On the revenue front, MOF expects operating revenue, which is now at about 15 per cent of GDP, “to grow slightly slower than GDP” in the absence of policy changes.
This means that “periodic moves to increase revenue would be needed” if expenditures continue to outpace GDP growth, the paper wrote.
Another big contributor to government coffers is the NIRC, which comprises up to 50 per cent of the net investment returns on net assets invested by GIC, the Monetary Authority of Singapore and Temasek, and up to 50 per cent of the net investment income derived from past reserves from the remaining assets.
The NIRC has averaged around 3.5 per cent of GDP per annum over the last five years, and it is expected to remain at about the same share of GDP over the coming years.
Another thing to consider will be changes in global tax rules as a result of the Base Erosion and Profit Shifting (BEPS 2.0) initiative, although this was not factored in the projections of this paper given the uncertainties ahead.
BEPS 2.0, a plan led by the Organisation for Economic Co-operation and Development with the aim of curtailing profit shifting by multinational companies to lower-tax jurisdictions, has proposed two changes.
First, to ensure firms pay taxes in countries where they earn their profits, regardless of whether they have a physical presence. This will see Singapore losing revenue given its small market size, MOF said.
Second, to set a minimum corporate tax rate of 15 per cent for large multinational enterprises. Singapore has said it will explore a “top-up” tax in response to this.
In this case, MOF described the long-term revenue impact as “uncertain”, depending on the response of governments and businesses. At the same time, any additional revenue collected from this is expected to go into enhancing Singapore’s economic competitiveness as the fight for investments through non-tax measures intensifies.
Aa a result, the net fiscal impact of BEPS 2.0 on Singapore “may not be favourable”, it added.
