Singapore Budget 2021: Overview of Tax Changes
The Deputy Prime Minister and Finance Minister Heng Swee Keat delivered the budget for 2021 on 16 February. Themed “Emerging Stronger Together”, the budget rightly addresses the concerns of the business community and the workforce struggling to salvage themselves from the havoc unleashed by the pandemic.
Budget 2021 is both broad-based and targeted to help businesses restructure and embolden them to seek new growth opportunities to create new and productive jobs. To help the businesses emerge stronger together the government seeks to build three strong growth enablers – foster the spirit of innovation and enterprise of the business community that is deeply connected with Asia and the world; enhance access to a wide range of capital to transform and scale; develop the skills and talents of the workforce to create opportunities and redesign jobs. Acknowledging the fact that the world is still in the clutches of the pandemic and businesses would take time to come out of the woods, the budget includes an S$11 billion COVID-19 Resilience Package to provide continued support to businesses in their fight against the pandemic.
The following is an overview of the tax changes affecting Singapore businesses.
Table of Contents:
|Overview of Tax Changes 2021||Current||New||Remarks|
|Corporate Tax||The corporate income tax (CIT) rate remains unchanged at 17% and no tax rebate was announced in this year’s budget.||N.A.||Though businesses were aware that reduction of CIT rate was unlikely, speculations of some relief in the form of rebates were undoubtedly there. The status quo being maintained, businesses have to swallow the bitter pill and seek relief from other schemes to mitigate their tax burden.|
|Goods and Services Tax||The Goods and Services Tax (GST) rate increase from 7% to 9% will not be raised in 2021. The move to increase our GST rate will be made between 2022 to 2025.||From 1 January 2023, Singapore will extend GST to low-value goods imported via air or post.
Accordingly, goods valued up to S$400 and business-to-consumer (“B2C”) imported non-digital services, through the extension of the Overseas Vendor Registration, such as video and music streaming services, apps, software, and online subscription fees and reverse charge regimes involving Business-to-business (“B2B”) imported services (both digital and non-digital) will be subjected to GST.
It must be noted that GST is charged on land and sea imports regardless of value.
|The deferment of the GST increase comes as no surprise. Extension of GST to low-value online imports will create a level playing field for local businesses that have long lamented the treatment of low-value goods imported via air and post. As e-commerce has taken off prodigiously and other jurisdictions such as Australia, the UK and New Zealand are already imposing GST or VAT it is only just that Singapore also joins the bandwagon.|
|Extension of Enhanced Carry-Back Relief Scheme||Budget 2020 enhanced the Carry-Back Relief Scheme.
Accordingly, subject to a cap of S$100,000 and other conditions, any unabsorbed capital allowances and trade losses (collectively referred to as “qualifying deductions”) for YA 2020 can be carried back up to three immediately preceding YAs.
Previously, taxpayers were allowed to carry-back any qualifying deductions to offset against the Assessable Income for the immediate preceding YA only.
|The Enhanced Carry-Back Relief Scheme that was announced last year for YA2020 has been extended to apply to qualifying deductions for YA2021, with the same parameters.|
|Extension of Option to Accelerate Capital Expenses Write-off||Budget 2020 allowed the taxpayers to claim capital allowance against capital expenditure on plant and machinery (P&M) over an accelerated period of two years, unlike the previous provision that allowed such costs to be written-off over the working life of the P&M or three years. Whereby, P&M costs incurred in the financial year (FY) 2020 can be written off in the following two years of assessment, that is, 75% in YA 2021 and 25% in YA2022. It must be noted that once opted, the accelerated CA claim is irrevocable and must be claimed successively, and cannot be deferred.||The option to accelerate the write-off of the cost of acquiring Plant and Machinery (P&M) has been extended to capital expenditure incurred on the acquisition of P&M in the basis period for YA2022 (i.e. FY2021), with the same parameters.|
|Extension of Option to Accelerate Deduction of Renovation and Refurbishment Expenses||In Budget 2020 the taxpayers were given the option to claim accelerated deduction on the expenses incurred on R&R during the FY 2020 in one YA instead of the previous provision of deduction over three consecutive YAs following the basis period. The deduction is capped at $300,000.||The option to claim accelerated deduction of Renovation and Refurbishment (R&R) in one YA has been extended to qualifying expenditure incurred on R&R in the basis period for YA2022 (i.e. FY2021), with the same parameters.||The tax savings brought about by the extension of the Carry-Back relief and P&M and R&R deductions will help businesses that are pummelled by the pandemic. In addition, businesses will be incentivised to invest and improve their products and services to scale and grow despite the challenges posed by the pandemic.|
|Enhanced and Extended Internationalisation Scheme||N.A.||Acknowledging the predominance of virtual mode of conducting business the scope of the Double Tax Deduction for Internationalisation (DTDi) scheme has been enhanced to include expenses incurred to participate in approved virtual trade fairs:
The list of qualifying expenses for overseas investment study trips has been expanded to include logistics costs to transport materials/samples used during the investment trips.
It now covers the following additional activities:
The above enhancements will take effect for qualifying expenses incurred on or after 17 February 2021.
Under the DTDi scheme, companies that are expanding beyond Singapore borders enjoy a tax deduction on qualifying market expansion expenses.
|As businesses embrace virtual operations it is essential to review and revise schemes to ensure they reflect the new normal. The paradigm changes brought about by the pandemic warrant such enhancements as incorporated in the DTDi and the changes demonstrate the government’s commitment to support businesses as they evolve and adapt to the new business environment.|
|Extension of the Business and IPC Partnership Scheme (“BIPS”)||The BIPS scheme was implemented in 2016 to encourage corporate volunteerism and promote partnership between Institutions of Public Character (IPC). Under the scheme, businesses may claim a 250% tax deduction on qualifying expenditure incurred when they send their employees to volunteer and provide services, including secondments, to IPCs.||The scheme, which was set to lapse in 2021 has now been extended for another two years till 31 December 2023.
The qualifying expenditure is subject to a cap of $250,000 per business per Year of Assessment (YA).
A qualifying expenditure cap of $50,000 is also imposed on each IPC per calendar year.
|To build resilient and inclusive societies that are capable of overcoming sweeping crisis situations such as the present pandemic it is essential to foster collaborative partnerships between business enterprises and social enterprises. Schemes like BIPS reinforce such partnerships and are critical during a crisis when resources become scarce.|
|Extension of the Not-for-Profit Organisation (“NPO”) Tax Incentive||The NPO tax incentive grants tax exemption on the income derived by an approved NPO and the incentive scheme which was set to lapse in 2017 was extended in Budget 2016 until 31 March 2022.||To continue attracting NPOs to Singapore, the NPO tax incentive will be extended till 31 December 2027.||The further extension will give the NPOs in Singapore some relief amidst philanthropic funds petering due to the pandemic. They can now diversify their revenue sources besides donations and grants.|
|Lapsing of Automation Support Package (ASP)
||The ASP was launched in Budget 2016 and was meant to help firms deploy large-scale automation, such as robotics and the Internet of Things. It comprises grant, tax, and loan components.
Accordingly, funding support of up to 50% of qualifying costs, capped at S$1 million, for the roll-out or scaling up of automation projects is provided to defray costs of automation projects.
For companies that required financing support for their automation projects, the Enterprise Singapore, under the Enterprise Financing Scheme, undertakes loan-default risk of up to 70% for SMEs, with the remainder of the risk held by participating financial institutions.
The ASP scheme also includes an Investment Allowance (IA) component whereby a 100% investment tax allowance, capped at S$10 million per project, was provided on the amount of approved capital expenditure, net of grant.
|The ASP will be allowed to lapse after 31 March 2021. It was extended to two years in Budget 2019.
However, the 100% IA scheme to support automation projects will be extended by two years, for automation projects approved by Enterprise Singapore from 1 April 2021 to 31 March 2023.
Also notably, businesses can continue to avail support for their innovation and productivity enhancement projects under the Enterprise Development Grant and Enterprise Financing Scheme.
|The lapsing of the ASP will have minimal impact on businesses that will still be encouraged to pursue automation projects as they are being cushioned by other schemes. Businesses have grown to appreciate the benefits of automation to the bottom line and process efficiencies and the changes in the business environment are propelling businesses to embrace automation more willingly.|
|Extension and Enhancement of the Investment Allowance (Energy Efficiency) (“IA-EE”) Scheme||Administered by Economic Development Board (“EDB”) the IA-EE provides Investment Allowance to green data centre and non-data centre projects where the capital expenditure incurred results in more efficient energy utilisation.
Earlier, in 2015, the IA-EE scheme, jointly administered by the Economic Development Board (“EDB”) and the National Environment Agency (“NEA”) and the IA-EE for Green Data Centres scheme, administered by the Infocomm Development Authority of Singapore (“IDA”) were combined to form IA-EE scheme and was extended for six years till 31 March 2021.
|The IA-EE scheme will be renamed the “Investment Allowance for Emissions Reduction” scheme, with the following revisions:
The revised conditions will apply to projects approved by EDB from 1 April 2021 to 31 December 2026 (both dates inclusive).
|Amidst climate change implications becoming more perceptible energy efficiency is becoming a national priority. The enhancement of the scheme to incentivise mitigation of greenhouse gas emission demonstrates Singapore government’s efforts to fight climate change.|
|Withdrawal of the Accelerated Depreciation Allowances for Highly Efficient Pollution Control Equipment (“ADA-PCE”) scheme||Introduced in 1996, the scheme encouraged businesses to purchase and install clean technologies by allowing accelerated write-off of the cost of acquiring such pollution control technologies over one year.||The ADA-PCE scheme was to be withdrawn from 17 February 2021.
However, The Ministry of Sustainability and the Environment (“MSE”) and the National Environment Agency (“NEA”) will continue to implement measures to control pollution and set emission standards to improve air quality in Singapore.
|Regimes around the world have moved along the spectrum and are penalising polluters instead of incentivising the adoption of PCE. Therefore the withdrawal is relevant and timely.|
|Allow the Lapsing of the Insurance Business Development-Specialised Insurance (“IBD-SI”) scheme||The IBD- SI scheme, which was scheduled to lapse after 31 August 2021, provided a concessionary tax rate of 8% and 10% for new and renewal award recipients respectively, on qualifying income derived by a (re)insurer from carrying on specialised insurance and reinsurance business. It is allowed to lapse.||N.A.||N.A.|
|Tax Changes for Financial Sectors 2021||Current||New||Remarks|
|Extension and refinement of the double tax deduction (“DTD”) for retail bonds issued under MAS’ Seasoning Framework and Exempt Bond Issuer Framework||Bond issuers who carry on a trade or business in Singapore, are currently allowed to claim up to 200% tax deduction on qualifying upfront cost incurred from 19 May 2016 that is attributable to retail bonds issued during the period from 19 May 2016 to 18 May 2021 (both dates inclusive) under the Seasoning Framework and Exempt Bond Issuer Framework.||To promote rated retail bond issuances, the DTD scheme will be extended for qualifying upfront cost incurred on or after 19 May 2021 that is attributable to rated retail bonds issued during the period from 19 May 2021 to 31 December 2026 (both dates inclusive) under the Seasoning Framework and Exempt Bond Issuer Framework.
It must be noted that this provision is available only for bonds rated by credit rating agencies such as Standard & Poor, Moody’s, and Fitch.
|Governments around the world are running on a high fiscal deficit and are parched for credit and investments due to stimulants and support extended to defray the pandemic pandemonium.
Therefore governments would need to resort to financing major long-term infrastructure projects through issuance of bonds. It is rational to promote the rated bonds to induce increased participation of retail investors in bond markets and it would also help to maximise the current low-interest-rate environment.
|Extension and Rationalisation of the Withholding Tax (WHT) Exemptions|
|WHT exemptions on Section 12(6) Payments:||N.A.||1. With effect from 1 April 2021, the existing Withholding Tax (WHT) remission for interbank/ inter branch transactions falling within Section 12(6) of the ITA will be legislated as a WHT exemption. Accordingly, all Section 12(6) payments made by banks in Singapore to their branches/head offices outside Singapore or other banks outside Singapore will be exempt from tax where such payments:
2. Budget 2021 extends the WHT exemptions on all Section 12(6) payments made to any non-resident person by the specified entities, for the purpose of the trade or business, till 31 December 2026. Accordingly, WHT is exempted if such payments:
The exemption was scheduled to lapse after 31 March 2021. Budget 2021 extends the WHT exemptions till 31 December 2026. All other conditions of the WHT exemption remain the same.
The provision was scheduled to lapse after 31 March 2021. All other conditions of the WHT exemption remain the same. It must be noted that the PEs are required to declare the section 12(6) payments in their annual income tax returns and uncles exempted, such payments must be assessed to tax.
|The WHT exemptions and extensions will help to enhance the value proposition and competitiveness of Singapore’s financial sector|
Other Tax Changes
- To foster a philanthropic community that is caring and compassionate, qualifying donations made from 1 January 2022 to 31 December 2023 will be given a 250% tax deduction.
- The early adoption incentive of 45% rebate off the Additional Registration Fee (ARF) for electric cars and taxis from January 2021 to December 2023 is now offered with 0 ARF floor in contrast to the earlier S$5000 ARF floor. There is a cap of S$20,000.
- Petrol duties are revised from $0.64 per litre for premium grade to $0.79 per litre and $0.56 per litre for intermediate grade to $0.66 per litre.
- To offset the impact of increased petrol duties a road tax rebate has been announced for smooth transition. For petrol and petrol-hybrid vehicles the following rebates are applicable, from 1 August 2021 to 31 July 2022:
- 15% for cars, including taxis and private hire cars (“PHCs”); in view of their higher mileage and additional Petrol Duty Rebate of $360 will be paid over 4 months.
- 60% for motorcycles. Depending on the engine capacity a Petrol Duty Rebate of up to $80 will be paid to motorcycle owners, subject to conditions.
- 100% for commercial vehicles.
Read more on how to reduce your tax in Singapore.
The extension of various temporary tax concession measures introduced in Budget 2020 is a welcome relief for businesses pummelled by the pandemic. The cost savings from the concessions will provide some breather. At the same time, Budget 2021 also seeks to reinforce Singapore’s competitiveness as a financial and investment hub. Sustaining the competitiveness of core sectors will have a spill-over effect on other sectors and help them scramble up amidst the uncertainty. With Budget 2021, Singapore has yet again managed to engage tax as a lever to spur growth, innovation, collaboration, competitiveness and sustainability.
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