Tax policies should be enhanced.
SMEs and startups have been at the core of past budgets, but experts argue that the government should also shift its focus back to larger enterprises to help businesses cope with slowing growth. With just over a week to go before the release of Budget 2016, Singapore Business Review caught up with Anuj Kagalwala, Asset & Wealth Management Tax Leader, PwC Singapore, to know his insights on the upcoming budget.
He is among the panelists at the upcoming SBR Budget Breakfast Briefing, which will be held on March 28 at The Fullerton Hotel.
1. In your opinion, what will be the key differences between this year’s budget and the Jubilee Budget?
Singapore has had a great run for the last few decades. What we are today is a consequence of hard work and perseverance of the people of Singapore, and the vision of its leaders. The Jubilee Budget laid the foundation for another great run for the next few decades. The Jubilee Budget specifically focused on enhancing productivity, innovation and internationalisation. Embedded within the Jubilee Budget were generous pay-outs to the people. Prime Minister Lee Hsien Loong’s Facebook post last year after the budget summarised the focus of the Jubilee Budget aptly. He said that the focus was on “building Singapore and helping Singaporeans prepare for changes to come”. In my view, this year’s budget will continue on the journey that has been laid out in the Jubilee Budget. Though, unlike last year, Budget 2016 is likely to have less direct payouts.
2. What are the key issues which Budget 2016 should address?
Whilst the Government should continue to focus on SMEs and startups, we think it may be appropriate to enhance its focus on the larger corporations and the financial services sector. The focus for the latter has been diluted in recent years. Two areas that are worth a mention are loss carry back provisions and capital gains safe harbour.
To help businesses manage cash flows especially during downturns, a loss carry back system exists. Where a business is in a tax loss position for one financial year and was in a tax payable position for the preceding year, then they are allowed to carry back the losses for one year for up to S$100,000. As a result, they may get refunds for tax paid in the preceding year. The rule currently applies consistently for all industries. While such a provision may have an impact on SMEs, most large corporations will have little use of this given the quantum capped. Our suggestion is that the loss carry back provisions be enhanced to allow an unlimited amount of tax losses to be carried back for say a period of five years. We believe that such an enhancement will go a long way in encouraging Singapore based businesses to be risk takers.
Where a taxpayer makes a gain from disposal of equity instruments, such gains may be exempt from Singapore tax (subject to certain conditions). This is a big step towards safeguarding Singapore’s competitiveness as a regional holding location and is greatly appreciated by the business community, as it provides significant stability for business in light of the capital vis-à-vis revenue dichotomy in our tax system. However, the safe harbour rule is currently due to expire on 31 May 2017. This sunset clause is inimical to Singapore’s goal of being a regional hub and counteractive to the efforts made to provide certainty to investors. Our suggestion is to make the safe harbour rule a permanent feature of the tax system to reduce the uncertainty involved for taxpayers when planning their affairs.
3. What initiatives will likely be rolled out to help businesses cope with slowing economic growth?
To maintain our attractiveness as a financial hub, we hope that more attention will be accorded to the financial sector as well as the development of Singapore as a regional fund management and IP hub. We hope that the government addresses the extension of expiring incentives in this area, as well as enhancing the current tax incentives to support innovation and productivity of businesses which is key in view of the slowing economic growth. We also hope to see continuous focus on developing local talent with the necessary skillsets required for internationalisation.
As some businesses downsize, and move towards more flexible working practices, we hope that Budget 2016 may provide tax relief to individuals who work from home offices. Proposals to improve administrative efficiencies may also be introduced to lower costs in response to the needs and demands of business.
4. What should households expect from this year’s budget?
It is unsurprising that a hike in the highest personal income tax rates from 20% to 22% accompanied the heightened government expenditure in the Jubilee budget. With a slowing economy dampening household income, it is unlikely that the government will introduce another adjustment in the coming year, especially if attracting and retaining high net worth individuals remains a priority. Introduction of personal tax rebates have been announced with regularity (i.e., 2009, 2011, 2013, 2015), suggesting a rebate in Budget 2016 would be “off cycle”. However, the 2009 rebate was announced with a backdrop of economic uncertainty and recession, specifically to help individuals settle their prior year tax liabilities at a time when future household incomes were expected to fall. Depending on the latest economic forecasts, there may be a similar concern now. A tax rebate (maybe available to lower income earners) may well be introduced.
In the face of an aging population, CPF rates and income caps have been trending upwards with each budget to ensure self-sufficiency during retirement. With weak business sentiments, it is not advisable to impose additional cost burden on businesses if CPF rates were revised again. As such, the government is likely to address alternative measures for retirement planning.
Lastly, low-income household and seniors can still expect to benefit from the GST voucher scheme and tax rebates, schemes such as the Silver Support scheme, as well as the government’s increased expenditure in healthcare infrastructure. The theme of strengthening social security would continue to reverberate in the upcoming budget and will further emphasise the government’s unwavering commitment in ensuring that every Singaporean gets a share in the fruits of the nation’s decades of economic success.
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