The term VUCA (volatile, uncertain, complex and ambiguous) had become somewhat overused and watered down in recent years until 2020 threw a spanner and greeted us with the unprecedented COVID-19 pandemic. Now, VUCA has never been truer, as we witnessed the upending of lives, businesses and economies, and the rapid changes governments had to make to ensure survival and recovery of their countries.
There is one commonality across governments even as nations respond to the crisis in different ways. Many headlines across the world announced generous support packages to help cushion the impact of the pandemic.
With this unique generosity, the questions that are top of mind for many businesses include, where are the windows of opportunity in these support packages, and how can these schemes be capitalised to help the business thrive in this VUCA world?
Opportunities amidst a crisis
Singapore is no exception to this commonality―through several Budget announcements in 2020, the government rolled out stimulus measures amounting over S$100 billion, or around 20% of its GDP, to support its people and its businesses. The scale, speed and design of these schemes have been extraordinary, particularly the incentives that have been designed to save and create jobs, such as the Jobs Support Scheme and Jobs Growth Incentive.
The government also used some foresight, and saw the need to prepare the country to emerge stronger post COVID-19, with a clear aim to speed up the transformation of its economy. This was done through the enhancement of various existing schemes to provide a higher level of support, an expanded scope of coverage and eligibility, and a greater risk-share by the Government. An example is the Enterprise Development Grant designed to help Singapore companies grow and transform – the maximum level of support has been raised to 80% from 1 April 2020 to 30 September 2021.
This means that, for local businesses that are rethinking their business model, restructuring their operations, or reviewing their investments to develop future-ready capabilities, there are incentives and cash optimisation opportunities to leverage. The time is now to seek government support, as there is a limited window of opportunity since the enhanced support for some of these schemes will taper off as the economy progressively recovers. Companies should start early in their application to obtain such support as it will take time to develop a good business plan to apply for the incentives, along with discussions with the authorities for an optimal incentive package.
Whilst much of the media spotlight has been on COVID-19 measures to support local enterprises, foreign companies who are unable to benefit from these schemes should not despair. According to the Singapore Economic Development Board’s 2020 Year in Review, Singapore anchored exceptional investment commitments despite the pandemic crisis, notably a 12-year high of S$17.2 billion in fixed asset investments. This goes to show that Singapore’s resilient fundamentals is valued by global companies and it remains an attractive investment destination even in a challenging business environment. Besides having key attributes such as being a trusted and connected hub for business, innovation and talent, Singapore has an established incentives regime with a multitude of schemes that companies can continue to leverage―these include tax exemptions, concessionary tax rates, enhanced tax deductions, allowances and financial grants. Incentives that have been commonly considered by multinationals in the past year include the International Headquarters (IHQ) Award, Development and Expansion Incentive (DEI) and Pioneer Certificate Incentive (PC).
Moreover, Singapore has introduced a new framework in 2020 to allow the transfer of certain incentive awards between companies, as a result of corporate amalgamation, mergers, or restructuring. This came at a good time for businesses looking to restructure or consolidate during this period of economic uncertainty. Of course, there are complexities involved and companies need to carefully consider which would be more beneficial―to inherit an existing incentive from another company or apply for a new incentive.
Protecting existing benefits
The Singapore government may be generous in providing incentives but there is often no free lunch. It should come as no surprise that there are terms and conditions to be met for all incentives, failing which could trigger a potential clawback of enjoyed benefits. During this volatile period where change is the only constant, it is an opportune time for recipients of the incentives to conduct health checks to assess whether their investment commitments are still aligned to future plans and are on track to be met.
For companies adversely affected by the pandemic, it will be judicious to identify any potential shortfalls in incentives conditions and seek help early on corrective actions. If incentive benefits could be at risk, scenario planning can be conducted to understand the implications and potential financial impact that can help with the decision on next steps to take.
Over the last 12 months, many businesses shift from a profit to loss position, and they are now questioning the benefits of having an incentive with a concessionary tax rate. This is because of the legislated tax adjustment factor which unduly penalises incentivised companies in a loss position―losses are worth less when a reduced tax rate is involved and this puts incentivised companies in a worse-off position compared to if they did not have a tax concession.
In the event that incentive benefits are at risk due to unfulfilled conditions, companies should promptly engage with the relevant authorities. During this period of economic difficulty, the authorities have been understanding and open to discuss each company’s circumstances. Nonetheless, the authorities’ assessment on the impact to the incentive is still based on the merits of each case and taking the discussions at the right level is also required to achieve equitable outcomes.
A finite window of opportunity
Whilst there are high hopes that 2021 will be better with the gradual rollout of vaccines, it may be wiser to hope for the best and prepare for the worse, since times are still uncertain.
There are multiple incentive opportunities for companies as they transform and transition to a post-COVID-19 world. Businesses should seize this window of opportunity and make use of these enhanced schemes from the government before they come to an end. Companies with existing incentives can also take a proactive approach to review their commitment status so as to safeguard past and future benefits, before it is too late.
As the saying goes, never let a crisis go to waste.
The writers are Lee Tiong Heng, Deloitte Singapore and Southeast Asia’s Global Investments & Innovation Incentives Tax Leader and Yvaine Gan, Deloitte Singapore Tax Director and Global Investments & Innovation Incentives Deputy Leader. The above are their personal views and may not represent the views of the firm.
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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Lee Tiong Heng is Deloitte Singapore and Southeast Asia’s Global Investments & Innovation Incentives Tax Leader and has more than 23 years of tax experience serving local, multinational and listed companies as well as private equity firm including 4 years with the Inland Revenue Authority of Singapore (IRAS).
He has extensive experience in tax consultancy and planning services including tax M&A work, corporate restructuring, cross-border transactions, tax ruling requests, taxation negotiations with the IRAS and Singapore tax incentives and grants applications from the Singapore government authorities.
Tiong Heng is a fellow member of the Institute of Chartered Accountants of Singapore and is also an Accredited Tax Advisor with Singapore Institute of Accredited Tax Professionals.
Yvaine Gan is Deloitte Singapore’s Tax Director and Global Investments & Innovation Incentives Deputy Leader. She has over 11 years of experience engaging multinational and Singapore-based companies in various industries on the feasibility, structuring, negotiation and management of government incentives.
Prior to joining Deloitte, Yvaine was with the Singapore Economic Development Board (EDB), the lead government agency in facilitating foreign investments to create sustainable economic growth and good job opportunities for Singapore. At EDB, a major part of her role was to customize and negotiate incentive packages for various investment activities, as well as facilitate companies in the end-to-end process of incentives application.
Yvaine has considerable experience advising senior C-suite executives on their investments in Singapore and is regularly involved in negotiating incentive packages, facilitating application processes and obtaining approvals on incentives for companies. She also advises companies with existing incentives in fulfilling investment commitments, as well as supports the re-negotiations and renewals of incentive packages.