The current minimum fund size requirement of $50m is too high for most.
Tax reductions and liberalising the Angel Investors Tax Deduction (AITD) are amongst the measures PwC Singapore suggested to help businesses grow in 2019, according to the firm’s Budget Proposal 2019.
Whilst there has been an increase in efforts to promote the digitalisation of businesses, hefty costs and risks are involved, especially for small local startups. Targeted reliefs and funding may help businesses alleviate the investment cost of going digital, and encourage them to digitise their data and modernise their processes.
“To safeguard revenue and reward investments in productivity, the scheme can be tied to incremental revenue and margin of the claimant,” PwC noted in its report. “For example, companies which have invested in digital technology and are able to demonstrate incremental revenue and profit margin growth for the year could opt for a co-funding scheme or be given enhanced allowances or reductions.”
Meanwhile, to boost the growth of startups, particularly in the technology industry, PwC proposed that the government should consider liberalising the AITD scheme to make it easier for individual investors to qualify. The firm suggested that eligibility conditions and approval requirements for an angel investor could be waived for certain classes of wealthy individuals such as accredited investors as defined in the Securities and Futures Act (SFA).
“In addition, the scheme should be extended to companies and venture capital funds that provide financing to help the qualifying startups in such industries and help them to commercialise their products of services,” PwC added.
It noted that such a scheme would help in marketing Singapore as a key venture hub on the international stage.
Likewise, early stage venture capital investments into technology startups is crucial as they seek to commercialise innovation primarily through multiple funding rounds. PwC noted how the current section 13X incentive requires a minimum fund size of $50m which is too high for most venture capital (VC) funds to qualify.
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“The government should introduce a new tax exemption scheme for early stage VC investments with a lower assets under management (AUM) threshold of say $10m,” PwC highlighted in its report. “This should help to entice more VCs to surface and bring overseas funds to invest in SIngapore technology startups.”
Additionally, the firm noted how the incentive should be confined to VC funds which are managed by fund managers that are approved by the Monetary Authority of Singapore (MAS) a a form of check and balance.
“Increasing uncertainty, changing trade winds and ageing demographic in the developed world presents both challenges and opportunities for Singapore,” PwC Singapore tax leader Chris Woo said in a statement. “Policymakers should look into enhancing existing initiatives to grow stronger local enterprises and strengthen Singapore’s position as a startup hub.”
PwC’s budget proposal also touched upon how the adoption of cybersecurity solutions, broader sponsorship for proof-of-concepts (POCs) with technology startups, training and an open innovative platform should be considered.
On the trade front, the firm also proposed turning Singapore into a free trade zone, allowing unfettered import, storage and processing for re-export to build on the Lion city’s distribution hub status.
Moreover, an emphasis was also placed on social factors such as tax reliefs for working mothers and tax break for premiums paid on medical-related or health insurance policies.
“It is imperative that this budget prepares for a more uncertain future by recognising the need to balance revenue collection pressures vis-a-vis targeted use of tax measures,” Woo added. “By focusing on key themes, the government could leverage the opportunity presented in Budget 2019 to further inspire confidence in Singapore’s future whilst demonstrating empathy for the people’s everyday challenges.”
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