Deloitte Singapore’s responses to the Singapore Budget 2017 announcement

SINGAPORE, 20 February, 2017 — Deloitte Singapore’s subject matter experts share their reactions and comments to the Singapore Budget 2017.

Moving forward together

Low Hwee Chua (刘辉泉), Regional Managing Partner for Tax, Deloitte Singapore and Southeast Asia:

“This year’s Budget looks forward to a promising and bright future. It is well-balanced, addressing immediate business needs, and at the same time introduces long-term measures to implement the strategies put forth by the Committee for the Future Economy. It provides avenues and creates opportunities for Singaporeans to chase their dreams and excel internationally, while also providing protection in the current uncertain climate in order to keep Singapore strong now and in the years to come.”

An innovative and connected economy

Lee Tiong Heng (李忠兴), Tax Partner and Innovation & Investment Incentives Leader for Deloitte Singapore and Southeast:

“It is not unexpected that the Minister for Finance will announce targeted support to encourage SMEs to embrace digital technology and be future ready for growth. The proposals recognised that SMEs are at different stages of maturity in terms of adoption of digital technology.

The targeted step-by-step support through specialised and in-person guidance provided by SME Centres and SME Technology Hub should be welcoming for SMEs. In addition, advice and funding support will also be provided to SMEs to pilot and commercialise emerging ICT solutions for wider industry usage.

The success of the Industry Digital Plan will depend on the amount of resources, the ICT knowledge and the skill sets the relevant agencies can bring to bear to help SMEs accelerate and scale up their digital capability. The plan also works on the premise that the government will scale up Spring Singapore, the SME Centres and SME Technology Hub to provide the support. The execution of the Industry Digital Plan will be critical to ensure that the benefits can be optimised.”

Daniel Ho (何仁奇), Tax Partner and Tax Leader for Public Sector, Deloitte Singapore:

"There has been a lot of talk about support for building scale, going digital and going international and the Government has not disappointed in this respect, with new funding schemes being announced. The SMEs Go Digital Programme is an innovative scheme to kick start local businesses' road to having an online strategy and presence.”

Lee Chew Chiat (李招杰), Deloitte Southeast Asia Public Sector Leader:

“Deepening capabilities is one of the key thrusts of the CFE report. Apart from deepening capabilities needed today, it is equally important that we also deepen capabilities that are required in future. This is one way of staying ahead and remaining relevant. Does our funding model allow for this?”

Ong Siok Peng (王淑苹), Tax Partner, Deloitte Singapore:

“The Finance Minister had announced in the 2016 Budget that the PIC scheme will expire after the Year of Assessment 2018. The Government is moving away from such broad based incentives to a more targeted approach to help SMEs as can be seen in the 2017 Budget such as the introduction of the SME Go Digital Programme and International Partnership Fund.”

Thio Tse Gan (趙思彦), Deloitte Southeast Asia Cyber Security Leader:

“These proposals encourage the adoption of technology for productivity, innovation and automation, as well as research & development (R&D) and overseas expansion. There is an area that we envisage will help SMEs to strengthen their digital offerings, which lies in the establishment of a technology hub to help focus on the digital offerings around cyber security posture. Consequently, this will allow data from these digital offerings to be adequately secured.  

We believe that the creation of a sandbox for such a purpose would be useful to ensure that systems are adequately protected and tested. This has the potential to mitigate cyber risks that threaten a SME’s journey to digitalisation.

Furthermore, such sandboxes, may help not only SMEs, but also MNCs in simulating and combating the borderless nature of cyber threats allowing organisations to test and subsequently adopt and implement solutions based on their level of cyber security maturity.”

Ong Siok Peng (王淑苹), Tax Partner, Deloitte Singapore:

“While the enhancement of the corporate tax rebate is definitely a welcomed move for SMEs, it would have been more helpful to re-introduce the SME cash grant to help businesses which are not tax paying to cope with rising business costs.

Introducing the SMEs Go Digital Programme will provide practical solutions to SMEs who wish to go digital but lack the insight and expertise to do so.”

Lee Chew Chiat (李招杰), Deloitte Southeast Asia Public Sector Leader:

“On raising the re-employment age from 65 to 67, it is crucial that companies and as a nation, that we all treasure the experience and expertise that our workers have acquired over the years. All too often, many people view these workers with dated skills and refuse to adopt new ways of working. While it may be true in certain cases, there are many who are loyal employees who provide stability that businesses very much need.”

Sabrina Sia (佘爱玲), Tax Partner, Deloitte Singapore:

“The call for internationalisation continues - Singapore companies must look beyond our shores for opportunities to drive growth.”

Lee Chew Chiat (李招杰), Deloitte Southeast Asia Public Sector Leader:

“The three initiatives are certainly a booster for SMEs to adopt digital in their business and operations. The crux is adoption of digital transformation in their business. We all understand the constraints SMEs face – people, expertise and cash – hence most have a short-to-mid-term view. The need to help SME owners understand the benefits of going digital and the ability to realise them within the limits of their constraints and mindset is the first few steps. 

SME owners are also concerned with the operations after going digital. Will there be support, sufficient talent and resources to continue to not only sustain, but to improve and upgrade on the digital platforms?

One possibility is to get the help of the SMEs’ suppliers and customers who are larger corporations to impose digital requirements on the SMEs. With the help of the SME Technology Hub, working alongside these large corporations who are either their customers or suppliers, a sustainable eco-system is formed. There is the impetus to change and also the necessary help much needed by the SMEs. Ultimately, going digital must be for a reason – and that is to improve the bottom-line of SMEs.”

Shantini Ramachandra, Tax Partner and Deloitte Private Tax Leader, Deloitte Singapore and Southeast Asia:

“The ‘Attach and Train’ programme is quite novel. Workers or PMETs who are out of work should benefit from this programme as this would give them an opportunity to develop skill sets in new sectors and train for jobs of the future. In order for it to work, the companies must have structured training/internship programs in place.”

Daniel Ho (何仁奇), Tax Partner and Tax Leader for Public Sector:

“The International Partnership fund for the Government to co-invest with Singapore-based firms overseas is a good idea. Hopefully clear guidance can be set on the qualifying requirements and a practical approach can be taken as these firms may be put off if there is too much scrutiny on the viability of the investments. As an additional sweetener, perhaps full tax exemption could automatically be given on profits repatriated from these qualifying investments."

Lee Chew Chiat (李招杰), Deloitte Southeast Asia Public Sector Leader:

“The International Partnership Fund with up to S$600m in Government capital to help Singapore-based firms scale-up and internationalise is certainly a boost for these firms – many countries are facing budget constraints. To see our Government taking this step is a breath of fresh air. The spend should be made with growth and profitability in mind, not too much regulations to comply with.”

Thio Tse Gan (趙思彦), Deloitte Southeast Asia Cyber Security Leader:

“The current acute shortage of skilled cyber professionals globally, requires training and development as a key driver to alleviate this issue. Programmes such as the TechSkills Accelerator, Critical Infocomm Technology Resource Programme (CITREP+) and Cyber Security Associates and Technologists (CSAT) programme, provide funding for courses and certifications to deepen IT skills as well as industry placement for on-the-job training with the purpose of creating a pool of skilled cybersecurity professionals.  

We hope that the proposed certification and training program will create more a more high-quality talent pool. However, we think that it is not only talent that needs to be aware but also the leaders and C-level executives of GLC, MNCs and SMEs. It would be useful to ensure that a programme is established to raise the level of awareness among companies on the risks their businesses are prone to in the digital setting. This will ensure the awareness of individual organisations on the topic of cyber risk and their level of cyber security maturity in Singapore is increased.

Let’s not forget about the young who are more technology-savvy but may not be cyber-saavy in terms of protecting their exposure to cyber risks, such as identity theft and even cyber bullying. We should involve schools and education institutions in raising awareness on how to protect themselves against cyber threats. Senior citizens too should be given the opportunity to learn about what risks are involved in the use of digital technology.”

Sabrina Sia (佘爱玲), Tax Partner, Deloitte Singapore:

“This Budget places a lot of focus on helping our people deepen their skillsets, acquire skills to operate overseas and to stay relevant in the workforce. However, another important aspect is the mindset of our people. Are we ready to take up the challenge?”

Thio Tse Gan (趙思彦), Deloitte Southeast Asia Cyber Security Leader:

“We hope that when Minister Ibrahim commences discussion at the Committee of Supply, there will be programmes and/or incentives not only to assist SMEs but MNCs, GLCs and not-for-profit organisations to right size their cyber security infrastructure based on their industry and level of maturity of cyber security to deal with the extent of the impact cyber risks have on businesses. 

For example, to encourage SME and MNCs, we think that the public sector procurement could require these organisations to adopt or attain a standardised level of cyber security maturity in their IT infrastructure before they may be approved vendors to provide goods & services.

We look forward to potential tax incentives to encourage organisations to meet cyber security benchmarks and good practices on top of the existing preferential supplier panel status. Grants could be influential in encouraging innovation in the cybersecurity arena, focusing on earlier nurturing of interest in cyber by Singaporeans and Singapore startups.”

Lee Chew Chiat (李招杰), Deloitte Southeast Asia Public Sector Leader:

“Technology innovation must be sustained by a viable business model. Granting access to high tech equipment, user training and advice by A*STAR reduce the barrier of access initially. But technology changes so rapidly and competition is getting steeper by the day. So the question is: should the assistance or partnership be short-term or long-term? 

Innovative solutions today are norms of tomorrow. The lifespan is getting shorter and shorter. Taking a longer term view and a more holistic partnership mindset to continuously transform and stay ahead is crucial. When one takes this point of view, he is not afraid of tearing down all innovations that have worked in yesteryear and create a whole new set of innovation.”

A quality living environment

Bob Fletcher, Customs & Global Trade Leader, Deloitte Singapore & Southeast Asia:

“Bluer skies and cleaner air ahead – but will impact the pocket! The Government’s announcement on a number of measures to tackle environmental pollution will have a significant impact on individuals and business that use diesel vehicles. In addition to the existing lump-sum special tax, the new tax based on diesel usage will further encourage motorists to move towards lower emission vehicles. Businesses operating commercial diesel vehicles will welcome the rebates that will, over the next three years, help them offset the additional taxation based on usage, and in turn, this defers these additional costs hitting the pocket of the consumer.”

Richard Mackender, Tax Partner and Indirect Tax Leader, Deloitte Singapore and Southeast Asia; and Bob Fletcher, Customs & Global Trade Leader, Deloitte Singapore & Southeast Asia:

“Singapore committed, when ratifying the Paris Agreement in September 2016, to taking steps to mitigate climate change, and so it is not unexpected that a carbon tax implementation would be mooted. It is worth noting that many countries have not been successful at implementing a carbon tax. However, Singapore’s approach of widely consulting with affected parties and its stated commitment to ease the transition should help Singapore to be among the successful implementers.”

A caring and inclusive society

Sabrina Sia (佘爱玲), Tax Partner, Deloitte Singapore:

“Given the recent economic climate, any one-off personal income tax rebates given would generally be welcomed. However, looking back at the history of the Government’s announcement of tax rebates, the rebate cap of S$500 for the Year of Assessment (YA) 2017 (income year 2016) is the lowest. In contrast, previous rebate caps had been at S$1,000, S$1,500 and even at S$2,000 when the rebate was first announced in YA2008 (income year 2007).

As the rebate is 20% of the tax payable capped at S$500, an individual would only be able to fully benefit from the rebate if his tax payable is S$2,500. This translates to an annual chargeable income of approximately $67,800 (rounded) or less. Nevertheless, individuals with chargeable income higher than S$67,800 will also benefit from the rebate, but the rebate will make up a smaller percentage of their tax payable compared to the lower income earners.

Due to the cap, the rebate is expected to benefit the lower and middle income groups more than the higher income earners, which is in line with the Government’s position that more should be done to help the lower income earners rather than those who can better afford to pay taxes. However, it is still somewhat surprising that the rebate was announced, given income tax rebates generally do not provide much relief to individuals who pay little or no tax.”

Dr. Loke Wai Chiong (陆伟翔), Deloitte Southeast Asia Heath Care Sector Leader:

“Increased government funding for community mental health will alleviate the burden on hospital and institutional care - and ultimately deliver better care at lower costs.

Community mental health initiatives also tap on valuable social capital, and grow the bonds and networks within community - multiple benefits.”

Sabrina Sia (佘爱玲), Tax Partner, Deloitte Singapore:

“The Government has acknowledged that it is no longer enough to just use tax incentives or reliefs to encourage birth rates. The increased CPF housing grants to assist first-time applicants to buy resale flats enables couples to stay near their parents to get parental support.”

James Walton, Deloitte Southeast Asia Sports Business Group Leader:

“Singapore sports is riding a wave following the recent SEA Games, Olympics and Paralympics success: this additional funding support for both elite athletes as well as community projects, especially SportCares, will help build on that momentum and the matching for sports donations will encourage more corporates to play a part in supporting Team Singapore.

It took us 50 years to find an Olympic Gold Medallist in Joseph Schooling; with this increase in funding and community projects, we definitely won’t be waiting so long for the next one.”

Shantini Ramachandra, Tax Partner and Deloitte Private Tax Leader, Deloitte Singapore and Southeast Asia:

“The corporate tax rebate is only useful for companies with chargeable income. Companies in a loss position would benefit more from grants and other fiscal support.”

A sustainable fiscal system

Low Hwee Chua (刘辉泉), Regional Managing Partner for Tax, Deloitte Singapore and Southeast Asia:

“As the Government had recently increased the top marginal tax rate from 20% to 22% with effect from YA 2017 (income year 2016), we do not think there would be any further increase for personal tax rates in the near future.  It is also unlikely in our view that corporate tax rate will increase as the Government needs to ensure that our tax regime remains competitive.  The Minister did indicate that the Government is studying the GST system.  Hence, we may see a broadening of the GST scope in response to BEPS Action 1 -  Addressing the Tax Challenges of the Digital Economy. Specifically, we may see offshore suppliers of B2C services without a presence in Singapore being required to register for and account for GST on their local supplies. In relation to B2C cross-border supplies of goods, the GST import relief threshold (currently S$400) may be reviewed with the rise of e-commerce and to create a level playing field for onshore retailers. In short, consumers may in the future have to pay GST for their online purchases of digital services and perhaps pay more GST when shipping their online purchases into Singapore. 

The other area that the Government would probably look at is of course “sins” tax – liquor and cigarettes.”

Steve Towers, Tax Partner and International Tax Leader for Deloitte Singapore and Asia Pacific:

The government has indicated that Singapore will adopt a BEPS-compliant “IP income” tax regime, and will phase out the operation of the existing Pioneer-Services / Headquarters and DEI-Services / Headquarters incentives in regard to such IP income. The new IP regime, to be BEPS-compliant, will not apply to marketing intangibles. Instead, patents and similar IP will be the focus. However, the new regime will apply only to the extent that the relevant R&D is performed in Singapore by the taxpayer or is outsourced to a third party.

The new IP incentive will be in the form of a lower corporate income tax rate (the rate has not yet been indicated). The new IP incentive will be effective after 30 June 2017. “IP income” will cover not only royalties from the licensing of IP – it will also likely cover embedded royalties in the profit derived by a supply chain principal.

These various changes (i.e., the non-applicability to marketing intangibles, the covering of embedded royalties, and the requirement to conduct the R&D in Singapore by the taxpayer or third party outsourcing) will impact quite a number of multinationals which currently enjoy tax incentives in Singapore.

Background:

The Base Erosion and Profit Shifting (BEPS) project, which is now four years old, is the most significant change in the world of international tax ever.

Launched by the OECD and G20 countries in 2013, it is now being progressed by a coalition of countries (called the Inclusive Framework) numbering close to 100. Singapore is a member of that coalition.

Lee Tiong Heng (李忠兴), Tax Partner and Innovation & Investment Incentives Leader for Deloitte Singapore and Southeast:

“Despite concerns of BEPS, government continues to enhance our tax incentives (for global financing and global trading sectors) rather than doing away with incentives. Looks like tax incentives are here to stay.”

Richard Mackender, Tax Partner and Indirect Tax Leader, Deloitte Singapore and Southeast Asia:

“Looks like the Government may well join countries such as Australia and New Zealand in applying GST on cross border downloads of digital services such as music and games.

The Government is also looking more widely to address the need to maintain a wide tax base - GST rate rise may not be that many years away after all.”

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