CORPORATE tax should be calculated based on profits before tax, so that more profitable companies pay more, said Non-Constituency Member of Parliament Hazel Poa on Thursday (Feb 23), during the second day of the Budget debate.

This is in contrast to the current situation, where those with the highest profits pay the lowest percentage of their profits as tax, added Poa, who is from the Progress Singapore Party.

For the Year of Assessment 2018 to YA2021, companies with profits before tax of S$200,000 to S$10 million paid, on average, 8 to 9 per cent of their profits as taxes, based on Ministry of Finance (MOF) data, she noted.

But those with higher profits paid a lower percentage. Those making S$10 million to S$100 million in profits paid an average of 5.1 per cent of their profits as tax.

Those with S$100 million to S$1 billion in profits paid 2.8 per cent, while those with profits beyond S$1 billion paid just 0.9 per cent.

“To illustrate, a company making S$2 million in profits pays 9 per cent of its profits as taxes. This is 10 times the rate of a company that makes S$2 billion in profits, that is, 1,000 times the profit,” she said. “This is highly inequitable.”

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Poa disagreed with MOF’s earlier explanation that the effective tax rate should be calculated based on a percentage of chargeable income, not profits before tax.

Profits before tax are calculated based on international accounting standards, she said. But chargeable income is affected by factors such as which expenses are tax deductible; what income is taxable; and durations over which capital expenditures can be expensed.

“In other words, chargeable income has already incorporated part of our tax policies and treatments.”

To see the full effect of Singapore’s tax policies on companies – not just corporate tax, but incentives, exemptions, and other treatments – “we should be comparing the amount of tax paid with profits before tax”, she said.

If companies with profits above S$1 billion pay just 3 per cent of this in tax – instead of the current 0.9 per cent – then an additional S$5 billion in tax revenue would be raised per year, she said.

To offset this higher effective tax rate, the government can use the higher corporate tax revenue to lower business costs and the cost of living, thus ensuring Singapore is still an attractive investment destination while also providing relief to Singaporeans, she said.

“It is time for companies to pay a fairer share of their profits as taxes,” she said. “Even in the absence of any global agreement, this is something we should do, not because we are forced to, and it need not be tied to any global timetable.”