Singapore Budget 2021: Deloitte calls for tax measures to help businesses and workers pivot and adapt to the new normal

Recommendations aim at providing continued support to business and workers, including striking a balance between funding short to medium-term recovery post COVID-19 while establishing the foundation for Singapore’s longer term success by investing in new growth areas and developing new capabilities.

SINGAPORE, 17 December 2020 — Singapore looks set for a good, but careful, start to 2021. Firstly, Singapore is expecting a positive growth trajectory, with the economy forecasted to expand by 5.5% in year 2021, according to the latest Monetary Authority of Singapore survey of Professional Forecasters. The pace of growth may be higher if there is successful global deployment of COVID-19 vaccines. Secondly, Singapore has reached a critical milestone in its fight against COVID-19 as the nation enters Phase 3–Safe Nation from 28 December 2020. Thirdly, the Singapore government has made plans to make available the COVID-19 vaccine to every Singaporean and Singapore long-term residents by the end of 2021, which will further boost confidence locally, regionally and globally.

“The projected positive outlook for year 2021 offers a ray of comfort and optimism for businesses, given that the unexpected events of 2020 has hit businesses hard. We can expect economic recovery to pre-COVID-19 levels to be gradual. As challenging as COVID-19 is, it has given us a glimpse of what the future economy might look like, as it pushed businesses to innovate and make better use of technology, and it is important for Singapore businesses to continue this momentum to thrive in the new normal,” said Mr LOW Hwee Chua (刘辉泉), Regional Managing Partner for Tax & Legal (税务区域主管合伙人) at Deloitte Singapore and Southeast Asia (德勤新加坡及东南亚).

“Technology and innovation remain Singapore’s key engines of future economic development. While Singapore has started on this journey earlier than our regional counterparts, our work is not quite completed. COVID-19 has shown us that through digitalisation we can remain connected to the world and operate on a global scale even as we are grounded, and that things that were once considered impossible are now being made possible through innovation and out-of-the-box thinking. This emphasises the impetus for Singapore to strengthen and develop the innovation ecosystem necessary to continue moving the economy forward,” Hwee Chua added.

It is with this sentiment that Deloitte Singapore has given its feedback and recommendations for the Singapore Budget (Budget) 2021.

Leveraging Singapore’s position of strength

Many businesses are worried about what will happen once the COVID-19 support schemes, meted out earlier this year, taper off and end in the coming year. Although the COVID-19 situation has gradually stabilised in Singapore due to a successful prevention strategy that included active vigilant monitoring, the bearish consumer sentiments may continue to persist. To this end, Deloitte suggests extending and/or enhancing specific existing support schemes to help businesses overcome their short-term cash flow challenges. To lay the groundwork for Singapore’s success beyond the short to medium-term, Deloitte also proposes new initiatives to continue supporting businesses in their effort to scale up so that they can compete on the international stage to deliver better outcomes for the future economy.

Some of Deloitte’s recommendations in this regard for Budget 2021 are as follows:

(i)             One of the central focus for the unprecedented support package in 2020 has been jobs. The Jobs Support Scheme (JSS) has been an important scheme to provide wages support to employers to help them retain their local employees during uncertain period, with support up to March 2021 wages. It is likely that some specific sectors may take longer to recover, and Deloitte proposes that the JSS be extended on a lowered scale for another six months through a more targeted approach for these specific sectors to help them retain their core capabilities until the COVID-19 situation improves.

Ms LIEW Li Mei (刘丽梅), Tax Partner (税务合伙人), Deloitte Singapore (德勤新加坡) said, “While we understand that the level of support for JSS cannot continue indefinitely, extending the JSS to key industries, in particular the aerospace, aviation and tourism sectors, is crucial to minimise the long-term negative impact that could affect our economy as a whole. These industries have been hit hard by the COVID-19 pandemic and we must continue to help them preserve their core capabilities. They are key sectors that have a multiplier effect on Singapore’s overall economy”.

(ii)           The carry-back relief system was enhanced in Budget 2020 whereby businesses may elect to carry back qualifying deductions for Year of Assessment (YA) 2020 up to three immediate preceding YAs. The cap of $100,000 and qualifying conditions remain unchanged.

To continue supporting businesses during this challenging period, Deloitte proposes a further enhancement of the carry-back relief for YA 2021, i.e. increase the cap on qualifying deductions allowed to be carried back to $500,000 and increase the number of YAs, in which qualifying deductions are allowed to be carried back, to five immediate preceding YAs.

Mr Rohan SOLAPURKAR, Tax Partner (税务合伙人), Deloitte Singapore (德勤新加坡) said, “In the current uncertain economic environment, sustaining revenue is the biggest challenge for both large and small businesses, even though certain businesses are recovering faster than the rest. Optimising cash flow and efficient management of businesses losses would be key in easing the burden for businesses. The carry-back relief system is a way to help businesses recover the losses incurred by claiming a refund on the tax paid in the previous year(s)”.

(iii)          Mergers and acqusitions (M&A) is expected to rebound in 2021, in tandem with the anticipated economic growth. Currently, some of the existing qualifying conditions for claiming M&A allowance may be too prescriptive or onerous and hence may be difficult to meet. In order to support companies in Singapore that make an effort to grow their businesses through M&A and scale-up, Deloitte proposes to liberalise the conditions around the nature and timing of the consideration for the acquisition of the ordinary shares in the target company, or allow discretion to be accorded to the Comptroller of Income Tax to waive such prescriptive conditions if there are valid commercial reasons provided by businesses.

Mr Daniel HO (何仁奇), M&A Tax Leader, Deloitte Singapore (德勤新加坡) said, “We have seen an uptick in M&A activity in the region in recent months. The liberalisation of some of the existing conditions for M&A allowances would enable Singapore-based businesses to consolidate and expand their presence beyond Singapore so as to ride on the anticipated recovery, and send a signal that the Government is prepared to help fund businesses on the consolidation and expansion journey as they seek to emerge stronger from this period of economic uncertainty”.

Building an inclusive, cohesive, and skilled society

Singapore’s demographic dynamics are evolving, and the COVID-19 experience has sharpened the need for a sense of purpose as a society. Together with the Government’s efforts to build an inclusive society and strengthen the social compact, Deloitte proposes a series of tax measures aimed at improving the lives of Singaporeans, especially those adversely affected by COVID-19. Many of Deloitte’s recommendations are targeted at reskilling and upskilling workers. Beyond that, how and where we work are also being transformed by the digital revolution and other technological advances. To this end, Deloitte calls for a review of the general reliefs for individuals to better reflect the economic environment and current social needs, including proposed consideration to introduce standardised deductions for employees who work from home (WFH).

Ms Sabrina SIA (佘爱玲), Global Employer Services Tax Leader (全球雇主服务领导), Deloitte Singapore (德勤新加坡) said, “The COVID-19 situation has forced many companies to adopt remote working arrangements as an emergency measure to continue operating.  As the world recovers from the pandemic, many companies are looking to make WFH arrangements a more permanent option given the potential benefits in reducing costs, increasing productivity, as well as in the attraction and retention of talent. Companies and policymakers who are driving this transformation will have an opportunity to shape the future of how and where we work, and create and capture value from it.”

Many companies recognise that the first and foremost condition required to facilitate WFH arrangements is to have a suitable work environment. To this end, some companies have been giving financial support to their employees to set up suitable workspaces at home due to the COVID-19 pandemic.  Despite the financial assistance from companies, the additional expenditure incurred by individuals from working from home can be significant and will be recurring. To provide greater support for the transition to WFH and to continue encouraging individuals to embrace the “new norm of working”, Deloitte proposes introducing an option for individuals to claim standardised tax deductions on WFH expenses based on a fixed ratio/ rate (e.g. fixed % of gross employment income or fixed monetary amount multiplied by the number of WFH days). This will help reduce the administrative burden of having to justify claims of expenses currently allowed for incremental usage of electricity, telecommunication costs, etc. as a result of the WFH arrangements.  

Strengthening and making use of Singapore’s innovation and intellectual property (IP) ecosystem

While the COVID-19 struck unexpectedly, the pandemic has not altered the abundance of opportunities for breakthrough technologies and innovation. Companies continue to drive Research and Development (R&D), IP, and innovation in their efforts to secure future productivity. COVID-19 may have ironically sped up innovation in many sectors and is reshaping the future of how and where we work. Deloitte’s tax proposals are focused on strengthening the IP and innovation ecosystem and how they may be leveraged to promote future economic development:

(i)             Currently, a Singapore company would need to acquire both the legal and economic ownership of qualifying Intellectual Property Rights (IPRs) before it is eligible to claim Writing Down Allowances (WDA) on the capital expenditure incurred to acquire qualifying IPRs unless it obtains a waiver from legal ownership from the Economic Development Board (EDB). As the approval for a waiver from legal ownership often requires additional commitments in Singapore, it may be onerous for the Singapore acquiring company to meet the conditions for the waiver.

Deloitte proposes that an automatic waiver of legal ownership be granted as economic ownership is as effective for companies to commercialise and manage IPRs in Singapore, leading to substantive economic activities in Singapore and generating economic spin-offs.

In addition, Deloitte proposes to simplify the requirement on transfer of ownership for qualifying IPRs by enhancing the WDA claims: 100% WDA claims on capital expenditure incurred to acquire qualifying IPRs where only economic ownership is transferred to the Singapore acquiring company, or 150% WDA claims for qualifying IPRs where both legal and economic ownership are transferred to the Singapore acquiring company.

Ms Sharon TAN, International Tax Partner, Deloitte Singapore said, “Businesses are finding the need to digitise their supply chain and/or accelerate their digital agenda in order to ensure their resiliency. Digitalising the supply chain may create new value propositions that could raise the importance of IP ownership as players within the supply chain become more interconnected.”

“Singapore’s business-friendly IP regime, coupled with its strong protection of IP rights, has made Singapore a preferred location for investments in R&D activities. Singapore should enhance its current IP regime to complement its existing R&D regime in order to remain competitive. The automatic waiver of legal ownership would eliminate the need to negotiate additional conditions required for a waiver application with the EDB and would simplify the process of WDA claims for the acquisitions of qualifying IPRs. This would also provide certainty to MNCs that may be considering relocating their IPs to Singapore,” Sharon added.

(ii)           In addition to simplifying the requirement on transfer of ownership for qualifying IPRs, Deloitte also proposes removing the claw-back provision to enhance Singapore’s attractiveness as a global IP hub and become competitive in the digital economy. Generally, WDAs on qualifying IPRs can also be claimed by companies with tax incentives, where their income from qualifying activities is taxed at a concessionary tax rate.

Upon the sale, transfer or assignment of qualifying IPRs, any WDA that have been previously granted would be clawed-back and deemed as taxable income (limited to the cost of qualifying IPRs). The claw-back amount would be brought to tax at the prevailing corporate tax rate in the year of the disposal if the tax incentives expire and/or the concessionary tax rates cease to apply. Even if the tax incentive has not expired, it often raises the question of whether the claw-back amount is considered “income from qualifying activities” subject to tax at the concessionary rate. In which case, companies may be unduly penalised if the WDA was claimed at the concessionary tax rate while the claw-back may be at the prevailing corporate tax rate.

The claw-back provision under section 19B could be removed so that any WDA previously claimed should not be deemed as income chargeable to tax in the year of disposal if the company has held the qualifying IPRs for more than five years. Alternatively, rules may be changed such that the claw-back is taxed at the same tax rate at which the WDA was previously claimed. For example, where the approved company’s qualifying income was taxed at the concessionary tax rate of 5% when the WDA was previously claimed, the claw-back shall be brought to charge as income subject to the same concessionary tax rate in the year of disposal of the IPRs.

Mr LEE Tiong Heng  (李忠兴), R&D and Government Incentives Leader, Deloitte Singapore  (德勤新加坡) said, “The main aim of the above proposal is to ensure that businesses which are subject to the claw-back provision are not made worse off. To the extent that the claw-back provision is seen as punitive, taxpayers would be less likely to avail of and benefit from Section 19B and this will negate the primary objective of promoting the use of IPs arising from taxpayer’s R&D activities.”

Other areas of focus

In tandem with the corporate tax measures to ease cash flow during the COVID-19 period, Deloitte proposes GST measures to assist businesses in minimising GST compliance costs, including allowing input tax claims for COVID-19 tests and COVID-19 hospitalisation charges for employees.

The IRAS has clarified that GST incurred on COVID-19 tests and COVID-19 hospitalisation charges for employees is not claimable as such expenses are disallowed as “medical expenses” under Regulation 26 of the GST (General) Regulations.

Employees working in certain industries may be subject to higher risk/exposure to COVID-19 (e.g., frontline medical personnel, housekeeping personnel in hotels housing SHN persons, construction workers who reside in dormitories, etc.) in the course of their work and hence, are required to go for regular COVID-19 tests and such testing costs are usually borne by the employers. COVID-19 testing is usually mandatory and not specifically for the employees’ personal benefits.

Therefore, Deloitte proposes to consider allowing such input tax claims for COVID-19 testing costs as an administrative concession so that GST taxpayers operating in these industries are not unfairly disadvantaged. Likewise, for COVID-19 hospitalisation charges, if the employees have contracted COVID-19 in the course of carrying out their employment duties and that the employers are required to bear the employees’ hospitalisation charges, we similarly propose to consider allowing such input tax claims as an administrative concession.

“Almost a year has passed since the beginning of the COVID-19 crisis, and the world is still struggling with waves of re-infections and the resulting economic downturn. In order to reduce the number of infectious cases and prepare Singapore for the third phase of reopening of the economy, it would be encouraging if the authorities allow input tax claims on COVID-19 tests and hospitalisation charges for employees in certain key industries as an administrative concession. The fight against the COVID-19 pandemic is likely to be a long-drawn-out affair and this will send a clear message that the country is supportive of businesses that play their part in safeguarding against COVID-19 circulation. Regular testing combined with immediate isolation and/or treatment will help to keep the COVID-19 situation stable until the majority of the adult population is vaccinated by the end of 2021 ,” said Mr Richard MACKENDER, Indirect Tax Leader, Deloitte Singapore.

“The unpredictable events of 2020 have led to many sacrifices, some of which we did not think we would make. With brighter opportunites on the horizon, it is time to start to get back on track, and to continue to make our mark on the global stage together. No business or individual is, or has been, spared during this crisis, and starting on a new journey together is never easy. We believe that Budget 2021 will set a well-defined plan that will chart our way into a future different from the one we imagined,” Hwee Chua concluded.

More details of our recommendations are available in Deloitte’s Budget 2021 Feedback report here.

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