Foreword
How can Singapore adapt and thrive in a rapidly changing world? Addressing this question was one of the main focuses of this year's Budget Statement. While this theme has been the thread running through the Budgets since 2010 when the Government started the restructuring of the Singapore economy to achieve quality growth on the basis of skills, innovation and productivity, this year's Budget seeks to keep Singapore relevant and adaptable amidst the swirling global changes.
Keeping Singapore relevant requires developing the capabilities of both businesses and workers so that Singapore's economy is able to weather unexpected disruptions and take advantage of the opportunities in the new international economy. This necessitates a mid to long term strategic view rather than measures to address short term cyclical challenges faced by businesses.
Hence, instead of introducing major business-friendly tax changes in this year's Budget, the Minister for Finance, Mr Heng Swee Keat, has opted to provide additional support to companies restructuring to meet the challenges of the new economic landscape by enhancing the Transition Support Package introduced in Budget 2013 as follows:
- The Corporate Income Tax (CIT) rebate cap will be raised from $20,000 to $25,000 for Year of Assessment (YA) 2017 (but the rebate rate will remain unchanged at 50%). The CIT rebate will also be extended for another year to YA 2018 with a reduced rate of 20% of tax payable, capped at $10,000.
- The Additional Special Employment Credit (ASEC) that provides wage offsets of up to 3% to employers hiring older Singaporean workers earning up to $4,000 a month will be extended for two and a half years, from 1 July 2017 to 31 December 2019. The ASEC together with the Special Employment Credit (SEC) will provide employers support of up to 11% of the wages of their eligible older workers.
The CIT rebate will only benefit companies that have taxable income. Companies facing losses due to cyclical headwinds will not benefit. Thus, it would have been better if the Government had been more generous as in 2011 when the small and medium enterprise (SME) cash grant was introduced to provide a cash payout equivalent to 5% of turnover capped at $5,000 for companies that were unable to benefit from the CIT rebate.
Nevertheless, it should be noted that the Wage Credit Scheme, which is a component of the Transition Support Package, will continue to support businesses in 2017. For example, the Government will co-fund 20% of wage increases given in 2017 to Singaporean employees earning a gross monthly wage of $4,000 and below. In addition, employers will continue to receive co-funding at 20% in 2017 for wage increases given to their employees in 2015 and 2016 that are sustained in 2017.
The second aspect of this year's Budget is the continuation of the move towards more targeted measures rather than broad-based measures. Although the economy achieved a gross domestic product (GDP) growth of 2% in 2016, the Minister acknowledged that the performance across different sectors had been uneven and it requires a targeted approach to address the specific issues faced by certain sectors. The targeted measures are grouped into two.
In the first group are measures to address continued cyclical weaknesses in certain sectors. For example, levy increases for Work Permit holders will be deferred for one year for the Marine and Process sectors that are facing cyclical weaknesses.
The second group of measures aim to help firms with good prospects to scale up and internationalise. A few notable measures in this category are:
- The introduction of a "SMEs Go Digital Programme" to help SMEs build digital capabilities. Under this programme, SMEs will be able to obtain step-by-step advice on the technologies to use at each stage of their growth as well as receive advice and funding support if they are ready to pilot emerging information and communications technology (ICT) solutions. Initially, the focus will be on sectors where digital technology can significantly improve productivity such as retail, food services, wholesale trade, logistics, cleaning and security.
- Under a new Tech Access Initiative, the Agency for Science, Technology and Research (A*STAR) will support companies in the use of advanced machine tools for prototyping and testing by providing access to costly specialised equipment (such as robotised three-dimensional (3D) scanners), user training and advice.
- The Government will commit up to $600m in capital for a new International Partnership Fund that will co-invest with Singapore-based firms to help them scale up and internationalise. This will allow Singapore-based firms to partner other promising Asian companies to extend product lines, brands or value chains, or to gain access to markets, channels and technologies.
In last year's Budget, the Productivity and Innovation Credit (PIC) scheme was allowed to lapse, which means that the scheme will not be available from YA 2019. The SMEs Go Digital Programme will be a welcomed alternative for SMEs to obtain targeted funding and technical assistance in deploying digital solutions in their businesses. As it appears that the type of ICT solutions that will be funded are those that are relevant to a specific sector, there should be a better outcome in terms of productivity as compared to the PIC scheme.
While there is no increase in the goods and services tax (GST) rate and the personal income tax rates this year, the Minister has said that, due to rising Government spending over the long term especially in healthcare and infrastructure, the Government is studying carefully the options to raise revenues through new taxes or increased tax rates. As the Minister is expecting a Budget surplus of $1.9 billion in financial year (FY) 2017, it remains to be seen as to how soon changes to the tax rates will be announced. If the Singapore economy continues to achieve good quality growth, such changes could be made sooner than later.
This year's Budget also affirms Singapore's commitment in supporting the key principle of the Base Erosion and Profit Shifting (BEPS) project that businesses should be taxed where substantive economic activities are performed. In line with this commitment, existing tax incentives will be refined. For example, in this year's Budget, intellectual property (IP) income has been removed from the scope of Pioneer-Services/Headquarters Incentive and the Development and Expansion Incentive- Services/Headquarters for new incentive awards approved on or after 1 July 2017. Such IP income will be incentivised under a new IP regime that will adopt a BEPS-compliant approach.
In summary, while this year's Budget has some temporary relief measures targeted primarily at SMEs to help deal with the immediate challenges, the main thrust is on improving medium term growth via innovation, use of digital technology, building capabilities and internationalisation. As the Minister said, Budget 2017 is an investment in Singapore's economic transformation and social resilience.
Sivakumar Saravan
Head of Tax
20 February 2017
Individual Tax
GENERAL CHANGES
Granting a Personal Income Tax Rebate for resident individual taxpayers
Current
There is no Personal Income Tax Rebate in place for YA 2017.
Proposed
A Personal Income Tax Rebate of 20% of tax payable will be granted to all individual tax residents for YA 2017 (i.e. for income earned in 2016). The rebate will be capped at $500 per taxpayer.
Business Tax
GENERAL CHANGES
Enhancing and extending the Corporate Income Tax ("CIT") rebate
Current
Companies enjoy a 50% CIT rebate for Year of Assessment ("YA") 2016 and YA 2017, with a cap of $20,000 rebate per YA.
Proposed
The CIT rebate will be enhanced and extended as follows:
- CIT rebate cap will be raised from $20,000 to $25,000 for YA 2017 (with the rebate rate unchanged at 50%); and
- CIT rebate will be extended for another year to YA 2018, but at a reduced rate of 20% of tax payable and capped at $10,000.
Introducing a safe harbour rule for payments under Cost Sharing Agreements ("CSAs") for Research and Development ("R&D") projects
Current
Taxpayers claiming tax deduction for R&D expenditure under Section 14D of the Income Tax Act ("ITA") for payments made under a CSA ("CSA payments") are subject to specific restriction rules for certain categories of expenditure disallowed under Section 15 of the ITA. As such, the breakdown of the expenditure covered by the CSA payments is examined so as to exclude the disallowed expenditure.
Proposed
Taxpayers may opt to claim tax deduction under Section 14D for 75% of the payments made under a CSA incurred for qualifying R&D projects instead of providing the breakdown of the expenditure covered by the CSA payments. The change will apply to CSA payments made on or after 21 February 2017.
NEW TAX INCENTIVES AND CONCESSIONS
Introducing an Intellectual Property ("IP") regime that encourages the exploitation of IP arising from R&D activities of the taxpayer
Current
Currently, the Pioneer-Services/Headquarters Incentive and the Development and Expansion Incentive-Services/Headquarters covers IP income if the IP income arises from qualifying activities.
Proposed
To encourage the use of IPs arising from taxpayer's R&D activities, IP income will be incentivised under a new IP Regime named the IP Development Incentive ("IDI"). The IDI incorporates the Base Erosion and Profit Shifting ("BEPS") compliant modified nexus approach.
Accordingly, such income will be removed from the scope of Pioneer–Services/Headquarters Incentive and the Development and Expansion Incentive-Services/Headquarters for new incentive awards approved on or after 1 July 2017. Existing incentive recipients will continue to have such income covered under their existing incentive awards till 30 June 2021.
The IDI will take effect on or after 1 July 2017, and will be administered by Economic Development Board ("EDB").
EDB will release further details of the change by May 2017.
ENHANCEMENTS AND EXTENSIONS TO EXISTING TAX INCENTIVES AND CONCESSIONS
Extending the Withholding Tax ("WHT") exemption on payments made to non-resident non-individuals for structured products offered by Financial Institutions ("FIs")
Current
WHT exemption is allowed on payments made to non-resident non-individuals for structured products offered by FIs for contracts that take effect, are renewed or extended during the qualifying period from 1 January 2007 to 31 March 2017, subject to conditions.
Proposed
The qualifying period for the WHT exemption on payments made to non-resident non-individuals for structured products will be extended till 31 March 2021. All other conditions of the scheme remain the same.
Extending the Tax Incentive Schemes for Project and Infrastructure Finance
Current
The package of tax incentive schemes for Project and Infrastructure Finance includes:
- Exemption of qualifying income from qualifying project debt securities ("QPDS");
- Exemption of qualifying income from qualifying infrastructure projects/assets received by approved entities listed on the Singapore Exchange ("SGX");
- Concessionary tax rate of 10% on qualifying income derived by an approved Infrastructure Trustee Manager/Fund Management Company from managing qualifying SGX-listed Business Trusts/Infrastructure funds in relation to qualifying infrastructure projects/assets; and
- Remission of stamp duty payable on the instrument of transfer relating to qualifying infrastructure projects/ assets to qualifying entities listed, or to be listed, on the SGX.
The scheme is scheduled to lapse after 31 March 2017.
Proposed
With the exception of the stamp duty remission in (d), the existing package of tax incentive schemes for Project and Infrastructure Finance will be extended till 31 December 2022. The stamp duty remission in (d) will be allowed to lapse after 31 March 2017.
All other conditions of the schemes remain the same.
Monetary Authority of Singapore ("MAS") will release further details of the extension by May 2017.
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