Fuel giants uneasy at S’pore tax

The Panama-flagged jack-up rig El Qaher II in Singaporean waters. Source: Wikimedia

Singapore carbon tax initiative revealed this week in its budget will cover around 40 firms in the city-state, the authorities say, adding to pressure on multinational fuel groups in the refining hub. 

The measure, which will be implemented from 2019 and apply to power stations and other large polluters, raises costs for the fuel sector where profits have been squeezed by a surge in Chinese diesel and oil exports.

Singapore has attracted western oil giants with tax incentives since the 1960s and has some of the world’s largest refineries, with a daily capacity of an estimated 1.5 million barrels of crude oil. Singapore’s carbon tax, announced by the finance minister, Heng Swee Keat, in his budget speech this week, will be set between S$10 (US$7) and S$20 per tonne of greenhouse gas emissions.  Operating costs for refiners could increase by US$3.50-US$7 per barrel as a result, the authorities estimated.

Sushant Gupta of Wood Mackenzie, an energy consultancy, said refineries in the city-state were already struggling. “There is cut-throat competition,” Gupta said. “China has been eating into Singapore’s market share in its key markets of Southeast Asia and Australia.”

The proposed threshold for the new tax is 25,000 tonnes of carbon dioxide per year. There are up to 40 firms in Singapore that exceed that limit.

Singapore’s overall budget has been accused of offering too few incentives to foreign investors.

PricewaterhouseCoopers’ Singapore tax specialist Chris Woo said the absence of tax incentives could mean that the Lion City loses ground amid an increasingly competitive tax environment.

“It’s interesting to see there isn’t anything spectacular that would grab the attention of the foreign investors … if someone was looking to invest in Singapore or was waiting for goodies in the budget, there weren’t really any big goodies for these multinationals outside Singapore to attract them to Singapore,” Woo told CNBC.

“Singapore, at this stage of global tax competitiveness, believes that it’s at a good position at the moment. There could be some tweaks later on. Singapore, of course, has a very substantial incentive regime… it appears to be that Singapore is investing for the long term,” he told the broadcaster.

Singapore’s low-tax policies and its incentives to attract multinationals have come under increasing scrutiny in recent years. The Organisation for Economic Cooperation and Development’s global initiative, called the Base Erosion and Profit Shifting (BEPS), is looking to close the gap in international tax rules that allow companies to shift profits across borders and dodge taxes.

“The BEPS project seeks to ensure that companies are taxed where substantive economic activities are performed. Singapore supports this principle. We are, in consultation with businesses, refining our schemes and implementing the relevant standards,” Heng said while delivering his budget.