Finance Minister Heng Swee Keat delivered his first Budget speech in the Parliament on March 24, 2016, with focus on transforming enterprises and industries through innovation. It provides support to industries for creating value and drive growth for the next phase of the country’s development. Measures aimed at encouraging innovation such as the launch of Jurong Innovation District and the setting up of the new “SG-Innovate” entity; as well as helping Singaporeans adapt and develop new skills through “Adapt and Grow Initiative” and “TechSkills Accelerator”; also come at the right time – cementing Singapore’s reputation as the best place for company incorporation in the Asia-Pacific.
For those with families who are considering relocating to Singapore, new initiatives for enhanced support and opportunities such as the CDA First Step grant, the KidSTART initiative and the Fresh Start Housing Scheme, would provide added charm.
Below are the salient points of Singapore Budget 2016:
Transforming the economy through enterprise and innovation
Three key thrusts in the Budget to address the challenges in Singapore’s economy are:
a) First, to address cyclical weaknesses, Singapore will adopt an expansionary fiscal stance to provide some counter, which will amount to a positive fiscal impulse of slightly over 1% of GDP. This, together with relief measures targeted at SMEs, will provide support in the near term.
b) Second, the Government will target resources towards enabling firms to build deeper capabilities, develop their people, scale up and internationalise. Thus to strengthen enterprises drive growth through innovation and enable Singapore-based firms to emerge stronger to benefit from the broader global recovery when it takes place, a Industry Transformation Programme will be launched.
c) Thirdly, the Government will support Singaporeans through change, by enabling them to learn new skills, especially in new, fast growing sectors, and in facilitating employment and job-matching.
For long-term and medium-term issues, the Government has convened the Committee on the Future Economy (or CFE). “Though the CFE has just begun work, the inputs have been valuable for the measures in this Budget, and as the deliberations continue, we will update our plans,” noted the Finance Minster.
For near-term concerns, the measures in the Budget include:
Continued Support from Transition Support Package and Public Infrastructure Projects
In the past five years, Singapore has focused its efforts on economic restructuring by raising productivity to achieve quality growth. So, inflow of foreign workers was tightened (from nearly 80,000 in 2011 to less than 23,000 in 2015), significant investment was made in broad-based measures such as the Productivity and Innovation Credit (or PIC), as well as the Transition Support Package was introduced to help firms adjust to economic restructuring and rising business costs.
And results have been encouraging. An annual SME survey by the Singapore Chinese Chamber of Commerce and Industry has shown that around 9 in 10 of the country’s SMEs embarked on productivity initiatives in 2015.
Though productivity growth has not been very encouraging. “While productivity has grown by an average of 2.7% per year over 2009 to 20158, most of this increase was due to the cyclical rebound in 2010 and 2011. Productivity growth has remained relatively flat over the past three years. We must keep working on this,” said the FM.
Thus, to support firms in raising productivity, the Transition Support Package introduced in 2013, will be continued. “In particular, this month, firms will receive a total of $1.9 billion for qualifying wage increases given under the Wage Credit Scheme, the largest payout to date,” informed the Minister.
More public spending in infrastructure projects mainly in healthcare, education, security and urban development, which is expected to be $5.0 billion (7.3%) higher than in 2015, will also help. In addition, public sector demand for construction projects is expected to increase significantly in 2016, including more than $2.5 billion of public sector contracts for smaller projects, which will benefit smaller construction firms.
Moreover, in line with the Government’s emphasis on more targeted measures, the cash payout rate under PIC will be lowered from the current 60% to 40% for expenditures incurred on or after August 1, 2016. The 400% tax deductions under the scheme remain unchanged. The PIC scheme which has been extended for YA 2016 to YA 2018 will expire thereafter.
The Government will also extend and strengthen tax incentives to encourage higher industrial land productivity, and to enhance activities in the areas of finance and treasury, global trading and maritime activities.
Enhancing Corporate Income Tax Rebate
Especially to help SMEs, the existing Corporate Income Tax (CIT) Rebate will be raised from 30% of tax payable to 50% of tax payable, with a cap of $20,000 rebate each year for YAs 2016 and 2017. “The increased support is expected to cost an additional $180 million over two years, bringing the total support given to companies under the CIT rebate to close to a billion dollars over two years,” added Heng.
Extending Special Employment Credit
The Special Employment Credit (or SEC) will be modified and extended for another three years to the end of 2019, to provide employers with a wage offset for workers aged and above earning up to $4,000 a month. It will cover about 340,000 workers, or about three in four older Singaporean workers and the Government will top up the SEC fund by $1.1 billion.
Employers with Singaporean workers aged 65 and above will continue to receive a wage offset of up to 8%. This is in addition to the wage offset of 3% for the re-employment of workers aged 65 and above till the re-employment age is raised in 2017. The SEC will be up to 5% for workers aged 60 to 64 and up to 3% for those aged 55 to 59.
SME Loan Assistance
An SME Working Capital Loan scheme, for loans of up to $300,000 per SME will be introduced for three years. Under this scheme, the government will co-share 50% of the default risk of such loans with participating financial institutions, to encourage lending to our SMEs. This could catalyse more than $2 billion of loans over the three-year period.
Enhancement to Revitalisation of Shops Scheme
With an estimated annual cost of $15 million, MND will enhance the Revitalisation of Shops package, to better support promotional activities and upgrading projects in HDB town centres and neighbourhood centres. SPRING Singapore will also work with the Federation of Merchants’ Associations and local merchant associations to strengthen their capabilities to support heartland businesses.
Foreign Worker Levy Changes
Though levy increases for Services and Construction Work Permit holders, as well as S Pass holders in every sector, as announced in Budget 2015, will proceed; in view of challenging business conditions in the Marine and Process sectors and the reduction in the number of Work Permit holders in these sectors, the Government will defer levy increases for Work Permit holders in these sectors for one year.
Industry Transformation Programme (ITP)
Building on Singapore’s effort under the Quality Growth Programme, which was introduced in Budget 2013 to achieve inclusive growth driven by innovation and higher productivity, a new Industry Transformation Programme will be launched. It is aimed at helping Singapore-incorporated companies in four ways:
- by integrating all restructuring efforts
- by targeted and sector-focused approach to better meet the needs of firms in each sector
- by deepening partnerships between government and the industry, and among industry players
- by stronger emphasis on technology adoption and innovation
A total of $4.5 billion under the Industry Transformation Programme will be set aside, to support enterprises and industries, on top of the amounts for R&D and National Productivity Fund. This includes the next tranche of increased funding to SPRING, IE Singapore and EDB to support economic development, as well as new resources for measures announced in this Budget. These resources will support the sectors under the Industry Transformation Programme, as well as to cater for the growth of new industries over the next five years.
Thus, the specific measures under the ITP will include:
Business Grants Portal
To be more enterprise-centric, and be organised along core business needs of capability building, training and international expansion, the Business Grants Portal will be launched in the fourth quarter of this year. The portal will also pre-populate details that are available in the ACRA database and will start with grants from IE Singapore, SPRING, STB and Design Singapore.
Automation Support Package
A new Automation Support Package will be offered for an initial period of three years to support companies to automate, drive productivity and scale up. The Package will provide support of over $400 million over the next 3 years.
It will provide a grant to support the roll-out or scaling up of automation projects and the Government will fund these projects at up to 50% of project cost, with a maximum grant of $1 million. For qualifying projects, there will be a new 100% Investment Allowance for automation equipment. For improving SMEs’ access to loans for qualifying projects, the Government will enhance its risk-share with participating financial institutions from 50% to 70%for such projects.
Financing and Tax Incentives to Support Scale-Ups
The SME Mezzanine Growth Fund will be expanded from the current fund size of $100 million to a total fund size of up to $150 million. To support more mergers and acquisitions (M&As), the M&A allowance will be granted on up to $40 million of the value of the deal, instead of the current cap of $20 million. To provide upfront certainty to companies for their corporate restructuring, the non-taxation of companies’ gains on disposal of their equity investments, based on existing scheme parameters, will be extended until May 31, 2022.
Support for Internationalisation
The Double Tax Deduction for Internationalisation scheme covering qualifying expenses incurred for activities such as participation in overseas business development and investment study trips, will be extended till March 31, 2020.
National Trade Platform
A National Trade Platform will be developed as the next-generation platform to support firms, particularly in the logistics and trade finance sectors. This will eventually replace the existing TradeNet and TradeXchange systems.
Leveraging New Technologies
Over $450 million will be made available to support the National Robotics Programme over the next three years.
Increasing Outreach through TACs
The existing Local Enterprise and Association Development (LEAD) programme would be strengthened (by injecting up to $30 million over the next five years) to help the Trade Associations and Chambers (or TACs) build on their outreach through the new LEAD-Plus programme. This will provide wider funding support for TACs to attract talent, develop their capabilities, and strengthen their processes and services. SPRING will partner TACs to drive 30 such projects over the next three years, to reach out to more than 3,000 SMEs.
Deepening Innovation Capabilities
Of the commitment announced for the Research, Innovation and Enterprise (RIE) 2020 Plan, up to $4 billion will be directed to industry-research collaboration, and the Government will provide a top-up of $1.5 billion to the National Research Fund this year.
Additionally, to encourage companies to acquire IP, the Government will now allow businesses the flexibility to write down the cost of acquiring IP over different periods of 5, 10 or 15 years, instead of the current 5 years only.
Strengthening Innovation and Enterprise Networks
A new entity “SG-Innovate” will be set-up to match budding entrepreneurs with mentors, introduce them to venture capital firms, help them to access talent in research institutes, and open up new markets.
Jurong Innovation District
A new development project, the Jurong Innovation District, will be launched as the future of innovation for enterprise, learning and living. “JTC is currently constructing Launchpad@JID, to serve as a space for entrepreneurs, researchers and students to design, prototype, and test-bed their new innovations. JTC has also launched an Open Innovation Call to invite private sector technology owners to test-bed and develop innovative and sustainable infrastructure solutions within the District. In parallel, we will be building Jurong Innovation District progressively, with the first phase targeted for completion around 2022,” informed the Minister.
Supporting Singaporeans through change
Investing in SkillsFuture
It’s the long-term plan of the Singapore Government launched in 2014, under which Earn and Learn programmes have been initiated in 12 sectors. This has enabled Singaporeans to identify and pursue their interests at every stage of life, and to broaden and deepen their skills with better education and training. The total spending on SkillsFuture and related initiatives will average over $1 billion per year till 2020.
Helping People Adjust
For providing support in Singapore’s ongoing economic restructuring, the Ministry of Manpower will enhance employment support through the “Adapt and Grow” initiative. For mid-career jobseekers including retrenched professionals, new professional conversion programmes will be launched in sectors such as Design, and ICT. The Government expects to double the current outreach for PMETs from 2,000 to over 4,000. Also, the MOM will commit an additional $35 million a year from the Lifelong Learning Endowment Fund and Skills Development Fund to support these initiatives.
Enable People Seize New Opportunities
A TechSkills Accelerator – as the new skills development and job placement hub for the ICT sector – will be initiated. The IDA will partner with major IT employers and associations including SiTF, SCS and ITMA in this effort.
Building a more caring society
Finally, the Finance Minister, enumerated measures aimed at building a more caring and resilient society. “We want a Singapore which is a great place to raise a family, and where we bring out the best in every Singaporean; a society that takes care of those who have special needs, who are less well-off or who have fallen on hard times; a society where our seniors age with energy and dignity,” he said.
Few announcements which will help Singapore achieve that included:
Child Development Account First Step Grant
A new Child Development Account (CDA) First Step grant for all Singaporean children will be set up. Parents will automatically receive $3,000 in their child’s CDA, which they can use for their children’s healthcare and childcare needs. The scheme started on March 24, 2016.
A new initiative called KidsSTART will be piloted for children in their first six years. About 1,000 children are expected to benefit. This pilot is expected to cost more than $20 million.
Fresh Start Housing Scheme
The Fresh Start Housing Scheme, mentioned by the PM in last year’s National Day Rally, will provide a grant of up to $35,000 to help such families with young children to own a 2-room flat, with a shorter lease.
National Outdoor Adventure Education Masterplan
A new National Outdoor Adventure Education Masterplan will be initiated to help Singaporean children develop a sense of adventure, resilience, and be ready to challenge themselves to be their best. A new Outward Bound Singapore (OBS) campus on Coney Island is expected to be ready around 2020, and will cost about $250 million.
Enhancements to Workfare
The Workfare Income Supplement (WIS) scheme will be improved for work done from January 2017. “First, we will raise the qualifying income ceiling from the current average wage of $1,900 a month, to $2,000 a month. Then, we will increase the WIS payouts,” said the Minister.
This means that WIS will continue to help the bottom 30% of workers. In total, WIS is expected to benefit about 460,000 Singaporeans, with a total budget will be about $770 million a year.
Supporting Persons with Disabilities at Work
Employers who hire persons with disabilities who earn up to $4,000 a month will continue to receive the SEC. They get a credit of up to 16% of the employee’s wages, twice as large as the SEC for older workers.
Increase in Public Assistance and Singapore Allowance
To help government pensioners, the Singapore Allowance and monthly pension ceiling will be increased by $20 per month each – to $300 and $1,230 respectively. This will benefit about 10,000 pensioners.
One-off GST Voucher – Cash Special Payment
To support households amid current economic conditions, one-off GST Voucher – Cash Special Payment of up to $200 for eligible GST Voucher – Cash recipients, will be provided.
Service & Conservancy Charges Rebate
The Government will also provide one to three months of Service & Conservancy Charges (S&CC) rebate. 1- and 2-room HDB households will receive a total of three months of rebates for this year, while 3- and 4-room households will receive two months of rebates.
Personal Income Tax Relief Cap
Notably, the Minister also introduced a cap on the total amount of personal income tax relief an individual can claim, at $80,000 per Year of Assessment. “At this threshold, 99% of tax-resident individuals will not be affected. This cap will make our personal income tax system more progressive. Nevertheless, our personal income tax burden remains low,” he added.
Business and IPC Partnership Scheme
A new pilot – to be known as the Business and IPC Partnership Scheme – will be introduced. Under this, from 1 July 2016 to end-2018, business that help employees volunteer will receive 250% tax deduction. This deduction will be subject to a yearly cap of $250,000 per business and $50,000 per IPC.
Our Singapore Fund
A new fund to be called “Our Singapore Fund” will be set up by the second half of 2016 with the total fund size of up to $25 million. The Fund will support projects that build the spirit of caring and resilience, nurture our can-do spirit, and promote unity and our sense of being Singaporean.
Have questions or clarifications about the recent Singapore Budget 2016 announcement?
We can help you. Our tax specialists possess extensive advisory and compliance experience and can help you with your taxation and accounting needs. Call us at +65 6320 1877 or contact us for a free consultation. Start Now