SME-friendly schemes will be refined.
Budget 2016 will not feature a wave of major policy changes, but policymakers will likely roll out small policy tweaks to help the country ride out the current economic downturn. Singapore Business Review caught up with Chia Seng Chye, Partner - Tax Services, Ernst & Young Solutions LLP, to discuss his expectations on the upcoming budget.
Chia 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?
Budget 2015 sent a clear signal that Singapore must continue with its economic transformation to future-proof the country for a better tomorrow. The Government pressed on with a consistent purpose: the economic transformation that Singapore has embarked on several years ago must continue relentlessly so as to future-proof the country for a better tomorrow. This is one of the most holistic and comprehensive budgets seen. It has touched on every aspect of life that matters, from support for lifelong learning to sharper initiatives to help companies to continue to raise productivity, innovation and internationalise.
Budget 2016 might not see a sea change in terms of policy changes, but rather, there might be enhancements and tweaks for short-term fixes with a view to set Singapore up nicely for the longer term. SG50 may have come and gone but instead of writing the campaign off, the Government should all the more tap on what the Jubilee year had amassed and ride on the success of much emotional goodwill and economic dividends generated.
2. What are the key issues which Budget 2016 should address?
Singapore must enhance its core competitive capabilities and build new ones, leveraging the strengths of a resourceful and innovative population and an agile and pro-business stance that is oriented towards global markets, so as to transform into a value creation economy with inclusive opportunities for all.
To do this, Budget 2016 should look at sharpening the focus of fiscal policies for improved efficiencies, enhancing tax treaties to boost international competitiveness and raising birth rates more effectively in order to support the workforce – all these with building a core Singaporean identity and inclusive society in mind while supporting the long-term aim of sustaining a fair and equitable tax system that promotes investment and growth of Singapore businesses, too.
3. What initiatives will likely be rolled out to help businesses cope with slowing economic growth?
In view of the slowdown, Singapore, by virtue of its open economy, becomes even more vulnerable. There might be a shift in policy-making towards a more pointed and targeted approach, simplifying our tax regime and making schemes more SME-friendly so that we can continue to remain competitive, ease business costs and spur growth.
Some initiatives that might be rolled out to this end include: developing corporate capabilities and innovation by bridging the gap between policy and implementation of the R&D tax incentives, which will be critical in driving pervasive innovation; tweaking the PIC scheme by potentially reallocating the support for the automation equipment segment, which accounts for a significant portion of the total PIC expenditure claim, to other categories, so that businesses are incentivised to proactively consider process improvements or new ways of doing things. Further, additional tax benefits could be given for R&D that results in truly novel products and outcomes.
We also propose for IRAS to issue clear guidance on its transfer pricing compliance and audit focus so that taxpayers can consider accordingly as they prepare their transfer pricing documentation and assess their transfer pricing risks.
The current headline corporate tax rate should be maintained. It is already very competitive by global standards – only 0.5 percentage points higher than Hong Kong’s profits tax of 16.5% and 4.5 percentage points higher than Ireland’s corporation tax for trading income of 12.5%.
However, there is room to lower the withholding tax rate for technical and management services. Aligning the withholding tax rate for technical and management services provided by non-resident companies with the existing scheme for non-resident individuals or foreign firms will make it more attractive for Singapore companies to tap on foreign technical and management expertise to transfer know-how, address skill gaps, improve business processes, manage organisational change or enhance productivity.
Extending the current foreign-sourced income exemption to royalties can also incentivise companies to generate new intellectual properties or house and develop their intellectual property (IP) management hub here.
The partial tax exemption scheme was introduced to help SMEs grow and become established. It could now be timely to relook at the scheme so that the intended benefits would really vest in the SMEs. The government could consider subjecting smaller companies to income tax at a separate tax rate of 8% while the remaining companies continue to be taxed at 17%, without any partial tax exemption in both cases. The cap for tax deduction for medical expenses borne by companies offer medical benefits as part of a remuneration package to attract and retain talent could also be increased to help companies defray part of their business cost.
4. What should households expect from this year’s budget?
Given the high costs of living and in recognition of the efforts put in supporting families, there is room to increase the dependent spouse or child’s annual income ceiling to S$5,000 in order for the personal tax relief claim to apply. This will indirectly free up more dependent spouses into the workforce, which can potentially help to ease labour shortage.
On raising birth rates: policies that support inter-generational bonding within families, such as the CPF Family Housing Grant; priority for parents and married children buying new HDB flats to live with or near each other; tax incentives for children looking after parents and for working mothers who engage their parents or grandparents to look after their children, have helped in relieving the financial and space burden.
More can be done in the form of cash grants and reduction of transaction costs to support parents that are financially dependent on their adult children in buying bigger homes for the extended family or to enable three generation-families to live together in a larger home or in close proximity to each other. These measures will be more effective than tax incentives as those who need such financial assistance are likely not in a taxable position to begin with to enjoy higher tax reliefs.
More can also be done to encourage employers to set up childcare centres at work, which could be particularly beneficial for those without childcare support at home. Currently, the Workplace Childcare Centre Scheme only provides a one-off furnishing and equipment grant to employers to outfit a childcare centre. How about introducing a higher tax deduction for employers who incur expenses operating a workplace childcare centre? Also, the grant, which currently applies only to setting up childcare centres, could be extended to include after-school student care for lower primary students.
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