The Future of Tax – Reforms for Growth and Protection of Revenue Base
Commissioner and Chief Executive Officer of Inland Revenue Authority of Singapore, Mr Tan Tee How
Director of the SMU-TA Centre for Excellence in Taxation, Associate Professor Goh Beng Wee
Distinguished Guests
Ladies and Gentlemen,
Thank you for inviting me to the second annual conference organised by the SMU-TA Centre for Excellence in Taxation. It is heartening to see Singapore engage the regional and global tax communities in fostering active discussion and producing relevant research in international tax developments. I would like to extend a very warm welcome to all our delegates and speakers, especially our friends from ASEAN and those who have travelled from further afield to join this conference.
This year’s conference considers what the future of tax will be like. To do so, it would be apposite to first take stock of the trends and developments thus far.
The current weak global economic climate is putting governments around the world under immense pressure to raise revenue to meet various economic and social spending priorities.
- At the same time, tax authorities have also intensified their scrutiny of the specific tax arrangements of multinational enterprises.
- This has brought to light cases where tax advantages have been unfairly accorded to some multinational enterprises and these enterprises have not paid their fair share of taxes. Large sums of taxes are now being clawed back from these enterprises
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There has also been an increase in the introduction of unilateral tax measures by jurisdictions in order to protect what they view as their rightful tax base.
- These measures may have extra-territorial effect, and may make cross-border activities more complex and costly.
- Such moves should be discouraged so that they do not stifle economic growth as businesses react to these developments.
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Since 2013, jurisdictions around the world have been working together on an Action Plan to counter Base Erosion and Profit Shifting (BEPS).
- In November 2015, a significant milestone was achieved when G20 Leaders endorsed the OECD’s final package of measures for a comprehensive, coherent and coordinated reform of international tax rules.
- The challenge now is to implement the BEPS recommendations in a consistent and coherent manner. International tax policies play an important role in facilitating innovation-driven and inclusive growth. As the BEPS measures get rolled out and implemented internationally over the next few years, we can expect both tax authorities and taxpayers to have to learn and make necessary adjustments in this post-BEPS world.
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These are the worldwide trends, and it is important for us to be cognisant of these developments even as we start shaping the future of tax.
The Singapore Approach
Let me now outline Singapore’s three-pronged approach to respond to the BEPS developments
First, Singapore will continue to develop sustainable domestic tax policies and rules that support substantive economic activities.
- For our tax policies to be sustainable, we need prudent fiscal policies.
- In Singapore, we regularly review our tax regime, including tax rates, and keep a close eye on balancing the budget. We spend within our means, and carefully design our subsidies such that they are targeted with most benefits accruing to people who need help the most.
- Our fiscal prudence and diversified tax base have helped us to keep the tax burden low, and played a key role in Singapore’s ability to maintain a competitive tax regime based on anchoring real economic substance to foster growth, create jobs and acquire capabilities.
- A sustainable fiscal system also avoids the need for sudden policy shifts, thereby providing a stable and certain environment for businesses to grow. Every jurisdiction has a sovereign right to design its own tax policies. As with many other jurisdictions, Singapore uses tax incentives as a fiscal tool to meet the needs of Singapore’s economy.
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We will continue to ensure that our tax incentives are relevant, target substantial activities and produce economic spinoffs such as the generation of good jobs. The incentives should offer tax benefits that are commensurate with the activities carried out in Singapore, and should not encourage artificial shifting of profits.
Second, Singapore will continue to strengthen bilateral ties with our partner tax authorities.
- I am glad that IRAS has built good, strong relationships with many other tax authorities over the years. We must continue to grow these relationships and to forge new ones. With the implementation of BEPS, there will inevitably be more disputes, leading to greater uncertainty and complexity for businesses. Having good working relationships will help us to iron out the issues which will inevitably arise.
- IRAS already works closely with our treaty partners on Mutual Agreement Procedures (MAP) under our tax treaties, as well as with taxpayers on Advance Pricing Arrangement (APA) cases and will continue to maintain an open dialogue with our partner tax authorities to develop robust transfer pricing practices. Together, these facilities help to resolve and prevent disputes.
- IRAS has stepped up resources for APAs and MAPs to further strengthen its capacity to deal with disputes in the post-BEPS environment.
- Singapore is also open to consider including arbitration provisions in our tax treaties to provide our taxpayers with an additional dispute resolution mechanism.
- Taxpayers should also do their part, by ensuring that they have robust transfer pricing policies and documentation.
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Third, Singapore will continue to be plugged in to shape international tax rules.
- In June 2016, Singapore joined the BEPS inclusive framework, together with over 90 other jurisdictions.
- I am encouraged to see jurisdictions around the world committed and resolved to work together. For the framework to be truly inclusive and successful, we need more jurisdictions to join the framework and as swiftly as possible, and commit to implement the BEPS recommendations. I believe more jurisdictions may start joining the framework in the coming months, as even if they do not join, their regimes will still be subject to review.
- As a member of the inclusive framework and also a member of the Steering Group elected to guide the work of the inclusive framework, Singapore will work with the international community to ensure the consistent implementation of the BEPS recommendations to create a level playing field across all jurisdictions. It is important that the voices of small open economies are heard and considered, as they will be affected by BEPS. In this regard, the formation of the inclusive framework on BEPS is a good start.
- Indeed, we should work together to counter tax avoidance through a robust multilateral rule-based system like the inclusive framework, instead of imposing unilateral measures. This will be better for everyone, whether big or small economies, and countries at different stages of development.
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Hopefully the uncertainty we face in the tax environment will not last, and we will soon arrive at a stable environment that is conducive for growth and prosperity.
Singapore will continue to work in close partnership with the local businesses and the international community to formulate tax policies that are competitive, fiscally sustainable, progressive, and are able to attract and retain substantive business activities.
On this note, it is my pleasure to declare open the second SMU-TA CET conference. I wish everyone a pleasant day ahead.
Thank you very much.
