Singapore - Singapore should examine its tax structure for ways to make its economy more competitive - such as by giving incentives for research and development (R&D) and by tweaking its approach to the goods and services tax (GST) to support government spending, says Ernst & Young (EY).
The firm's head of tax services Chung-Sim Siew Moon said: "We propose that Singapore's income tax system be simplified and made more competitive to promote Singapore as Asia's business and financial hub, and that certain policies be tweaked to ease business costs and promote business growth."
EY released these recommendations to the government on Wednesday, ahead of the unveiling of the Budget in late March.
The firm is calling for a sharper focus on tax-related matters concerning the deployment of R&D in firms.
Doing so will ensure that Singapore's tax structures and business environment can foster innovation and enable growth in the private sector, said EY.
It proposed that the Inland Revenue Authority of Singapore (IRAS) set up a technical evaluation team to handle R&D claims that fall under the Productivity and Innovation Credit (PIC) Scheme; such a team can assess the technical eligibility of projects and ensure that R&D tax-deduction claims are dealt with efficiently.
EY also proposes that the PIC scheme be tweaked by re-allocating the support for the automation-equipment segment to other categories. This is to ensure that the scheme supports companies which make "productivity leap-throughs", rather than those which take only incremental steps or use the subsidies to reduce "business-as-usual" costs.
Other recommendations include improving the international competitiveness of its tax treaties, removing the sunset clause for the tax-exemption and concession regime of Singapore-listed real-estate investment trusts (Reits), maintaining the corporate tax rate, and raising the cap for tax deduction for medical expenses.
To support government spending, EY proposes opening up revenue streams through new GST initiatives.
One of these is to lower the GST registration threshold, currently set at S$1 million per annum, to S$500,000.
As GST has become an integral part of businesses, such a move will enable the government to capture more revenue, with more firms contributing to the tax base.
EY has also proposed imposing GST on the digital economy. The government can consider requiring overseas service providers to register for GST in Singapore if their sales exceed the GST registration threshold.
Kor Bing Keong, a GST Services partner at EY, said: "The non-taxation of supplies made by overseas service providers through the digital economy does not only create a GST leakage to the government, but also a price disadvantage to domestic suppliers, resulting in an uneven playing field."
This article was first published on February 11, 2016.
Get The Business Times for more stories.