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The role of tax policies in shaping work trends

The role of tax policies in shaping work trends

This was first published in The Business Times on 30 September 2020.

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In July and August this year, KPMG surveyed 315 chief executives across the globe, including 25 in Singapore, on how their business outlook over the next three years has been impacted by Covid-19. All respondents have annual revenue over US$500 million and a third of the companies surveyed have more than US$10 billion in annual revenue.

When their responses were analysed, three distinct trends emerged around the future of work from home (WFH), work from anywhere (WFA), and the de-densification of the central office. It is important to understand the role that tax policies can play in shaping these trends.

Work from home (WFH)

From among those surveyed, 76 per cent of CEOs in Singapore have said that they will continue to build on the use of digital collaboration and communication tools to enable their employees to work remotely. While there is limited direct tax impact of remote working on employers and employees if they are in the same tax jurisdiction, increased adoption of WFH may have a negative multiplier effect on F&B, hospitality, retail (particularly apparel), aviation and the business travel sectors.

On the other hand, the pandemic has brought a windfall for businesses that enable remote working, such as cloud and data services. This presents an opportunity to the authorities to tweak tax rates, and where required, the basis for taxation, such that these emerging sectors contribute their fair share of taxes. While designing these policies, care must be taken so that players in these sectors still find Singapore an attractive location to operate from.

Work From Anywhere (WFA)

Restrictions on cross-border travel during the pandemic have led to some employees being stranded in foreign locations, potentially triggering permanent establishment liabilities for their employers. Inland Revenue Authority of Singapore (IRAS) has announced temporary tax exemptions, subject to certain qualifying conditions, for employees of foreign employers who are stranded in Singapore.

The growing acceptance of remote working has opened several possibilities in the medium to long term. Businesses are excited about being able to widen their search for specific skills-sets and deep knowledge that they are unable to find locally and therefore it is not surprising that 68 per cent of CEOs surveyed in Singapore feel that Covid-19 will lead to a widening of the potential talent pool for businesses.

They can potentially hire candidates who are either unwilling or unable to move physically from their current locations, and save costs such as relocation, housing allowances, education benefits, and employees' tax expenses.

Singapore can leverage this trend to gain a competitive edge in the post Covid-19 economy. It can help businesses remotely hire targeted foreign talent that bring intellectual capital, technical skills and tax dollars to Singapore, provided they protect the Singapore core.

To enable this to happen at scale, the authorities may need to undertake a comprehensive review of employment laws around right to work for non-residents; tax provisions such as corporate tax, permanent establishment, transfer pricing and employers' tax; social security and welfare laws, and laws governing cyber security. Businesses will also need to strengthen provisions around compensation and corporate culture to remain attractive to a global talent pool.

These policies should also enable talent in Singapore to work in overseas markets while continuing to be physically located in Singapore. By facilitating a two-way movement of talent, Singapore will enrich its talent pool. As investment in training would be imperative for our local workforce to compete globally, it may be timely to consider removing the current cap of S$5,500 for course fee reliefs for Singaporeans.

The pandemic has prompted a shift from large offices in the centre of the city to smaller work hubs in the suburbs and alternate CBD locations. A de-densification of the CBD will help in its regeneration and reduce our carbon footprint by cutting down daily commuting.

The authorities can incentivise developers and investors to develop net-zero buildings, particularly in alternate CBDs, by providing enhanced tax deductions on financing costs, property tax rebate for green property owners, rebate on stamp duty on conveyancing of green properties and enhanced tax deductions on rental paid by tenants of green properties. The authorities can also encourage the adoption of Proptech to make buildings more sustainable.

Covid-19 has underlined the need to build a strong line of defence against future pandemics and deep economic resilience to withstand their impact when they do strike.

The ongoing disruption to businesses and workforce is a once-in-a-generation opportunity for policy makers, business leaders and society to actively shape the future of work and make it more equitable, sustainable and diverse. The authorities can lead this response and provide a much-needed boost to Singapore Inc to stay competitive in a post-pandemic world.

The writers are from KPMG in Singapore.

Tay Hong Beng is partner and head of real estate; Anna Low is partner, personal tax & global mobility services.

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