c.   Align Singapore’s tax regime with international tax developments arising from the Base Erosion and Profit Shifting (BEPS) 2.0 initiative.

5.   Overall, the changes will sustain Singapore’s economic competitiveness, provide better support to businesses and individuals, and ensure that Singapore keeps in step with international tax developments.

6.   MOF sought views from the public on the two draft Bills in June. We thank the respondents for their feedback and have taken onboard some of the suggestions.

Income Tax (Amendment) Bill

7.   Let me deal with the Income Tax (Amendment) Bill first.

8.   I would like to elaborate on two key proposed changes.

Enhancing our investment promotion toolkit

9.   First, we will introduce the Refundable Investment Credit (RIC), which was announced by Prime Minister Wong at Budget 2024 to enhance our tools for investment promotion.

10.   The global economic landscape is becoming increasingly competitive, and Singapore needs to keep pace with the competition in order to continue attracting investments to grow our economy and create good jobs for our people.

11.   Other countries around the world are not standing still. Their governments are rolling out initiatives to attract investments, especially in strategic sectors such as semiconductors and advanced manufacturing.

a.   For instance, the US CHIPS and Science Act sets aside US$53 billion (or about S$70 billion), to support semiconductor manufacturing, R&D and workforce development in the US.

b.   In July last year, Germany announced plans to invest around 20 billion euros (or around S$29 billion) as part of the EU Chips Act to bolster its semiconductor manufacturing sector.

c.   Japan also announced in November last year that it would allocate 2 trillion yen, or about S$18 billion to support its semiconductor industry.

12.   Though we cannot match the financial resources of these large economies, we must continue to do our best to remain attractive to investments and encourage business growth in Singapore.

13.   The RIC will give us a useful tool to attract and support businesses that undertake substantive and high-value economic activities here. It will allow us to anchor and encourage high-quality investments, create good jobs for Singaporeans, and support our green transition.

14.   So, let me explain how the RIC will work. This is an expenditure-based grant delivered through the tax system. Companies awarded the RIC will receive tax credits to support their local expenditure in areas such as capital investments, R&D, manpower, and freight and logistics, when they make new investments in high-value and substantive economic activities. These include the development or expansion of manufacturing facilities, setting up of HQs and services, pursuit of R&D and innovation activities, commodity trading, and decarbonisation.

15.   These activities and expenditure categories are aligned with the four pillars of our Singapore Economy 2030 vision – trade, enterprise, manufacturing, and services – as well as to support our green transition.

16.   The tax credits will be offset against corporate income tax payable in the first instance. If the RIC quantum exceeds the amount of taxes paid by the company, the unutilised credits will be refunded to the company within four years from the time the company makes the claim application in respect of the qualifying expenditures incurred. This feature is particularly useful for companies in an early stage of growth, where they have yet to turn a profit.

17.   The RIC support will be commensurate with the size and quality of businesses’ economic contributions to Singapore. This will be based on our economic agencies’ assessment of:

a. How much the projects will bring in, in terms of new fixed asset investment, productive capacity, and skilled jobs created for locals; as well as

b. Whether the investment involves state-of-the-art technological development, strengthens our competitiveness, builds resilience in our economy, and creates broader economic spillovers.

Reducing administrative burden and supporting businesses

18.   Another key amendment in the Bill is on the Renovation and Refurbishment Scheme (R&R Scheme). This was also announced at Budget 2024.

19.   Under our normal tax rules, R&R expenses are not tax-deductible because they are capital in nature. The R&R scheme specifically allows a deduction for such expenses, up to a cap of S$300,000 every three years. This is to support Small and Medium Enterprises (SMEs) in customer-facing sectors like F&B and retail, which typically need to incur such expenses to enhance their customer service and experience.

20.   We are enhancing the R&R scheme in three ways.

a.   First, from Year of Assessment (“YA”) 2025, the scope of qualifying expenditure will be expanded to include designer and professional fees as it is now common for such fees to be incurred for renovation works.

b.   Next, we will standardise the three-year period for determining the expenditure cap for all businesses, instead of having it commence when each business makes its first claim. The Bill will fix the relevant three-year period, with the first three-year period being from YA 2025 to YA 2027. This will simplify the process and reduce compliance costs for companies.

c.   The third enhancement provides all businesses with a permanent option to claim R&R deductions in one YA, instead of over three YAs. This will give businesses more flexibility to manage their cashflow needs.

21.   Clauses 13 and 30 of the Income Tax (Amendment) Bill provide for these amendments.

Multinational Enterprise (Minimum Tax) Bill

22.   Sir, let me now move on to the second bill, the MMT Bill. This Bill implements two new top-up taxes, arising from the BEPS 2.0 initiative. These were also announced at this year’s Budget. The two taxes are:

a.   First, the Domestic Top-up Tax (DTT); and

b.   Second, the Multinational Enterprise Top-up Tax (MTT). The MTT applies the Income Inclusion Rule, which is part of the BEPS Pillar Two Global Anti-Base Erosion rules, or GloBE rules for short.

23.   DTT and MTT will apply to large Multinational Enterprise (MNE) groups – those with annual group revenue of 750 million euros or more in at least two of the four preceding financial years. DTT and MTT will apply from businesses’ financial years commencing on or after 1 January 2025.

24.   DTT will apply to the Singapore entities of a large MNE group, and will be payable if the group’s effective tax rate in Singapore is below 15%.

25.   MTT will apply to large MNE groups that are parented in Singapore. If the effective tax rate of the MNE group’s entities in any foreign jurisdiction is below 15%, MTT will be imposed to top up the effective tax rate to 15%.

26.   The implementation of the DTT and MTT ensures that Singapore is aligned with the international implementation of BEPS 2.0. The EU, UK, Switzerland, Japan, Korea, Malaysia and Hong Kong, among other jurisdictions, have either implemented similar rules, or intend to do so in 2025.

27.   If we do not impose the DTT and MTT, affected MNE groups would have to pay these taxes to other jurisdictions that have imposed the GloBE rules. Hence, it is in Singapore’s interest to impose the DTT and MTT, so that we can collect the tax, rather than cede it to other jurisdictions.

28.   In the new environment where companies are subjected to a minimum level of tax wherever they operate, ecosystem factors will become increasingly important for companies’ business decisions. We plan to reinvest the additional revenues from DTT and MTT to enhance our overall business environment, in areas such as upskilling our workforce, growing a vibrant innovation ecosystem, and providing quality infrastructure and connectivity.

29.   Finally, the MMT Bill will also provide the Comptroller of Income Tax with the powers to administer, collect and enforce the DTT and MTT. Offences in the Bill include the failure to keep proper records, tax evasion, and the obstruction of the Comptroller. These powers and offences mirror those that already exist under the Income Tax Act, and ensure that IRAS has the necessary powers to enforce compliance with the DTT and MTT.

30.   In conclusion, the provisions in both Bills will sustain Singapore’s economic competitiveness, provide better support to businesses and individuals, and ensure that Singapore keeps in step with international tax developments.

31.   Mr Speaker, I beg to move.