Future of Taxes in Disruptive Times

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,

I am delighted to be able to join you for the third annual conference organised by the SMU-TA Centre for Excellence in Taxation. Let me extend a very warm welcome to all delegates and speakers, especially those from abroad who have come to join us here today.

Current Environment

Technology is transforming the way we live, how we work, and how we conduct our business. This has profound implications for the larger global economy. A key aspect of technological advancement is digitalisation which has spread into almost every aspect of economic activity. Digitalisation is blurring the boundaries between what we consider to be the “traditional” economy and the “digital” economy. For example, brick-and-mortar businesses are increasingly selling digitally. It used to be that you had to go to New York if you wanted to buy something from Macy’s. Now you can order items from them online.   

This is a rapidly evolving situation which is having an impact on all aspects of governance, not least taxation. Digitalisation is now challenging conventional notions of taxation. Jurisdictions across the world, including Singapore, are grappling with how to deal with taxation of digital economy and studying this closely. Some jurisdictions have taken steps to adjust their GST system to ensure a level playing field between their local businesses which are GST-registered, and foreign-based ones which are not. We are studying how we can do likewise.

We have seen a divergence in the positions of jurisdictions on taxation of the digital economy, which has led to the introduction of unilateral tax measures in some jurisdictions. This has inevitably resulted in greater uncertainties in the global business environment.

Singapore’s Response

Given this state of flux, it is critical and timely to consider how best to minimise and manage this uncertainty. Allow me to share Singapore’s three-pronged approach in responding to such disruptive and uncertain times.

• First, Singapore is committed to providing a stable business environment for our businesses by upholding international principles and participating in international efforts;

• Second, Singapore will continue to engage businesses to ensure that our tax system remains growth-oriented; and

• Third, specific to the taxation of the digital economy, Singapore advocates three high-level principles - (i) tax certainty for businesses, (ii) tax neutrality between traditional and digital business models; and (iii) international consensus. 

Singapore’s Commitment to International Standards

First, Singapore is committed to providing a stable business environment for our businesses by upholding international principles and participating in international efforts. Companies thrive in a global business environment where they are able to plan ahead with confidence and with certainty. Having a consistent set of international tax standards, which is respected and abided by all jurisdictions, helps encourage greater cross-border trade and investments. This also provides a level-playing field across all jurisdictions.

In this regard, Singapore has complied with internationally-agreed standards for both exchange of information for tax purposes as well as combating Base Erosion and Profit Shifting (BEPS).

On internationally-agreed standards for exchange of information for tax purposes, Singapore has signed all the three multilateral agreements[1] for exchange of information. Our efforts have been recognised internationally. The Global Forum on transparency and exchange of information rated our exchange of information on request implementation in 2013 as largely compliant, the same rating as the UK and Germany.

On efforts to combat BEPS, Singapore is among the first few non-G20 and non-OECD jurisdictions to join the Inclusive Framework on BEPS.

• We contribute to international discussions as a member of the Steering Group of the Inclusive Framework, which ensures the consistent implementation of the BEPS standards across jurisdictions.

• Singapore also adopts international standard for pricing of transactions between related parties.

Singapore’s Continued Engagement with Taxpayers to Support Economic Growth

Second, Singapore will continue to engage businesses to ensure that our tax system remains growth-oriented. We are fully cognisant of the fact that businesses ultimately bear the cost of new tax rules, and hence, it is important for the Government to consult and engage businesses wherever possible.

 We take proactive measures to help bring upfront tax certainty to the businesses.

• IRAS has established good working relationships with our treaty partners to ensure that businesses have access to effective dispute resolution mechanisms.

• IRAS also works closely with our treaty partners to prevent disputes and provide upfront certainty to taxpayers through Advance Pricing Arrangements (APA). We believe that effective dispute resolution can help bring certainty and facilitate cross-border investment and trade flows.

• In Singapore’s recent signing of the Multilateral Instrument, we have also opted to include clauses on the adoption of mandatory binding arbitration in our tax treaties, on a reciprocal basis.

Singapore’s Participation in International Discussions on Implications of Digital Economy for Taxation

My third point is specific to how Singapore approaches this issue on the taxation of the digital economy. As mentioned earlier, digitalisation is blurring the boundaries between the “digital” and “traditional” economies.

Singapore advocates three high-level principles:

(i) tax certainty for businesses;

(ii) tax neutrality between traditional and digital business models; and 

(iii) international consensus.

On tax certainty for businesses, tax policies should provide tax certainty and minimise the regulatory and compliance burden. Rules should not be so onerous as to stifle innovation and growth.

On tax neutrality between traditional and digital business models, to ensure fair competition between traditional business models and those which have higher levels of digitalisation, there should be fairness in terms of the taxes paid by businesses regardless of their extent of digitalisation. As mentioned earlier, even brick-and-mortar businesses increasingly sell digitally.

On international consensus, Singapore supports jurisdictions working together at international fora to achieve consensus on issues relating to the taxation of the digital economy.

• Singapore is a member of the OECD’s Task Force on the Digital Economy (TFDE), which has been tasked to consider developing internationally-agreed policy options to address challenges posed to international tax rules by the digital economy.

• Singapore is also in the TFDE Bureau, which guides the discussion of the TFDE. We will participate actively in the discussions to shape outcomes, and work together with the international community to ensure consistent implementation and a level playing field across jurisdictions.

Keeping Sound Fundamentals: A Fiscally Sustainable Tax System

Notwithstanding the current uncertainties, some fundamentals remain unchanged. In fact, they become even more important. One such fundamental is the need for a fiscally sustainable tax system. In Singapore, we spend prudently, effectively, and grow our revenues fairly and sustainably. We have in place a strong system of fiscal rules and safeguards to ensure fiscal sustainability. Taken together, this allows us to balance between the need to fund public goods without imposing an excessive tax burden on our businesses. This is an important fundamental that we must never lose sight of.

On this note, I take great pleasure to declare open the third SMU-TA CET conference. I wish everyone a pleasant day ahead.

Thank you very much.

[1] These three agreements are the internationally-agreed legal instruments to facilitate bilateral exchange of information, i.e. the Convention on Mutual Administrative Assistance in Tax Matters, and the Multilateral Competent Authority Agreements for the automatic exchange of financial account information and exchange of country-by-country reports of multinational enterprises.