Following the recommendations by the Committee on the Future Economy (CFE), the Monetary Authority of Singapore recently announced that it will relax some of its rules on finance companies to make it easier for small- and medium-sized enterprises (SMEs) to obtain financing. The regulatory changes will see SMEs being granted more access to higher amount of uncollateralised loans and business customers will be able to contract more conveniently.
This is good news indeed given that access to funding for growth has traditionally been a challenge for the cash-strapped SMEs. With Singapore Budget 2017 just days away, can more be done to help SMEs be competitive whilst tiding over the headwinds in the short term?
For a start, resource-lean SMEs will appreciate a lightening of the administrative and compliance burden with their income tax filing. Similar to having a separate set of simplified financial standards, a simplified income tax code for SMEs can be introduced in the Singapore Income Tax Act.
For smaller companies, simpler tax rules on capital allowance claims and deductions can help to ease their compliance costs. In the long run, this can steer Singapore to be a more conducive growth environment for startups and SMEs.
Another issue that SMEs – many of which are in the retail, food and beverage, and entertainment sectors – face is the regular need to maintain and renovate their retail shop front as part of their lease agreement to stay relevant and attractive to consumers. Many could benefit from the renovation and refurbishment (R&R) deduction scheme, yet restrictions such as spending cap, three-year deduction period, and qualifying expenditure have curtailed the benefits and entailed administrative effort in claiming deductions for SMEs.
To support them, perhaps the R&R scheme can be simplified by increasing the spending cap and allowing one-year deduction claim for SMEs. To take it a step further, why not expand qualifying R&R costs to include designer and professional fees and costs that affect the structure of the building? This may be helpful since the industrial building allowance has been phased out and land intensification allowance scheme is available only to certain industries.
At the same time, to support Singapore groups during slower growth and to encourage risk-taking, the government may consider enhancing the group relief scheme. Presently, the scheme only allows the tax loss items in the current year to be transferred between Singapore group companies.
Perhaps the scheme can be enhanced to allow brought forward tax loss items to be transferred to Singapore group companies for set-off against their current year taxable income. To ensure that this enhancement is targetted at SMEs, a limit of $1m can be imposed on the amount of brought forward tax loss items that may be transferred per tax year under the group relief scheme.
Encouraging our local enterprises to scale up and expand beyond the domestic market has been a key focus of past Budgets. Inorganic growth can be a viable route to accelerate market reach and access, and to that end, companies may consider M&A as a growth strategy.
Supporting such ambition is the M&A allowance scheme. However, the benefits of the scheme to Singapore groups can be limited by the inability to transfer the excess M&A allowance to other companies under Singapore’s group relief scheme. Thus, allowing group relief for M&A allowance will be welcomed.
As the CFE report indicates, Singapore is entering a new phase of development and our enterprises will be the key agents of change and the drivers of value-creation. The report also acknowledges the need to review and reshape Singapore’s tax system – the upcoming Budget will be an opportune time to demonstrate the commitment to do so.
The views in this article are those of the authors and do not necessarily reflect the views of the global EY organisation or its member firms.
The views expressed in this column are the author's own and do not necessarily reflect this publication's view, and this article is not edited by Singapore Business Review. The author was not remunerated for this article.
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Chai Wai Fook and Chia Seng Chye are Partners, Tax Services at Ernst & Young Solutions LLP.