The city-state has based its economy on attracting foreign capital through an advantageous fiscal regime. The G20’s global 15 per cent tax rate could have serious repercussions, driving some Southeast Asian countries closer to China.
Singapore (AsiaNews) – The decision of G20 finance ministers at their last summit to impose a new tax on large multinationals is raising fears in Singapore.
The measure could reduce the country's competitiveness and its ability to attract investors thanks to its advantageous tax rules, good services and effective bureaucracy.
The financial sector has always been one of Singapore’s great strengths, placing the city-state in ninth place as a tax haven. Not even the pandemic stopped the inflow of foreign capital and professionals.
Singapore’s strong points have always been careful planning of resource use, workforce (especially foreign migrants) management, and services.
Although it could take years before the new 15 per cent global tax comes into effect – to be finalised next October, the uncertainty will bring a high degree of risk.
Until the start of the pandemic, Singapore’s neighbours like Thailand and Malaysia counted on a good international credit rating and benefits that exceeded the risks imposed by rules, red tape and practices that were not always favourable.
With a population of 5.7 million in a territory of only 728 square kilometres, Singapore is far smaller than its two regional partners.
Unlike the latter, it cannot count on an internal market to compensate for losses in foreign markets or on an abundant and cheap workforce to prevent strong repercussions on its economy.
According to UN sources, foreign capital inflow in Singapore dropped by 21 per cent in 2020, 80 per cent in productive activities alone.
The local corporate tax rate is 17 per cent, but when various breaks and benefits are factored in, the actual rate is much lower.
The picture could change if the international tax rate is introduced, with production and investments currently benefitting the country migrating to other places.
In addition, even a slight shock to Singapore’s economic and financial system could cause instability and push some countries that are important partners to both China and Singapore to seek closer ties with Beijing.