Budget 2018 anchors on three main themes for businesses – Innovation, Productivity, Digital Capabilities & Internationalization. Following is an overview of the key features of the Budget that impact the business community.
Measures to Manage Near-Term Cost Pressures
1) Corporate Income Tax (CIT) Rebate
Currently, companies qualify for Corporate Income Tax (CIT) rebate of 20% of tax payable, capped at S$10,000. For YA2018, the CIT rebate will be enhanced to 40% of tax payable, capped at $15,000. The rebate has also been extended for another year to YA2019, at a rate of 20% of tax payable, capped at $10,000.
The enhancement of CIT rebate is timely help for small companies struggling with cost pressures. The tax savings brought by the CIT rebate will ease some of the cash crunch faced by small and medium sized companies.
2) Wage Credit Scheme
The Wage Credit Scheme (WCS) supports businesses in transformation efforts and encourages them to share the productivity gains with workers by co-funding the wage increases. In the Budget, the WCS has been extended up till 2020. Government co-funding of qualifying wage increases will be 20% in 2018, and will be tapered in subsequent years.
Summary of Changes to WCS
|Scheme||Current WCS||Extension of WCS|
|Qualifying years||2016 and 2017||2018, 2019 and 2020|
|Level of co- funding||20% of qualifying wage increases for both years||20% of qualifying wage increases in 2018|
15% of qualifying wage increases in 2019
10% of qualifying wage increases in 2020
|Qualifying wage increases||Gross monthly wage increases of at least $50 given to Singaporean employees in the qualifying year, up to a gross monthly wage level of $4,000, will receive co- funding.|
In addition, gross monthly wage increases of at least $50 given in 2015 and 2016, and sustained in subsequent years of the scheme, will be supported.
|Gross monthly wage increases of at least $50 given to Singaporean employees in the qualifying year, up to a gross monthly wage level of $4,000, will receive co-funding.|
In addition, gross monthly wage increases of at least $50 given in 2017, 2018 and 2019, and sustained in subsequent years of the scheme, will be supported.
|Note||All other parameters remain the same.|
Employers do not need to apply for WCS. They will receive payouts automatically in March of the following year.
The scheme will encourage employers to hire Singaporeans and reduce the local unemployment rate. Cost pressures caused by wage growth is a key concern among employers and WCS will soften the impact for companies. Also, the tapering of the WCS is typical for any subsidy programme and it gives ample time for the employers to adapt to the eventual withdrawal of the scheme.
3) Foreign Worker Levy
Foreign Worker Levy rates remain unchanged for all sectors. The earlier-announced Foreign Worker Levy increases for Marine Shipyard and Process sectors will be deferred for another year.
Foreign Worker Levy Schedule
|Sector/ Pass Types||Tier||Dependency Ratio Ceiling (DRC)||Levy Rates ($) (R1/R2)|
|1 Jul 2017||1 Jul 2018||1 Jul 2019|
|S-Pass||Basic Tier||≤ 10%||330||330||To be announced in 2019|
|Tier 2 (Services) Tier 2 (Others)||10-15% 10-20%||650||650|
|Construction WPH||Basic Tier||≤ 87.5%||300/700||300/700||300/700|
|Services WPH|| |
|≤ 10%||300/450||300/450||To be announced in 2019|
|Marine Shipyard WPH||Basic Tier||≤77.8%||300/400||350/500|
|Process WPH||Basic Tier||≤ 87.5%||300/450||300/500|
|Manufacturing WPH||Basic Tier||≤ 25%||250/370||250/370|
The stand to maintain status quo comes as a great relief for companies struggling to contain costs. The decision to defer the FWL hike to next year is welcomed by the marine sector which is still wobbly despite the gradual global economic recovery. However, businesses may have to brace for a hike next year as the economy strengthens.
Measures to Balance Targeted Grants and Tax Concessions
1) Startup Tax Exemption Scheme (SUTE)
Presently, a new company can, subject to conditions, qualify for, in each of the first three YAs:
- a) 100% exemption on the first $100,000 of normal chargeable income; and
- b) 50% exemption on the next $200,000 of normal chargeable income.
From YA 2020, the following adjustments have been made to the scheme:
- a) 75% exemption on the first $100,000 of normal chargeable income; and
- b) 50% exemption on the next $100,000 of normal chargeable income.
Henceforth, startups would have to bear higher taxes on their chargeable income.
For a startup with a chargeable income of S$100,000 the effective tax rate is 4.3%. So, despite the adjustments, the overall headline tax rate remains low and competitive against other jurisdictions. Since only a small fraction of the startups have significant chargeable incomes, the adjustments will not have a widespread impact. Moreover, the startup community is keen on targeted grants and subsidies rather than the tax component. However, the adjustments will kick in only in YA 2020 and meanwhile, those firms that have just turned profitable will still be able to benefit from the CIT rebate of 40%.
2) Partial Tax Exemption Scheme (PTE)
All companies (excluding those that qualify for the SUTE scheme), can qualify for, in each YA:
- 75% exemption on the first $10,000 of normal chargeable income; and
- 50% exemption on the next $290,000 of normal chargeable income.
The following adjustments have been made and is applicable from YA 2020
- 75% exemption on the first $10,000 of normal chargeable income; and
- 50% exemption on the next $190,000 of normal chargeable income.
Most of the medium sized companies do not have chargeable income exceeding S$200,000 and despite the adjustments the overall headline rate is only 8.1% for companies that have a chargeable income of S$100,000. Thus, the adjustment will have minimum impact on companies.
Related Article: Singapore Budget 2018 – Overview of Tax Changes
Measures to Foster Progressivity and Equity
1) Hike in Goods and Services Tax (GST)
The hike in GST will increase tax revenue and close the gap in the means to meet future spending which is rising due to increased healthcare expenses on the ageing population. GST is presently charged at 7%. The consumption tax will be increased to 9% sometime during the period 2021 -2025.
The hike in GST was anticipated and the business community welcomes the ample lead time, which will help them adjust to the increased costs. Some sectors such as Food and Beverage (F&B) that are not able to pass on the costs to consumers will be deeply impacted by the hike.
2) Goods & Services Tax (GST) on Imported Services
Presently, no GST is chargeable on imported services from overseas suppliers who do not have an establishment in Singapore. From 1 January 2020, GST will be charged on imported services. The GST, which does not affect e-commerce for goods such as online shopping, will be levied on two types of services: business-to-business (B2B), such as marketing services, accounting services and IT services; and business-to-consumers (B2C), including video and music streaming services, apps and online subscription fees.
B2B imported services will be subjected to GST on a reverse charge mechanism. Under the B2B reverse charge mechanism, the local GST-registered business is required to account for GST to the Inland Revenue Authority of Singapore (IRAS) on the services that it imports, as if it were the supplier. Businesses which use imported services to make taxable supplies of goods and services can make claims for full GST refunds on those services. However, businesses that use imported services to make non-taxable supplies of goods and services can make only partial GST refund claims for those services.
The taxation of B2C imported services will take effect through an Overseas Vendor Registration (OVR) mode. This requires overseas suppliers and electronic marketplace operators which make significant supplies of digital services to local consumers to register with IRAS for GST. Under this model, overseas vendors whose annual global turnover exceeds $1 million and who make more than $100,000 in the sale of digital services to consumers in Singapore must pay GST.
The move is to streamline Singapore’s GST framework with international practices and to create an equitable space for local and overseas suppliers of services. But we have to wait and see how the proposal gets enforced as monitoring compliance among small suppliers would be challenging. Singapore still does not charge GST on imported goods whose value does not exceed S$400, however the tax authority is reviewing this stand at present and may also subject low value imported goods to GST.
Measures to Boost Productivity, Innovation and Internationalisation
1) Productivity Solution Grant (PSG)
To make it easier for businesses to access support to adopt technologies and productivity solutions, the government will streamline existing grant schemes that support pre-scoped, off-the-shelf productivity solutions into a new Productivity Solutions Grant (PSG). The grant will provide funding support for up to 70% of qualifying costs and starting from 1 April 2018, businesses can apply for the grant through the Business Grant Portal.
Consolidation of the schemes will make it easier for smaller firms to access grants. The new PSG stands out in contrast with the Productivity and Innovation Credit Scheme (PIC), which provides only 60% grant or up to S$100,000 cash payout for qualifying expenses.
2) Enhanced Tax Deduction for qualifying Research & Development (R&D), Intellectual Property (IP) and Licensing Costs
Presently, businesses can claim tax deduction of 150% on staff cost and consumables incurred for R&D, and 100% tax deduction on other qualifying expenses. But from YA 2019 to 2025, the tax deduction on staff costs and consumables incurred on qualifying R&D projects has been increased to 250%.
Likewise, businesses can presently claim 100% tax deduction on qualifying IP registration costs and from YA 2019, businesses can claim 200% tax deduction for the first S$100,000 of the qualifying IP registration expenses for each YA.
Currently, businesses that have incurred qualifying in-licensing costs can claim 100% tax deduction on such expenses. From YA 2019 businesses can claim 200% tax deduction for the first S$100,000 of the qualifying IP in-licensing expenses for each YA.
The enhancements come at a time when the Productivity and Innovation Credit (PIC) scheme is expiring. The intention of the government is to foster the spirit of innovation and productivity among businesses regardless of their size. The enhancements would help bridge the void caused by the expiry of PIC and encourage businesses to develop and protect indigenous innovations and enable small firms to adapt new solutions via licensing. The enhanced tax deduction may potentially attract more R&D investments from large multinationals in Singapore. It must be noted that some neighboring jurisdictions such as Hong Kong have recently enhanced the tax deduction for R&D expenses. Singapore’s move reflects on its resolve to attract R&D investments.
3) Open Innovation Platform (OIP)
The Open Innovation Platform (OIP) is a match-making service between problem owners and solution providers and it bridges the gap between research and commercialisation. By matching problem owners and solution providers across sectors, OIP enables problem owners and solution providers to collaborate and develop innovative digital products. The OIP also provides solution providers with resources and opportunities to develop scalable solutions. The OIP will be operational in Q2 2018. The OIP will be administered by the Info-communications Media Development Authority (IMDA). More details will be provided during Ministry of Communications and Information’s (MCI) Committee of Supply (COS).
Most often researchers struggle with commercialization of their innovations. Enterprises find it challenging to find the right research partners to find solutions for their problems and struggle with substandard solutions. The OIP, which has quickly gained the nickname as ‘Tinder’ for innovations, will essentially help companies find the right solution to their problems. The pace to market will also improve and reinforce Singapore’s status as an innovation hub.
4) Double Tax Deduction for Internationalization (DTDi)
Presently, under the DTDi scheme, businesses are allowed tax deduction of 200%, on qualifying market expansion and investment development expenses subject to approval from International Enterprise (IE) Singapore and the Singapore Tourism Board (STB). No prior approval is needed from IE or STB for tax deduction on the first S$100,000 of the qualifying expenses. From YA 2019, the $100,000 expenditure cap for claims without prior approval from IE Singapore or STB has been raised to $150,000 per YA.
As the local market shrinks and becomes more competitive, companies need to expand internationally to grow their revenue and market. This involves significant costs in terms of market research, trade visits, exhibition, business services etc. Large companies may not find it stifling but small companies would definitely find such support helpful in their internationalization efforts. The enhanced threshold for seeking approval from IE and STB is a welcome move amidst rising cost associated with internationalization.
Measures to Foster New Capabilities and Partnerships
1) Enterprise Development Grant (EDG)
The Enterprise Development Grant (EDG) is a composite of two existing grants – SPRING Singapore’s Capability Development Grant (CDG) and IE Singapore’s Global Company Partnership Grant (GCP). It will provide funding support for up to 70% of qualifying costs from FA 2018 to 2019. Businesses can apply for the EDG through the Business Grants Portal from the fourth quarter of 2018. In the interim period, businesses can continue to apply for the existing CDG and GCP grants through the portal. It must also be noted that SPRING and IE will also merge in April to form a new statutory board under the Ministry of Trade and Industry.
The existing grant schemes that support various forms of partnership among enterprises and companies are consolidated under a single platform called PACT. The objective is to provide comprehensive and holistic support to encourage collaboration among businesses of all sizes. PACT will provide funding support of up to 70% of qualifying costs, for collaborations between companies in areas including capability upgrading, business development, and internationalisation. PACT will be administered by Economic Development Board (EDB) and ESG.
3) Infrastructure Office
In order to help companies tap into the opportunities emerging in the infrastructure sector, an Infrastructure Office will be set up. This will bring together local and international partners across the value chain, including infrastructure developers, institutional investors, multilaterals, and legal, accounting, and financial services providers. This will serve as a platform for information exchange on opportunities in Asia as well as facilitate collaboration, financing and investment in infrastructure projects.
Consolidating diverse schemes are immensely helpful for smaller companies to access information and help. This prevents duplication and reduces the paper work and compliance requirements for companies. The one-stop approach to grants and opportunities will encourage companies to take advantage of the various schemes to embark on the next phase of growth.
Measures to Deepen Skills
1) The Tech Skills Accelerator (TeSA)
The Tech Skills Accelerator (TeSA) is a tripartite initiative by the Government, industry, and NTUC, to build and strengthen the digital workforce for the Singapore economy, and to enhance employability outcomes for individuals in the Information and Communications technology (ICT) profession. TeSA will scale up existing programmes, such as Company-Led Training (CLT), Tech Immersion and Placement Programme (TIPP), and Critical Infocomm Technology Resource Programme Plus (CITREP+), to develop more local ICT professionals in new sectors and in emerging skill areas like data analytics, artificial intelligence, and cyber security. S$145 million has been committed towards TeSA over the next three years.
As digital disruptions become pervasive, the move reflects the government’s commitment to equip our workforce with digital skills and ensure their relevance and competitiveness in the digital economy
Stay on top of new developments from Budget 2018
Full details of the measures announced at Budget 2018 will only be released at the Committee of Supply. Stay tuned to future updates from us. To maximise your benefits from the incentives announced, engage our specialists today.