Singapore’s new Finance Minister Heng Swee Keat presented his first ever budget in the parliament on 24th March, 2016. The announcements made in the budget were in line with the theme of “Partnering for the Future” and include several benefits for the business sector.
The Finance Minister emphasised the cyclical weakness prevailing in the economy and the changes the country requires to address this issue. The budget encourages the renewal of the economy through productivity-focused transformation of individual enterprises as well as overall industries. Keeping this in mind, the 2016 budget introduces an “Industry Transformation Programme” that encourages transforming industries, enterprises, and small businesses through innovation. The government is providing incentives for improving automation support to enterprises, introducing research and innovation plans and increasing tax breaks, among other measures.
Besides the steps taken to improve the economic climate, the budget also addresses the concerns of the Small and Medium Enterprises (SMEs). The feedback the government received in the Pre-Budget Survey 2016 was that SMEs need government’s help to become “future ready” and they want an improvement in the overall business environment for SMEs in the country.
The budget seems to have taken this feedback very seriously as the government has given special consideration to SMEs. During his budget speech, Mr. Heng said “Taken together, this calibrated set of measures is appropriate to address the near-term concerns of our firms, especially SMEs, while enabling restructuring.”
Here are some of the key highlights and measures from the 2016 budget’s “Industry Transformation Programme” and its special emphasis on dealing with the concerns of SMEs.
Key Highlights – 2016 Budget
Industry Transformation Programme
The Industry Transformation Programme is one of the main areas of this year’s budget. This programme is set up to support enterprises and industries and aims at their growth through an increase in innovation. The government has set aside a total amount of $4.5 billion for this programme which should help the country in long-term economic development. The Industry Transformation Programme focuses on the following three areas:
- Transforming Enterprises
- Transforming Industries
- Transforming Through Innovation
Portal for Business Grants
The government will launch a portal by the end of this year which will provide a single point of access for all incentive schemes that the government has on offer. The portal will be designed to be ready access by SMEs and other businesses. Companies will be easily able to identify which scheme suits their business type and structure instead of going from one agency to another in search of them. Initially, the portal will include grants offered by the following agencies: IE Singapore, STB, SPRING and Design Singapore; eventually, it will cover grants that all government agencies offer.
Automation Support Package
The government will set aside an amount of $400 million to support and enhance the automation projects of industries. An Automated Support Package will provide the funds for a period of three years which will help companies enhance their automation projects. First, the government will fund the projects for up to half of their costs (capped at $1 million for each project). Furthermore, the government will make investment of up to 100 percent for purchase of automation equipment. These measures are designed to increase automation that will enhance the productivity of the business.
Singapore SMEs are keen to expand their business, especially in the overseas market. IE Singapore (a government agency that focuses on the export economy of the country) will support companies to venture into the overseas market. The Double Taxation Deduction (DTD) will also be made available untill the year 2020 for companies who are looking to expand their business overseas. The scheme will cover any expense the company incurs for acquiring and developing business overseas including any investment analysis trips. The DTD scheme is applicable to businesses registered or permanently established in Singapore. According to the scheme, the businesses can automatically claim 200% tax deductions on such expenses (up to $100,000). Any additional tax deductions the business wants to claim above $100,000 will require approval from IE Singapore. This scheme is now extended till 2020.
SME Mezzanine Growth Fund
The SME Mezzanine Growth Fund (introduced in the 2014 budget) provides mezzanine capital to companies. To qualify for this fund, the companies must have their management as well as headquarters in Singapore. The 2016 budget makes the following changes to this fund:
Increase in the amount of this fund from the current $100 million to $150 million which will help in the overall expansion of SMEs.
The new funds will be targeted towards the smaller SMEs with an annual revenue of $50 million and below at the time of investment.
Mergers & Acquisition Allowances
To support the Mergers & Acquisition (M&A) deals in the country, the government will grant M&A allowances on up to $40 million of the deal value which is an increase from the current cap of $20 million. This implies that:
- The Tax Allowances and
- Stamp Duty Relief
will now be granted on up to $40 million of the total consideration paid when M&A deals qualify. The change will be effective from 1 April, 2016 till 31 March, 2020.
National Trade Platform
The National Trade Platform will be set up to assist businesses in the trade finance and logistics sector. This platform will enable data sharing among the businesses and the government. This will be very helpful for SMEs to reduce their costs as the platform will be utilised for customs as well as various other types of regulatory approvals.
National Robotic Programmes
The government will make more than $450 million available over a period of three years to the National Robotic Programme which came into effect last year. The government has taken this initiative to provide robotic programmes to SMEs at a reasonable cost to incentivize the development of robots. These robots are likely to be utilised in healthcare, manufacturing, construction and the logistics sector.
Local Enterprise and Association Development (LEAD) Plus Programme
The Trade Associations and Chambers (TACs) in partnership with SPRING will introduce this programme. The programme is called the LEAD Plus Programme. It will fund the TACs in order to assist them in attracting talent and strengthening their services and processes. SPRING in partnership with TAC will work on thirty projects that will extend to over 3,000 SMEs.
Transforming Through Innovation
Research, Innovation and Enterprise Plan 2020
The government launched the Research, Innovation and Enterprise Plan 2020 in January, 2016. Out of the funds kept aside for this plan, the government will allocate $4 billion towards industry-research collaboration. Additionally, the government will finance the National Research Fund (that was set up last year) with an amount of $1.5 billion.
To enhance innovation the government will set up an entity namely “SG-Innovate” that will connect aspiring entrepreneurs with mentors as well as venture capitalists. This step will be a major boost to the startup industry.
Jurong Innovative District (JID)
This district will be a space for collaboration of entrepreneurs, students, and researchers to discuss and develop innovative ideas. The government plans to complete the first phase of this district in 2022.
Special Focus on SMEs
Here are the announcements in the budget that focus on SMEs:
Working Capital Loan Schemes for SMEs
This is one of the major highlights of the budget. The government has taken the cash flow concerns of SMEs into account and has introduced the Working Capital Loan Scheme. This scheme will provide loans of up to $300,000 for each SME. The government has agreed to share 50 percent of the default risk on the loans along with the participating financial institutions. This scheme will be in force for a period of three years. This will encourage financial institutions to extend credit to SMEs. Viable but unproven SMEs will be able to continue their business with this financial support.
SME’s will be eligible for this loan if:
- The enterprise is registered in Singapore
- It has a minimum of 30% local shareholding
- The annual sales of the company’s group do not exceed $100 million or their group employment size does not exceed 200.
Corporate tax rebates
For the years 2016 and 2017, the tax rebates for corporate income is 50 percent which is an increase from the previous allowable rate of 30 percent. The cap on the rebate is $20,000. The Finance Minister highlighted that the increase in rebate was a step taken especially to help the SMEs.
Productivity and Innovation Credit (PIC)
The PIC came into effect in 2011. This Scheme encourages companies, especially SMEs to increase their investments in productivity and innovation. Through this scheme, businesses can save taxes and avail cash payouts if they invest in any of the following:
- Employee Training
- Acquiring or leasing any PIC automation equipment
- Acquiring IPR
- R&D Activities
- Registering any patents, design and plant varieties and trademark
- Investment in design projects in the approval or the Design Council of Singapore
This scheme was announced in the 2014 budget for supporting businesses that were making sizeable investments for productivity and innovation. The allowable tax deductions for the above six qualifying activities was 400% on up to $400,000 spent yearly on those activities. This cap has been increased to $600,000 for SMEs who qualify for the PIC+ Scheme. However, to qualify for the PIC+ Scheme the following is necessary:
- The Revenue of the business should not exceed $100 million and
- The Number of employees in the business should not exceed 200.
According to the PIC and PIC+ Scheme, the business eligible for tax deductions also has the option to convert up to $100,000 of the amount they spend (for the qualifying activities) into a cash payout. This cash payout is non-taxable. The cash payout conversion rate was previously 60% which has been reduced to 40% in the 2016 budget. However, the Finance Minister has extended the PIC Scheme till 2018.
Additional details pertaining to this scheme will be available on the website Inland Revenue Authority of Singapore in May 2016.
Other Important Highlights
Special Employment Credit (SEC)
The budget announced an extension of the Special Employment Credit that came into effect in 2012 for a period of three years till 2019. The SEC encourages employers to employ workers who are above the age of 55 years and earn up to $4000 monthly. The SEC will also be applicable in the case of employment of workers who earn up to $3000 monthly and are above the age of 65 years. The SEC provides these employers with a wage offset which are as follows:
|Age||Special Employment Credit|
|55-59||Up to 3% of monthly wages
|60-64||Up to 5% of monthly wages
|65 and above||Up to 8% of monthly wages
In case employers hire Persons With Disabilities (PWDs), they will receive SEC of up to 16% of the monthly wage of the PWDs irrespective of his or her age. The monthly SEC for each PWD is caped at $240.
Revitalization of Shops Scheme
The Ministry of National Development (MND) will improve the Revitalization of Shops Scheme which will assist in the promotional activities and renovation projects in the HBD town centres and neighbourhood centres. SPRING – a government agency (for enterprise development) with the help of the Federation of Merchants’ Association will support these centres and businesses.
President Tony Tan recently set out a list of priorities for Singapore in his address at the opening of the new Parliament. One of the main priorities for the country was the renewal of its economy. The announcements in the 2016 budget are designed to support this aim by transforming enterprises and industries through a variety of measures that the government has introduced.