Revisiting SG Budget 2022: Defending Singapore's special compact between businesses and society

Two years ago, I penned a commentary for The Business Times for Budget 2022. I explained how businesses and society have long shared a special compact in Singapore, one which preserves Singapore's interests as an attractive business hub. I attempted to sketch the contours of how the PAP Government was thinking about the impending implementation of the Base Erosion Profit Shifting initiative (BEPS 2.0) in my personal capacity.

In this week's Budget debates, talk of BEPS resurfaced in Parliament, with Worker's Party Member of Parliament Mr. Louis Chua Kheng Wee calling on the government to make structural changes to Singapore's special compact between businesses and society, by re-channeling more potential corporate income taxes (supposedly arising from BEPS 2.0) for Singapore's growing consumption of public services and goods, among other policy alternatives. I hold a fundamentally different view.

Taken against the backdrop of BEPS 2.0, Budget 2024 measures signal the government’s continued resolve in entrenching Singapore as the choice investment hub for MNCs, while assuring Singaporeans of the support we need to cope with the rising cost of living.

Going beyond tax factors, companies will continue benefit from these attractive returns when they do business in Singapore. While MNCs suffer from disrepute for not paying their fair share elsewhere, most businesses in Singapore can be counted on to be stabilisers in society during times of uncertainty. Budget 2024 (in tandem with our previous Budgets) offers MNCs the chance to build on their strong reputation in Singapore, and play a bigger role in Singapore’s next growth chapter.

But such a compact does not arise naturally. It must be assiduously preserved, strengthened, renewed - and from time to time - defended. For these reasons, I'm resharing my commentary for The Business Times from 22 Feb 2022, as the Group Executive Director of a global professional services firm, Waggener Edstrom Worldwide / WE Communications. My views on defending Singapore's special compact between businesses and society, for the interests of fellow Singaporeans, have not changed.

Title: In Singapore, capitalists gain from redistribution too

MAKING businesses pay their fair share. That's one subject that the United States and China have found consensus on.

Last October, both joined over 130 jurisdictions to ink the Base Erosion and Profit Shifting initiative (BEPS 2.0). Governments pledged to take on multinational enterprises (MNEs) charged with profiteering off workers, communities, and the environment.

In Singapore, Finance Minister Lawrence Wong announced plans to explore a Minimum Effective Tax Rate (METR) that tops up the effective tax rate of MNE groups in Singapore to 15 per cent, to bring the country's corporate tax regime in line with BEPS 2.0, signaling the private sector may have to shoulder more of the country's fiscal obligations.

Business as a force for good in Singapore

But while MNEs suffer from disrepute elsewhere, businesses in Singapore are regarded as stabilisers in society during times of uncertainty, according to a 2021 Brands in Motion study by global public relations agency WE Communications. Some 'Queen Bees' even create hives of activities around which local small and medium enterprises gather to seize lucrative opportunities in the global marketplace.

MNEs today enjoy a favorable impression among most Singaporeans. They create jobs and lift livelihoods. Many older Singaporeans work in the same firm for a long time.

And now businesses may be counted on more to spur growth and innovation as the country rebounds from the pandemic - but not without some government aid.

Budget 2022 may have affirmed the social compact between the government and its citizens. But less talked about is Singapore's compact between the government and businesses.

Three benefits of Government-Business Compact

Redistribution has been the theme of this Budget. But MNEs will stand to benefit too.

Further investments in the country's digital economy push will be turbocharged by S$200 million set aside in Budget 2022 to "build digital capabilities" in Singapore's businesses and worker, and investments in high broadband speeds and future technologies like 6G.

This burgeoning digital economy is estimated to add as much as S$13.5 billion to Singapore's GDP, according to market research firm IDC.

Businesses based in this hub for digital and data flows can plug into a global digital marketplace that is estimated to be worth S$15.5 trillion globally. They will be well-positioned to deal in a highly contested landscape that will continue to be reshaped by dramatic shifts in pandemic-induced customer behavior, according to Digital Experience company Adobe's Digital Trends Report 2022.

Budget 2022 will seek to further strengthen Singapore's proposition as a choice destination for foreign MNEs, startups and cutting-edge research producing commercialisable solutions. Singapore already has a few strong reference customers - Minister Wong revealed that BioNTech, the company that co-developed the mRNA Covid-19 vaccine, will be establishing its regional headquarters for Southeast Asia in Singapore. He further announced that S$25 billion will be earmarked for Singapore's Research, Innovation and Enterprise 2025 strategy, serving as a catalyst for similar investments in the private sector.

One such investment from the private sector was recently initiated by NASDAQ-listed medical technology company Medtronic. The company launched a S$67.5 million Open Innovation Platform in Singapore, with Economic Development Board's support, to foster closer collaboration in healthcare technologies between startups and various stakeholders in Asia Pacific through capability development and partnerships.

Medtronic also plans to grow its presence in the country, to set up a Digital Medtronic Innovation Centre this year to offer a collaborative space for an all-rounded and immersive experience for product and therapy innovation, in addition to its existing manufacturing facility and regional headquarters.

Budget 2022 will also enable companies to make the leap into green as climate action throws up fresh business opportunities. Up to S$35 billion of green bonds will fund a gamut of public sector infrastructure projects.

But businesses worried about the cost of going green will be supported. Aligned with Singapore's announced goal of becoming a net-zero emissions economy "by or around mid-century", the minister assured businesses of the support they need to make the same transition.

While a higher carbon tax, at S$25 a ton (up from S$5 today) in the next 2 t0 3 years, is on the cards, international carbon credits can be used to offset up to 5 per cent of their taxable emissions, in lieu of paying carbon tax.

Furthermore, the minister also assured businesses that additional revenues from such taxes will be used to help them cope with the impact of decarbonisation. Government incentives will support business investments in low-carbon and energy efficient ways of working in the city-state.

"We can become the go-to location in Asia for expertise in carbon services, and the trusted regional marketplace for carbon credits", Wong said.

Indeed, global management consultancy McKinsey recently launched a sustainability innovation hub for Asia, headquartered in Singapore to expand its client services focused on the implications of climate change and the economic transformation that net-zero carbon goals entail.

Singapore's new way forward with businesses

Budget 2022 assures firms that Singapore will always be open for business and support them to seize fresh opportunities.

Today, around half of the top 100 global companies have already chosen to set up their regional headquarters in the city-state. Singapore is the top foreign investment destination for Chinese technology companies like Ali Baba's global parcel tracking platform, Cai Niao. American-originated MNEs like Amazon have regional operations here too. Already home to more than 4,000 technology start-ups, over half of the 11 unicorns from Southeast Asia are presently either based or have expanded their operations to Singapore.

By charting a new way forward together, MNEs can play a big role in the next growth chapter of Singapore. Unlike elsewhere, Budget 2022 offers capitalists the chance to benefit from a special compact between the government and businesses here.

The writer is group executive director of WE Communications