What you need to know about Deloitte's Budget 2014 wish list

Pursue new tax treaties, re-negotiate old ones.

According to a release, Deloitte Singapore’s tax specialists have put together a “wish list” they hope the Government will consider, in view of the upcoming 2014 Budget Statement early next year.

This “wish list” bears in mind the long term objectives for the economy as well as the general population. It reflects Singapore’s role internationally as a global and regional hub, as well as domestically as a knowledge and capital intensive nation.

One suggestion in this area is for the Government to do more in the pursuance of new tax treaties and re-negotiate old ones concluded many years ago on more competitive terms.

The Deloitte Singapore tax team also hopes that there will be more guidelines and transparency on how Singapore’s tax incentives are awarded to show that these incentives are calibrated based on real business substances that investors put in Singapore.

To help businesses deal with rising costs of doing business in Singapore, the “wish-list” suggests changes to certain tax schemes such as foreign income exemption, loss carry-back relief system, group relief loss transfer, capital gains tax certainty etc., as well as to enhance the tax deductions available to businesses such as to increase the cap for qualifying renovation and refurbishment expenses to help retailers that are facing rising rental costs and higher labour costs due to difficulties in manpower recruitment.

To boost productivity and innovation, one of the recommendations the Deloitte Singapore tax team has put forth is to extend the Productivity and Innovation Credit (PIC) scheme which is currently set to expire in Year of Assessment 2015 and to allow enhanced deduction for R&D spending on a permanent basis.

By doing so, it not only makes Singapore a more attractive location to perform R&D, but also provides long-term visibility for businesses to plan recurring R&D investments and multi-annual R&D programmes. For SMEs, the team also suggests an increase in the enhanced deduction for qualifying PIC spending, and to simplify the criteria for claiming the benefits.

Moreover, the “wish list” proposes tax measures relevant to indirect taxes. For instance, Deloitte Singapore tax team proposes an extension of the co-funding for participation in ACAP to incentivise additional participants in the scheme, and also to develop an ACAP-lite programme to extend the benefits of compliance assurance without the same level of requirements as for ACAP. This will provide tax-payers with more assurance about their controls and processes, but without the full burden of an ACAP review.

For specific industries, there are further suggestions on matters that would help enhance Singapore’s capacity to grow. For the financial services industry as an example, Deloitte Singapore tax team proposes an extension of the tax exemptions schemes for funds managed by a fund manager in Singapore as these schemes have proven attractive to investors seeking to set up funds in Asia.

Further, it is recommended that the scope for the withholding tax exemption for interest payments under the Finance and Treasury Centre (FTC) regime be widened to include interest payments on loan notes, bonds, debentures and other debt securities.

In addressing Singapore’s social needs, the list puts forward suggestions for refinements to the current personal tax regime, such as extending the Not Ordinarily Resident (NOR) scheme to Singapore citizens who are not currently able to benefit from the scheme.

This will not only incentivise Singapore citizens, but also encourage more to take on regional and global roles whilst facilitating the transfer of knowledge and build-up of local talent pools for management of regional and global companies.

Mr Low Hwee Chua, Partner and Head of Tax Services at Deloitte Singapore and Southeast Asia says, “On the international stage, Singapore is well-placed as a regional or even global hub with its excellent infrastructure and connectivity. However in recent times there has been a focus on tax base erosion and profit shifting (BEPS), particularly from the developed economies.

Singapore needs to continue to engage with international groups such as OECD and G20 in light of measures to combat BEPS, while ensuring that its tax regime remains competitive and attractive to foreign investment. A re-look at the existing treaty network and the current tax incentive regime is perhaps timely.”