Deloitte Singapore’s response to Budget 2018

SINGAPORE, 19 February 2018 — Deloitte Singapore’s subject matter experts share their reactions and comments to the Singapore Budget 2018 announcement.

Overall response:

Low Hwee Chua (刘辉泉), Regional Managing Partner for Tax at Deloitte Singapore and Southeast Asia:
“While the various investments announced will perhaps not draw the focus this year due to some of the headline tax changes, there are welcome boosts for the environment, healthcare, infrastructure, charities and social services. It’s another steady budget from a Government that prides itself on providing financial and fiscal stability to attract investors and this approach will help position Singapore for the challenges of the new decade.”

1. Developing a vibrant and innovative economy

Lee Tiong Heng (李忠兴), Tax Partner and Leader of Global Investment and Innovation Incentives at Deloitte Singapore and Southeast Asia:
“While not as generous as the 400% tax deduction under PIC for licensing payment and IP registration, it is heartening to hear that the Government has retained some elements of support for innovation and value creation through a 200% tax deduction support. We wish that the S$100k expenditure cap could be higher. The qualifying expenditure cap under the PIC is S$400k.”

Ong Siok Peng (王淑苹), Tax Partner at Deloitte Singapore:
“Budget 2018 balances both short-term and long-term business needs – the extension of the Wage Credit Scheme will help businesses cope with wage increases in the short term while the grants and enhanced tax deductions will support businesses that invest in innovation and internationalisation to enhance long-term competitiveness and sustainable growth.”

Daniel Ho (何仁奇), Tax Partner and Mergers & Acquisition (Tax) Leader for Deloitte Southeast Asia:
“Although the Double Tax Deduction for Internationalisation is useful to fund overseas marketing expenses, we would have liked to see more measures encouraging overseas M&A and internationalisation efforts such as interest deductions on qualifying overseas acquisitions, subject to certain limits in line with BEPS recommendations.”

Lee Tiong Heng (李忠兴), Tax Partner and Leader of Global Investment and Innovation Incentives at Deloitte Singapore and Southeast Asia:
“Though short of our request for a 300% tax deduction for R&D, the 250% tax deduction for R&D is a step in the right direction to support innovation and value creation. This measure should be welcomed by businesses and would help enhance Singapore’s competitive position in attracting R&D activities.”

Daniel Ho (何仁奇), Tax Partner and Tax Leader for Public Sector at Deloitte Singapore:
“The Government has listened to industry feedback and has enhanced the tax deductions for IP & R&D payments with the expiry of PIC scheme. This is a welcome boost especially for SMEs that need support to fund their research projects. However, the definition of qualifying R&D projects may need to be relaxed to allow more companies to benefit from the scheme.”

Daniel Ho (何仁奇), Tax Partner and Tax Leader for Public Sector at Deloitte Singapore:
“In the wake of the global trend of declining corporate tax rates, the scaling down of the startup tax exemption and partial tax exemption schemes is a clever way of raising additional tax revenue without affecting the headline corporate tax rate of 17%, but it is also a pre-cursor to further scaling down in future.”

Lee Tiong Heng (李忠兴), Tax Partner and Leader of Global Investment and Innovation Incentives at Deloitte Singapore and Southeast Asia:
“The increase of qualifying expenses without prior approval under the Double Tax Deduction Scheme for Internationalisation from S$100k to S$150k would be a much welcome move by small and medium-sized companies seeking to venture overseas. Small and medium-sized companies typically face resource challenges to do the paper work needed to obtain approval for government support before embarking on projects. Also, the lack of communication between the business development unit and the finance unit makes seeking prior approval before project another challenge. This measure will help address some of these challenges.”

2. Building a smart, green and liveable city

Wong Meng Yew (王明耀), Tax Partner and Global Trade Advisory Leader at Deloitte Singapore and Southeast Asia:
“The reduction in the proposed rates of carbon taxes from between S$10 to S$20 per tonne of greenhouse gases (GHG) to S$5 per tonne of GHG as announced in Budget 2018 will be a relief to industries who are heavy emitters of GHG, or more likely their consumers further down the supply chain who would inevitably bear the effects of the new tax”.

3. Fostering a caring and cohesive society

Low Hwee Chua (刘辉泉), Regional Managing Partner for Tax at Deloitte Singapore and Southeast Asia:
“The 3-year extension of the 250% tax deduction for donations made to IPCs and the 250% tax deduction under BIPS sends a strong signal that all of us play a part in helping to build a caring and cohesive society.”

Lee Chew Chiat (李招杰), Deloitte Southeast Asia Public Sector Leader:
“Consolidation of social and health-related services under MOH and merger of the Silver Generation Office under AIC put the person’s needs in the centre. They enable seamless service provision across the Public Service. Such a move not only enables better service delivery, but also reduces overlap between agencies, thus improving efficiency. This seamless service can be further extended in the future to also provide services to care-givers, such as respite care, which can be very useful to care-givers with challenging care-giving needs.”

Lee Chew Chiat (李招杰), Deloitte Southeast Asia Public Sector Leader:
“The Community Silver Trust Fund has been a critical funding source for many Voluntary Welfare Organisations (VWOs), helping them to expand their services and cover their costs. The top-up from the Government will give a confidence boost to the VWOs.”

Dr. Loke Wai Chiong (陆伟翔), Deloitte Southeast Asia Heath Care Sector Leader:
“The ageing population will be a top-of-mind issue for Singapore and the enhanced Eldershield scheme to cover more elderly with needs will be very well received.”

Dr. Loke Wai Chiong (陆伟翔), Deloitte Southeast Asia Heath Care Sector Leader:
“The enhanced proximity housing grant will be welcomed as many seniors growing old would prefer to “age in place”, and have their children and families staying nearby to provide the support needed, when they do need it. Similarly the Community Networks for Seniors (CNS) mobilises social networks and social capital in neighbourhoods – what may be needed is to formalize the support (including funding) for such networks to do their good work effectively.

Dr. Loke Wai Chiong (陆伟翔), Deloitte Southeast Asia Heath Care Sector Leader:
“The integrated health and social support under MOH (and AIC as implementation agency) makes a lot of sense and is laudable. This has been talked about before and has also been tried in various countries – a high profile example being UK in recent years. The easier part is defining the patient flows and information flows. The trickiest step is trying to integrate or combine budgets, since healthcare generally costs a lot more than social care, and hence will often attract disproportionately more attention whenever there is a tension between the two. However, with a whole-of-government approach, Singapore might have a better chance at achieving this integration.”

4. Preserving a fiscally sustainable and secure future

Low Hwee Chua (刘辉泉), Regional Managing Partner for Tax at Deloitte Singapore and Southeast Asia:
“After all the expectation, the GST hike came – but not in the way we expected, with a promise of a 2% increase somewhere off in the future. Meanwhile, the initial GST on overseas services is a first step in addressing the digital economy and increasing e-commerce. Carbon taxes, tobacco excise taxes and increased stamp duty will all boost the revenues as the Government went to great lengths to emphasise that while the surplus looks good, there are no guarantees beyond 2020.”

Richard Mackender (马克德), Tax Partner and Indirect Tax Leader at Deloitte Singapore and Southeast Asia:
“The big budget surplus from 2017 at S$9.6 billion is unlikely to be sustainable on a year to year basis. To build a fiscally sustainable and secure future for Singapore, the Government needs to ensure that there is a stable revenue flow, considering the ageing population and the need to invest in infrastructure, security and education. Hence relying on one budget surplus is not a sound basis for a sustainable fiscal model. Singapore’s approach to a sustainable fiscal budget has been to always bank the good returns, while being prudent in ensuring that tax revenue continues to be stable and reliable to support Singapore’s future needs. This includes not only tax rate increases, but also structural changes to how the tax is applied, a good example of this being the introduction of GST on imported services for businesses and consumers, which is scheduled to take effect on 1 Jan 2020. This change will also help to level the playing field for local businesses supplying similar services to those imported, as they have to charge GST whereas the imported services are currently purchased GST free.”

Shantini Ramachandra, Tax Partner and Deloitte Private (Tax) Leader for Singapore and Southeast Asia:
“The introduction of the new top marginal rate of 4% for Buyer’s Stamp Duty for residential property applicable to market value in excess of $1 million, was unexpected in view that recovery in the residential property market has only recently started. Although the middle income group will be impacted, we believe that the carefully calibrated adjustment in the rate should not significantly dampen the housing market.”

Richard Mackender (马克德), Tax Partner and Indirect Tax Leader at Deloitte Singapore and Southeast Asia:
“The plan to raise GST, from 7% to 9% sometime in the period from 2021 to 2025, gives businesses a long lead-time on the impacts and system changes. The reverse charge to be introduced from 1 Jan 2020 on imported services, also offers a long lead time for businesses to adapt and make the necessary adjustments. The reverse charge should not be a surprise for business as IRAS has been consulting the industry for some months.”

Daniel Ho (何仁奇), Tax Partner and Tax Leader for Public Sector at Deloitte Singapore:
“The Government is sending the right message in that it will look to control its spending and defer any tax increases as a last resort. The deferral of the widely expected GST increase to 2021 and beyond is welcoming news, and the key revenue raising measures this year appears to be a minor increase in stamp duty rate to 4% for residential property and imposition of reverse GST charge on imported services.”

Richard Mackender (马克德), Tax Partner and Indirect Tax Leader at Deloitte Singapore and Southeast Asia:
“GST will also be introduced on digital services purchased from overseas suppliers in 2020. This will help level the playing field for local businesses supplying digital services to local consumers, since they currently charged GST if they are registered.”

Lee Tiong Heng (李忠兴), Tax Partner and Leader of Global Investment and Innovation Incentives at Deloitte Singapore and Southeast Asia:
“As per our expectation, there is no corporate tax increase in this year’s Budget and this move is also consistent with global trends. At 17%, Singapore’s corporate tax rate still remains as one of the most competitive in the region. No increase in corporate tax is good news.”

Richard Mackender (马克德), Tax Partner and Indirect Tax Leader at Deloitte Singapore and Southeast Asia:
“The Government announced that they will make a one-off contribution of S$2bn to the GST Voucher fund for FY18, which is used to help off-set the impact of GST on lower income families. The current disbursement is around S$800m, so the size of the top-up suggests that the Government is using some of its surpluses to help fund bigger disbursements once the GST rate increase and the introduction of GST on digital services change is implemented.”

About Deloitte

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. Please see www.deloitte.com/about to learn more about our global network of member firms.

Deloitte provides audit, consulting, financial advisory, risk advisory, tax and related services to public and private clients spanning multiple industries. Deloitte serves four out of five Fortune Global 500® companies through a globally connected network of member firms in more than 150 countries and territories, bringing world-class capabilities, insights and high-quality service to address clients’ most complex business challenges. To learn more about how Deloitte’s approximately 245,000 professionals make an impact that matters, please connect with us on Facebook, LinkedIn or Twitter.

About Deloitte Southeast Asia

Deloitte Southeast Asia Ltd—a member firm of Deloitte Touche Tohmatsu Limited comprising Deloitte practices operating in Brunei, Cambodia, Guam, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam—was established to deliver measurable value to the particular demands of increasingly intraregional and fast-growing companies and enterprises.

Composed of 320 partners and more than 7,700 professionals in 25 office locations, the subsidiaries and affiliates of Deloitte Southeast Asia Ltd., combine their technical expertise and deep industry knowledge to deliver consistent, high-quality services to companies in the region.

All services are provided through the individual country practices, their subsidiaries and affiliates, which are separate and independent legal entities.