Corporate tax cut in line with global trend: KPMG study
By Vikram Khanna
- Jan 22, 2007
The Business Times
(SINGAPORE) Maybe it will be a one percentage point cut, maybe two. But even if Singapore's corporate tax rate is cut to 18 per cent from the current level of 20 per cent, there would still be at least 12 countries or territories with lower rates - not counting 'tax havens' like Bermuda and the Cayman Islands.
These include Hong Kong, Macau, Ireland and much of Eastern Europe, according to the 2006 KPMG Corporate Tax Rate Survey.
Citing the need to maintain competitiveness, Minister Mentor Lee Kuan Yew indicated over the weekend that Singapore's corporate tax rate would be brought down by at least one percentage point to 19 per cent in the forthcoming Budget on February 15. Some business leaders and analysts have called for a cut of more than one percentage point.
The KPMG tax survey, which covers 86 countries, shows that between 1993 and 2006, corporate tax rates worldwide have dropped nearly 29 per cent, from an average of 38 per cent to 27.1 per cent.
Among regions and country groupings, the group of seven industrial countries (G-7) had the highest average rate of corporate tax (36.5 per cent) in 2006. Of the G-7 countries, Japan has the highest rate, of 40.7 per cent. However, in keeping with the global trend, Japan's rate, too, has come down markedly since 1997, when it was 51.6 per cent.
Among all country groupings, the EU had the lowest average corporate tax rate, at 25.8 per cent - thanks largely to the Eastern European states that have joined the EU since 2004 and where companies enjoy a tax rate averaging 18.4 per cent.
Other EU countries have also been cutting their corporate tax rates aggressively. Ireland slashed its rate from 40 per cent in 1993 to 12.5 per cent in 2006, a cut of 68.8 per cent. Austria and Germany also cut their rates by 36 per cent over the same period, while Portugal and Italy reduced rates by close to 30 per cent.
The 19 countries surveyed in the Asia-Pacific region had an average corporate tax rate of 30 per cent. Most of them have not cut their rates significantly, if at all, since 1993. However, like Singapore, many offer tax breaks for specific activities, resulting in lower effective rates of tax than the headline tax rate.
According to the KPMG study, a corporate tax cut 'more often than not will pay for itself.' It cites Ireland as the most remarkable example of the benefits of rate reduction, which 'had a very positive effect on the Irish economy.' During the period it was reducing its corporate taxes most aggressively in the 1990s, Ireland was able to attain double-digit GDP growth as well as attract substantial foreign capital and talent.
The KPMG study suggests that maintaining tax competitiveness has proved beneficial.
'From our past 14 years' tracking experience, it appears to be economically and socially desirable for countries to strive for lower corporate income taxes. Corporations are sensitive to income tax rates and the enhanced mobility of capital and labour all over the world increases their ability to transfer functions from a high-tax regime to a low-tax country,' the study says.
|
