Technology and workforce development are top of mind for budget watchers

The Big Four accounting firms weigh in on Singapore’s policy and financial direction ahead of the Budget 2021 unveiling.

After the issue of Singapore Business Review has gone to print on 16 February, Deputy Prime Minister, Coordinating Minister for Economic Policies, and Minister for Finance Heng Swee Keat will deliver Singapore’s FY2021 Budget Statement to the Parliament. It will be an important framework on the steps Singapore will take as it tackles an optimistic new year after the height of the COVID-19 pandemic that has greatly challenged every nation.

According to Soh Pui Ming, EY’s head of tax in Singapore, with the worst of the pandemic behind, there is now a need to focus on supporting businesses to help them strengthen and transform for the future. This should be done whilst ensuring that the most impacted individuals and households are given their own help to rebuild their lives and livelihoods. This is also a common suggestion from each of the Big Four accounting firms, in each of their annual previews of the Budget.

Transformation through technology

KPMG is looking for Singapore to maintain a key focus on transformation throughout the year ahead. According to Ajay Kumar Sanganeria, partner and head of tax at KPMG, the innovation of 5G will be the key driver, especially for data consumption. It will also create demand for innovation in the development of technological platforms.

“There is a need for more government support to enable faster 5G development and adoption on a larger scale, thus we propose tax depreciation for spectrum rights payments to offset costs to telcos. If left unaddressed, such costs may potentially be priced into products and services for consumers,” said Sanganeria.

He has proposed that Singapore sets up a 5G technology and innovation fund to provide grants of up to 50% of expenditure for prototyping and innovation of 5G-enabled solutions. He has also suggested extending the existing Market Readiness Assistance grant to provide funding for enterprises exploring solutions in 5G-ready markets. Also integral to a 5G-ready nation will be the transformation of industries to accommodate digitalisation.

Meanwhile, PwC has noted that local startups will have to incur additional expenditure, spanning from hardware infrastructure costs to labour costs of digitising data, information migration and staff training. If the government steps in with targeted reliefs and funding, this will help businesses alleviate the investment cost of “going digital”, whilst also encouraging them to digitise their data and modernise their processes. The relief for expenditure will encourage the adoption and use of data analytics.

But PwC warned that even by going digital, the importance of cybersecurity should not be overlooked.

In Cisco’s 2021 Security Outcomes Study for Asia Pacific, at least seven out of 10 Singapore firms aren’t yet successful at dealing with cybersecurity challenges.

PwC pointed out although the SME Go Digital Programme supports SMEs with pre-approved solutions, medium-sized to larger corporations do not qualify for such aid and are more likely to require advanced or customised solutions.

“Data security at any level of business is necessary and should be encouraged to facilitate Singapore’s efforts to be a trusted digital economy as a whole, and to preserve that trust in a digitally connected world,” PwC noted in its Budget preview statement

It suggested that those companies that do not benefit from the programme should be allowed to claim enhanced tax deductions or enhanced capital allowances for costs incurred to safeguard against cyber security and data security risks.

Other companies that invest in cybersecurity systems should also be given the option to convert capital allowance on such expenditure into cash grants, PwC advised.

Workforce development

In June 2020, Senior Minister and Coordinating Minister for Social Policies Tharman Shanmugaratnam said that Singapore needed to strengthen its social compact by helping those who lost jobs find work.

Deloitte has agreed with this sentiment, and says reskilling and upskilling workers should remain a priority for Singapore in 2021.

It has proposed that the government extend the existing Jobs Growth Incentive. The incentive has supported employers to accelerate hiring of local workforce, specifically during the period from September 2020 to February 2021. The support was 25% on the first $5,000 of gross monthly wages paid to all new local hires or 50% for mature local hires (ages 40 and up) and all persons with disabilities (PWDs).

Deloitte has urged the government to extend the scheme until August 2021, based on its expectations that the job market will remain muted. To finance this, Deloitte has suggested tapering down the support to 20%, with 40% for mature local hires and PWDs.

Food security

The panic buying and hoarding seen during the early parts of the pandemic could be traced back to disruptions in the supply chain, according to both PwC and KPMG. They have argued that a resilient food supply chain is vital for Singapore’s continued stability.

The Singapore government is targeting to have 30% of food to be produced locally by 2030.

To help achieve this and at the same time to strengthen the food supply chain, KPMG said Singapore should further encourage urban farming using existing real estate assets, maximise current land usage for vertical farming, and boost diversification into sustainable sources of protein.

The firm encouraged the government to introduce a new incentive for agri-tech and aqua-tech industries, like tiered concessionary income tax rates.

PwC has suggested reducing the tax of construction for buildings used for food farming purposes. This could be done by extending the Land Intensification Allowance (LIA) to such relevant sectors and assets.

“The overall cost for this sector may be lowered further with subsidised land leases and GST suspension on the importation of specialised equipment and raw materials,” according to PwC.

Manufacturing as a cornerstone

In its budget proposal, PwC has highlighted that core manufacturing should be one of the focuses for Singapore policymakers in 2021. This industry has the capacity to support growth of the services industry and will attract whole ecosystems, it said.

PwC has suggested giving priority focus to industries that are low on labour and overhead demands, but where final stage processing can economically and viably be carried out in Singapore. They cited final-stage food processing and advanced bioengineering as examples.

“At the same time, this processing should increase the ability of companies to benefit from Singapore’s wide and strong Free Trade Agreement (FTA) network which would offset the probably higher cost base (including land cost) perspective in overseas markets,” PwC said.

The enhanced use of FTAs can go through direct exports or support companies that are processing in Singapore and requiring small and medium-sized enterprises’ (SMEs) inputs.

PwC said involving SMEs through an industry-wide FTA approach based on technology would go a long way to achieving this goal.

Pandemic relief

Most of the proposals from the Big Four stem from one thing: to help relieve the negative impact of the pandemic.

According to Panneer Selvam, partner and head of People Advisory Services – Mobility at EY, whilst the government has been supporting jobs and reskilling, there are limited direct reliefs for individuals. Existing reliefs range between $600 and $1,200, with additional payments available for parents and those over age 50.

“As the impact of COVID-19 may continue to be felt in the coming years, an additional rebate or one-off relief for the tax-paying population would be welcomed to help reduce the overall impact to individuals,” Selvam said.

Technological innovations and helping develop the workforce to better accommodate changes will be Singapore’s leverage against these turbulent times, Deloitte advised.

“2020 could be seen as a year of reset—of how we envisage moving forward as a society and community. During this time of economic uncertainty, a lingering sense of job insecurity among workers is understandable. COVID-19 has sharpened and accelerated the need for change in almost every facet of our lives.”

Budget Recommendations from the Big Four

EY

• Cushion the economic impact of COVID-19 pandemic
• Enhance productivity and innovation
• Drive workforce transformation

KPMG

• Re-imagine: technology infrastructure, including the 5G network
• Re-plan: to keep up with the changing talent landscape
• Re-create: to sow the seeds of a green-led recovery

Deloitte

• Extend the existing Jobs Growth Incentive whilst employment is muted
• Technology and innovation remain key engines of development
• Vaccine distribution to further boost confidence

PwC

• Introduce upskilling sabattical programmes
• Initiate digital coach programmes for SMEs
• Liberalise tax requirements for SMEs
• Strengthen food security