Towards a value-creation economy
Deloitte Singapore’s recommendations for the 2016 Budget
Deloitte Singapore’s recommendations for the 2016 Budget calls for the strengthening of initiatives to promote innovation and promoting internationalisation of Singapore businesses.
- Shaping fiscal policy with a view of encouraging a culture of innovation and promoting starts-ups in Singapore
- Grooming business leaders
- Connecting to new markets and promoting internationalisation of Singapore businesses
- Preserving Singapore as an attractive destination for foreign investments in an environment where international tax issues are high on the political agenda
- Maintaining our edge over the competition in select industry sectors
- Providing support for rising healthcare and childcare costs
SINGAPORE, 18 January 2016 – As we reflect with pride on Singapore’s remarkable transformation from a third-world to first-world economy within one generation, Singapore must continue to adapt and re-invent herself to remain relevant and competitive in a volatile global economy. With this goal in mind, Deloitte Singapore’s feedback for the 2016 Budget is framed along the following key themes that we believe will ready Singapore for the future economy.
Shaping fiscal policy to encourage a culture of innovation and start-ups
Value-creation, or innovation-led enterprises, is core to every sector of the economy and is crucial to deliver new sources of growth and high-wage jobs. The focus on building new business capabilities and value-creation is ever more important for Singapore as a slower pace of growth is expected in 2016 and middle and back office jobs in the country are under threat from lower cost locations. Fiscal policies implemented should encourage a culture of innovation and further promote start-ups in Singapore.
“As start-ups may not be profitable in the initial years, but instead would likely require funding, Deloitte Singapore suggests fine-tuning certain schemes to incentivise start-up investors, allow the continuation of tax losses incurred by start-ups and enhance the loss carry-back regime. On the technology front, we are proposing tax incentives to support businesses in digitisation and automation of their businesses, such as granting enhanced tax deductions for evolutionary innovative activities that strictly may not be considered as R&D, consultancy fees incurred for digitisation projects, and software development activities,” says Mr Low Hwee Chua, Partner and Head of Tax Services at Deloitte Singapore and Southeast Asia.
Grooming business leaders
In recent years, the talent policy focused on fuelling Singapore’s economic growth has shifted from attracting overseas talent to developing Singapore talent to assume key regional or global roles.
Mr Low adds, “Likewise, tax policies introduced to draw overseas talent could be tweaked or expanded to include Singapore talent so as to create a level playing field for both groups of people, such as opening up the Not Ordinarily Resident scheme to Singapore citizens or permanent residents, and granting additional tax deductions for costs of recruiting Singaporeans who take up key management roles. In addition, given the growing importance of stock option awards in rewarding employees, Deloitte Singapore recommends refining existing rules on the taxation of employee share awards to make them more attractive and flexible as a remuneration scheme.”
Connecting to new markets and promoting internationalisation of Singapore businesses
Singapore has always been recognised as a key business hub for the region, and past tax policies such as tax incentives for hub activities, exemption of certain foreign-sourced income, and a wide treaty network have helped to entrench Singapore’s hub status.
“Building on the momentum of Budget 2015 which saw the introduction of various schemes to boost internationalisation efforts, Deloitte Singapore is suggesting changes to policies such as exemption of foreign-sourced income from countries within the ASEAN Economic Community, enhancement of foreign tax credit regime, and perhaps special tax deduction for ongoing interest and other funding costs incurred to support overseas equity investments, so as to further encourage Singapore businesses to branch out and think regionally,” shares Mr Low.
Preserving Singapore as an attractive destination for foreign investments in an environment where international tax issues are high on the political agenda
Budget 2016 will be keenly watched as it will also be the first Budget to be released after the publication by the Organisation for Economic Co-operation and Development of its final set of recommendations under the Base Erosion and Profit Shifting (“BEPS”) Project for a comprehensive, coherent and co-ordinated reform of international tax rules. Any fiscal policies drawn up will be introduced amidst an international drive to combat tax avoidance.
“With the twin challenges of keeping our tax regime competitive and addressing the implications arising from the BEPS Project, a balance must be achieved between keeping Singapore’s tax system simple whilst ensuring that it remains coherent and acceptable in the international tax arena,” shares Mr Low. “Singapore should continue to monitor its tax incentives framework to ensure it adheres to the minimum standards that have been established, and may also wish to consider publishing more detailed guidelines on the criteria required to obtain certain tax incentives, as transparency is a key tenet of the BEPS Action 5 recommendations on harmful tax practices,” adds Mr Low.
In addition, Singapore will need to ensure the adoption of consistent transfer pricing approaches with its key trading partners and investor countries to reduce the potential risk of increased disputes between tax authorities pursuant to new transfer-pricing approaches put forth in the BEPS proposals.
Maintaining Singapore’s edge over the competition in select industry sectors
Singapore’s status as the region’s economic and financial hub is hard won and the country is constantly refreshing her value proposition to stay ahead of the curve. Likewise, Singapore needs to ensure that her suite of industry-specific tax incentives evolves in tandem with business developments.
For instance, both Singapore and Hong Kong are choice locations for multinationals to locate their treasury centres in Asia. Singapore’s finance and treasury centre (FTC) incentive has been instrumental in influencing companies to locate their treasury centres in Singapore, but this may be changing with Hong Kong introducing new tax measures in a drive to attract regional treasury centres.
“Likewise, Malaysia and Thailand have introduced tax incentives for treasury centres and headquarter activities and in time may emerge as alternatives to both Singapore and Hong Kong. Deloitte Singapore is not only calling for the FTC incentive to be extended beyond 31 March 2016, but also for improvements to be made to keep the incentive relevant and useful with developments in treasury and financial activities globally,” says Mr Michael Velten, Partner and Head of Financial Services Tax at Deloitte Singapore and Southeast Asia.
“Also, research and technology is crucial to the continued development of financial services in Singapore, especially technologies that are transformative. Such technologies include digital and mobile payments, authentication and biometrics, block chains and distributed ledgers, cloud computing, big data and learning machines. Given the importance of transformative technologies in financial services, existing financial sector tax incentives and R&D tax incentives should be configured to encourage the undertaking of these activities by existing financial services companies. In terms of R&D tax incentives, the qualifying criteria should be defined such that there is a certainty of application for qualifying projects,” adds Mr Velten.
Providing support for rising healthcare and childcare costs
From the individual’s perspective, there are concerns about growing healthcare and childcare costs. Although the Government has taken steps to address this such as introducing the Medishield Life scheme and building more childcare centres, perhaps support can be provided from a tax perspective as well.
“Consideration should be given to allow tax relief to individuals for medical insurance premiums paid for himself/herself, spouse, dependent children and elderly parents. This would help to promote individual responsibility for healthcare needs and alleviate the financial burden on individuals in view of the rising medical and healthcare costs in
Singapore,” says Ms Jill Lim, Partner and Head of Global Employer Services at Deloitte Singapore and Southeast Asia.
“Furthermore, due to the increased cost of living, the costs for maintaining a child in Singapore has substantially increased and both parents may decide to remain in the workforce in order to meet the rising costs and financial demands of the family. In this regard, parents would generally leave their children with child care/infant care centre while they are at work. To alleviate these costs, consideration may be given to provide a tax relief for the actual costs incurred on child care /infant care centre subject to a reasonable cap,” shares Ms Lim.
Apart from the above recommendations, Deloitte has also provided suggestions for specific industries such as the shipping and telecommunications industries, certain broad-based corporate tax proposals (such as expanding the group relief loss transfer scheme between qualifying companies, increasing the medical expenses cap from the current 2% etc.), as well as other personal tax and GST propositions. The specific details are available in the Deloitte’s pre-budget feedback for Budget 2016.