Deloitte Singapore calls for the reshaping of current tax measures to manage uncertainty and improve the quality of life for Singaporeans
Singapore, 3 January 2019 — Despite global uncertainty, Singapore’s economy is holding a steady course, growing steadily at 3.3 per cent in 2018. As the country continues to implement the bold strategies set in 2017 by the Committee for the Future Economy, no major mid-course corrections are anticipated. It is on this sentiment that Deloitte Singapore has given its feedback and recommendations for the Singapore Budget (“Budget”) 2019.
“As Singapore continues to chart its path into what looks to be a fundamentally different future, there is a need to look at our current tax measures and think about how they could be reshaped to help Singapore stay on course in today’s volatile economic environment. To this end, our proposals this year include suggestions of targeted measures and enhancements that can help sustain a vibrant economy where start-ups and SMEs (Small and Medium-sized Enterprises) can thrive, boost innovation for the country, improve the quality of life for all Singaporeans and strengthen Singapore’s social fabric,” said LOW Hwee Chua, Regional Managing Partner for Tax & Legal at Deloitte Singapore and Southeast Asia.
Promoting investments within the local start-up and SME communities
Benefits under the partial tax exemption and start-up tax exemption were revised downwards in the Budget 2018 announcement, perhaps in recognition that the intended recipients of the schemes – start-up companies and SMEs – may not have sufficient taxable profits to fully enjoy the tax exemption, in particular, start-ups that tend to suffer losses during their early years of operations.
As an alternative to the partial tax exemption and start-up tax exemption schemes, Deloitte Singapore recommends the implementation of measures that are able to preserve the real value of tax losses through the application of an indexation factor, such as the Consumer Price Index or an appropriate yield based on Singapore Government Bonds.
A key benefit of this recommendation to businesses would be an increase in the projected after-tax returns on their investment. This is an important metric for start-ups looking to attract investors since investing in such businesses is typically a long-term, multi-stage affair.
Presently, the tax regime allows for the indefinite carry forward of such losses (subject to conditions) but these losses are carried forward at their nominal value, resulting in the erosion of their value over time.
Complementing the Singapore Research & Development (R&D) ecosystem
Innovation is a key tenet of Singapore’s Smart Nation vision and there are initiatives in place to help businesses undertake R&D and to encourage a culture of innovation.
At present, businesses enjoy, amongst others, super-deductions on certain expenditure incurred in relation to R&D conducted in Singapore. Such enhanced deductions have the practical effect of reducing the capital outlay incurred during the R&D and innovation process. However, a common lament by businesses is a shortage of quality R&D talent pool (such as PhD-level researchers) necessary for a vibrant R&D ecosystem.
Whilst there is no silver bullet to address this shortage, the government may wish to consider exempting a portion of the income earned by qualified R&D personnel to attract quality R&D researchers into Singapore.
Improving the quality of life for Singaporeans
Improving the quality of life of Singapore residents is a central tenet in every Budget and Deloitte Singapore’s proposals for Budget 2019 focus on health and environment related measures.
Introducing a sugar tax in Singapore – a tax on sweetened beverages imposed on the manufacturers - is a way to augment the Ministry of Health’s efforts to reduce the incidence of diabetes in the Singapore population and help with the healthcare costs to manage diabetes. A sugar tax may help shape the behaviour of both drink manufacturers (to re-formulate their drinks to lower sugar content) and consumers (to reduce consumption due to lack of availability and/or higher prices).
The revenue collected could be channeled to subsidise healthier food options to ensure that these options remain affordable and accessible to the general public, or to ease healthcare costs for Singaporeans.
Attracting business to choose energy saving and energy efficient equipment would help further Singapore’s commitment on climate change. Deloitte Singapore recommends an enhancement to the current capital allowance framework by increasing the claims on capital expenditure incurred on clean energy and energy efficient equipment from 100% to 200%. Further consideration such as the need for certification and a cap on the qualifying capital expenditure could be taken into account in formulating the scheme.
The enhanced capital allowances of 200% could also be extended to capital expenditure incurred on electric commercial vehicles. This could be granted in lieu of the Early Turnover Scheme, which is an initiative to encourage early replacement of older and more pollutive commercial diesel vehicles to a more environment-friendly model.
Strengthening Singapore’s social fabric
Families may feel that the rising cost of living directly impacts the cost of having children in Singapore. Both parents may decide to remain in the workforce so that they can meet the rising costs and financial demands of the family, with many choosing to leave their children in the care of child care/infant care centres while they are at work.
On top of our current pro-family tax measures, Deloitte Singapore proposes that a child care/infant care relief could be introduced and made available to both working parents. Although having children is a personal decision, introducing and extending this relief to both working parents will, hopefully, complement the initiatives introduced by the government to encourage families to have more children, especially for those who can afford them.
Apart from the above recommendations, Deloitte Singapore has also provided suggestions for specific sectors such as fund management, private wealth, financial services and shipping; gave certain broad-based business tax and talent mobility recommendations; as well as proposed enhancements for international tax, GST and personal tax. The specific details are available in Deloitte’s Budget 2019 Feedback report at www.deloitte.com/sg/Budget2019Feedback.
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