The most anticipated Jubilee Budget was delivered by Deputy Prime Minister and Minister for Finance Mr. Tharman Shanmugaratnam on 23rd February at 3.30pm in Parliament.
“Singapore’s GDP growth in 2015 is expected to be between 2% to 4%, but the global outlook for 2015 is uncertain”, said Mr. Tharman.
As the nation celebrates 50 years of independence, expectations are running high for SG50. The budget takes four major steps in four areas:
- Invest in the skills of the future
- Support the next generation of business successes by promoting innovation and internationalization.
- Invest in economic and social infrastructure for the future
- Strengthen assurance in retirement
Singapore’s development expenditures have already increased from $12 billion five years ago to about $20 billion (4.8% of GDP) in the coming fiscal year. They will grow further, by 50% to about $30 billion (6% of GDP) by the end of this decade.
Against this backdrop, here are a few noteworthy aspects from the Budget 2015:
An important message of this year’s Budget Statement was to stay the course as the economy continues to restructure, and focus on creating a bright future for Singapore through innovation.
“We must reach our next frontier as an economy, with firms driven by innovation, and higher incomes coming from deep skills and expertise in every job.”
Fostering Deep Skills and Innovation
In line with investing in capability upgrades and deep skills, the Budget highlighted five growth clusters of the future:
- Advanced Manufacturing, aided by new technologies such as advanced robotics and additive manufacturing.
- Applied Health Sciences, such as developing new medical devices and better nutrition, and transforming healthcare delivery
- Smart and Sustainable Urban Solutions. There is growing demand in the world for Singapore’s expertise in water and waste management, transport and urban planning.
- Logistics and Aerospace. Asian and Global Financial Services. Singapore is well positioned to serve the rapid growth of Asian finance, in areas such as infrastructure funding, structured trade finance and wealth management.
These are the areas where Singapore has the capacity to excel, and the government will make substantial investments to improve domestic capabilities and expertise in these growth clusters.
Gradual Phasing Out of the Transition Support Package
The Transition Support Package, launched in 2013, was set to expire in YA 2015. However, to help SMEs adapt to continued economic restructuring, it will be phased out in stages.
In line with this, the following components will be extended for another 2 Years of Assessment (YAs):
- Wage Credit Scheme – For YA 2016 and 2017, the government will co-fund 20% (down from 40%) of salary increases for Singaporean employees earning $4,000 per month and below. If wage increases given in 2015 are sustained in the next two years, employers will continue to receive co-funding at the new rate of 20%.
- Corporate Income Tax (CIT) Rebate – The CIT rebate has been extended for another 2 years, at the same rate of 30% but with a lower cap of $20,000 per year of assessment.
Meanwhile, the third component of the Transition Support Package, the PIC Bonus has ran its course and will expire this year.
Investing in Innovation & Internationalization
Investing in innovation and internationalization of SMEs was another focal point of the Budget. The Government will strengthen support to businesses that are making significant efforts to raise their productivity, especially by innovating and internationalizing.
There are three new measures announced that will help SMEs expand internationally:
- This includes increasing the support level for SMEs with activities under IE Singapore’s grant schemes.
- The Double Tax Deduction for Internationalization scheme will be extended to cover salaries incurred for Singaporeans posted overseas.
- A new International Growth Scheme (IGS) will allow qualifying companies to enjoy a 10 percent concessionary tax rate on their incremental income from qualifying activities.
Focus on Innovation
- SMEs engaging in innovation can apply to SPRING for Capability Development Grants (CDG) and will get support from a flexible and tailor-made grant depending on its scope for projects below $30,000 with enhanced funding support level, of up to 70% of costs, for three more years, to 31 March 2018.
- The PACT scheme (Partnerships for Capability Transformation) that helps foster collaboration between large companies and SMEs will also be extended.
The co-investment cap for SPRING’s Startup Enterprise Development Scheme (SEEDS) and Business Angel Scheme (BAS) will be increased.
SPRING Singapore will provide 50% risk-sharing with selected financial institutions for such loans over an initial period of two years. The aim is to catalyze about 100 venture debt loans, totaling approximately $500 million. Support level will be raised under International Enterprise (IE) Singapore’s grant schemes from 50% to 70% for the next three years.
Decalibration of Foreign Worker Levies
Levy increases for both S Pass and Work Permit Holders that were previously scheduled for 1 July 2015 will be deferred by one year, to 1 July 2016. The current levy rates will be unchanged for 2015 and 2016, for Work Permit Holders in the Manufacturing sector.
Encouraging Mergers & Acquisitions
- Tax breaks for mergers and acquisitions are increased to encourage companies to merge and consolidate.
- IE Singapore’s Internationalization Finance Scheme (IFS) will also be extended to support M&A that will aid a company’s overseas expansion.
- The M&A scheme, introduced in 2010, will also be extended for another five years.
Creating and Capturing Greater Value from R&D
Through Innovation and Enterprise five-year plan efforts will be made help companies develop, test and commercialize new products and solutions. The National Research Fund announced a $1 billion boost to fund this.
Enhanced Personal Tax Deduction for Donations in 2015
Personal income tax deductions for qualified charitable donations made this year will go up from 250% to 300%. The 250% tax deduction for donations, which was set to expire at the end of 2015, will be extended for another three years till the end of 2018.
Personal Income Tax Rebate
To help residents cope with the cost of living, the government is granting an income tax rebate of 50% for this year, with an annual cap of S$1,000.
Increase of Marginal Income Tax Rate
The government will increase the income tax rates of top income earners, with effect from YA 2017. The top marginal income tax rate will go up from 20% to 22% for the highest income earners with a chargeable income above S$320,000. This affects approximately the top 5% of taxpayers.
This year’s Budget proved to be as pro-business as it is pro-people. In a nutshell, it is an expansionary Budget, with Jubilee handouts for the middle class, and incentives to improve the productivity drive.
To learn more about the Budget, please read: Budget 2015 – Overview of Tax Changes.
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