The continued discussions throughout the framework of the OECD revenue shifting by way of base erosion (BEPS 2.0) can even result in decrease CIT revenues sooner or later.
Beneath BEPS, some multinational firms (MNEs) are required to redistribute income from the place operations are performed to the place customers are situated, and that is more likely to damage tax revenues because of Singapore’s small home market and scale of operations performed. A minimal efficient tax charge of 15 per cent may be imposed on some multinational firms as a substitute of the present extra investment-friendly charges, and so they select to relocate as a substitute.
Whereas that is nonetheless in its infancy and Singapore would do nicely to watch different international locations’ experiences and MNE conduct, it’s not inconceivable that GST will finally be the most important supply of tax income.
DEFER TO CONSUMPTION TAXATION NOT NEW
No matter whether or not GST finally overtakes each CIT and PIT, there was a transparent pattern in direction of a shift from revenue tax to consumption tax over the previous few many years.
As Singapore recovered from its first post-war recession in 1986, one of many key suggestions of the 1986 Financial Committee, convened to answer the recession and lead the nation to restoration, was to introduce GST and steadily enhance GST income .
This could assist Singapore turn into extra aggressive and entice funding, in comparison with the excessive 40 p.c CIT and higher marginal PIT charge, which had been then minimize to take care of financial development and create good jobs.
Different economies have additionally applied related tax reforms, reducing revenue tax charges to make them extra enticing to worldwide funding and labour, and structuring their tax programs to rely extra closely on GST.
For instance, Eire’s normal company tax charge has been steadily decreased from 40 p.c in 1995 to 12.5 p.c immediately, whereas the usual worth added tax (VAT) charge has been elevated from 21 p.c in 1995 to the present 23 p.c. VAT is usually the second highest income for Eire, after particular person revenue tax.