It would let local and foreign businesses anchor their R&D activities in the city-state.
Ahead of the Budget 2017, some experts are expecting the Singapore government to spearhead an innovation-friendly tax regime as it builds on the strong foundations laid in the previous Budgets and as it helps Singapore businesses survive and thrive amidst uncertain economic conditions.
According to Deloitte Singapore, 2016 has been marked with certain economic challenges for the city-state, buffeted by events happening many miles from its shores.
In its Budget 2017 feedback submitted to the Ministry of Finance, Deloitte said Singapore must ensure that its tax regime remains transparent and acceptable in the international tax arena as it courses through the Base Erosion and Profit Shifting project, which has undergone the implementation phase in 2016.
This is where creating an innovation-friendly tax regime comes in, Deloitte explained.
As the popular Productivity and Innovation Credit Scheme is set to end in 2017, the firm noted that Singapore needs to exert more support for innovative activities to complement existing incentives for research and development.
Deloitte Singapore regional managing partner for tax Low Hwee Chua said this could come in the form of enhanced tax deductions for spending incurred on “innovative activities” that lead to the creation of new products or services.
“Innovation does not necessarily involve the creation of something new from scratch. Taxpayers who undertake innovative activities – which in certain instances may just be shy by a whisker from being regarded as research and development (R&D) as per the definition under the Singapore Income Tax Act – may be frustrated by the lack of broad-based support,” Low argued.
Meanwhile, Deloitte Singapore tax partner and tax leader for public sector Daniel Ho said, Singapore could also consider introducing enhanced tax deductions to encourage digitisation, such as designing and implementing e-billing systems or workflow systems, so as to subsidise part of the upfront costs. This is in line with the government's Smart Nation Initiative.
“Currently, purchases of computer hardware and software are incentivised under the PIC scheme. With the PIC scheme coming to an end, the Government may wish to consider incentivising personnel or consultants’ costs involved in the digitisation of processes – the nexus between such expenditure and improvements in productivity may be greater, as compared to mere purchases of computer equipment,” Ho commented.
The accounting and consultancy firm argued that these proposed enhancements to Singapore's existing R&D tax regime may lead to both local and foreign businesses continuing to anchor their r&D activities in the city-state.
“As the PIC scheme expires at the end of 2017, there is a perceived gap in broad-based R&D tax incentives, leading to a concern that this may hinder the general development of Singapore’s R&D capabilities and innovative culture. As an alternative to granting additional tax deductions on qualifying R&D expenditure, the Government could consider granting R&D tax credits. This would be calculated based on the R&D expenditure incurred and it would achieve the same objective of decoupling the R&D regime from Singapore’s tax rate to ensure that Singapore remains attractive to R&D investments,” Deloitte Southeast Asia Leader of R&D and Government Incentives Lee Tiong Heng said.
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