Little Red Dot beams green

Keen on long-term growth in an endemic COVID-19 economy, the Budget bares major steps to build a new green economy for Singapore in the next 30 years. Its goal: to transform our Garden City into a glowing global city of sustainability, leading the charge as a leader in environmental, social and corporate governance (ESG) in the region.

Read on to find out how Singapore can make good on its vision to achieve net-zero targets by 2050.

The cost of the green transition is measured not only by the cost of action, but also by the cost of inaction. Singapore stands to lose tremendously if we do not take decisive action now to position our workforce and enable our businesses to remain competitive. It is crucial that we do not get lulled into a false sense of security from the past years of prosperity. Our competitive edge comes only from staying relevant as a hub for Asia and the rest of the world. Increasingly, this hub needs to pivot its focus towards more green services, R&D and finance, as well as carbon trading. If we are not agile enough to respond to this transformation, we will be redundant and our businesses and people will no longer be in demand. Therefore, the “high cost” could be seen as a “necessary investment.

Cherine Fok
Director, Sustainability Services and KPMG IMPACT
KPMG in Singapore

Rain or shine, carbon tax hike will climb

Singapore’s current carbon tax rate will be increased progressively from the current S$5 per tonne of greenhouse gas emissions to between S$50 to S$80 per tonne by 2030 — with the aim of meeting the country’s new target of reaching net zero by around 2050. 

Previously, it had announced that it would achieve net-zero emissions when viable in the second half of the century.

Singapore’s carbon tax rate will increase to S$50-S$80 per tonne by 2030

The carbon tax hike will be rolled out in phases to allow businesses time to adjust. First implemented in Singapore in 2019, the levy applies to firms that emit at least 25,000 tonnes of greenhouse gas and is the first of its kind rolled out by a Southeast Asian country

The current rate of S$5 per tonne of emissions will be in place till next year. It will climb to S$25 in 2024 and 2025, and S$45 in 2026 and 2027, before hitting S$50 to S$80 by 2030. The spike is higher than initial industry estimates of between S$10 and S$15 per tonne, sending a strong signal to large emitters on the need to take stronger action to cut their emissions.

Why hike carbon tax? Although Singapore accounts for only 0.1% of the global carbon footprint, it has high carbon emissions per capita — ranking 27th out of 142 countries as of 2018. As a leading global trading hub with big green aspirations, the increased tax rate will position Singapore as a role model for decarbonisation with a concerted shift to more environmentally friendly energy sources.

Singapore is the 27th highest carbon emitter per capita out of 142 countries as of 2018

Large-scale plans for green finance

Green efforts will need capital. In the Budget 2022 Statement, Finance Minister Lawrence Wong acknowledged that businesses may require support as they transition to lower-carbon operations and cleaner technologies.

To moderate the impact of the carbon tax hike on businesses, especially emissions-intensive and trade-exposed sectors, large emitters in Singapore will from 2024 be able to buy international carbon credits to reduce the carbon tax they pay. 

Large emitters in Singapore can buy carbon credits to offset carbon tax bill from 2024

These “high-quality, international carbon credits” will offset up to 5% of taxable emissions. This means that firms can shrink their tax bill should they buy credits generated by, for example, a reforestation initiative in Indonesia.

Such a move will create local demand for high-quality carbon credits and catalyse the development of well-functioning and regulated carbon markets. This is part of a transition framework to support such firms and manage the near-term impact of the carbon tax on their competitiveness, while still encouraging decarbonisation.

To drive opportunities in green finance, some S$35 billion of green bonds will be issued by 2030 to fund public sector green infrastructure. Green bonds are financing options used to fund projects with environmental benefits, providing investors with regular or fixed income payments. The Government will publish a Singapore Green Bond framework and issue its inaugural green bond later this year.

In his Budget statement, Finance Minister Lawrence Wong added that green bonds can be used to finance infrastructure upgrading for electric vehicles — a promising clean energy alternative to internal combustion engine vehicles.

The support for the green economy — in particular with green bonds — along with the continued support to build digitally native companies and the strengthening of the local enterprise ecosystem, such as the Productivity Solutions Grant and Singapore Global Enterprises initiatives, will provide numerous opportunities for entrepreneurs, business owners and company executives to access the world class products and services offered by wealth managers in Singapore.

Leon Ong
Partner, Financial Services Advisory
KPMG in Singapore

Laying the tracks for top-up tax

Amid impending global tax reforms, Singapore's corporate system will need to be updated due to developments relating to the Base Erosion and Profit Shifting initiative (BEPS 2.0). In response, Singapore will adjust its tax system by exploring a top-up tax, called the Minimum Effective Tax Rate, which will top up the multinational enterprise group's effective tax rate to 15%.

The top-up tax will be studied further by the Inland Revenue Authority of Singapore, which will consult the industry on the design of it.

A Minimum Effective Tax Rate would top up MNEs' effective tax rate to 15%

There are two pillars in BEPS 2.0. Pillar One reallocates profits of the largest and most profitable MNEs in jurisdictions they operate in. Pillar Two introduces rules which includes a global minimum effective tax rate of 15% for MNE groups with annual global revenues of at least 750 million euros (S$1.15 billion).

To continue attracting investments in Singapore with the new top-up tax, the country should develop its inherent strengths as an innovation testbed. Key to this will be cementing its reputation as a launchpad for businesses to the rest of Asia.

A launchpad connotes the capability to enable a company to scale and access other markets. This involves three aspects:

1.      trade and international policies to ease doing business in other countries from a Singapore office or company;

2.      types of companies Singapore is able to attract to make for a more colourful ecosystem that could potentially add value to other enterprises in the country; and

3.      how Singapore is vested in helping companies here grow and innovate so they can scale quickly and effectively. This could include specialised talent, research and development grants, tax and non-tax incentives, as well as government or ecosystem facilitated access to regional and global networks for business expansion.

Hence, even as global tax rules come to the fore in the next one to two years, the country should bear in mind the fundamentals of what it means to be a launchpad, when considering the balance of tax and non-tax measures key in attracting MNEs to set up base here.

Singapore announced that it will need to adjust its corporate income tax system in response to the OECD/ G20 BEPS 2.0 Pillar Two GloBE rules. Specifically, Singapore is studying the introduction of a domestic top-up tax called the Minimum Effective Tax Rate (METR). This will likely apply to taxpayers who are within the scope of the proposed Pillar Two GloBE rules and who have a jurisdictionally blended tax rate below 15% here in Singapore.

Dean Rolfe
Partner, Head of International Tax
KPMG Asia Pacific