Singapore Budget: What Entrepreneurs Should Know
Singapore is known globally for its business competitiveness. Like any global leader in the field, however, the city-state is not immune to economic slowdowns and innovations. What gives the Republic its edge, however, is its focus and determination to keep up with global trends.
Last March 2016, Finance Minister Heng Swee Keat delivered his maiden Budget speech on Parliament. His declaration holds promise for investors who are considering starting a business in Singapore.
A helping hand for SMEs: Enhanced Corporate Tax Rebate
Small and medium-sized enterprises can expect more support from the Government amidst the increasingly competitive business environment and tight labor constraints. Efforts include increasing corporate income tax rebate from 30% to 50% of tax payable, which will be capped at $20,000 each year for the 2016 to 2017 Year of Assessment. The corporate tax rebate provided to SMEs will be provided an additional $180M over the next two years, amounting to a total of $1B during that timeframe.
Mandatory e-filing will also be introduced for businesses in line with the government’s effort to improve the delivery of public services. Companies are now required to file their annual corporate income tax return through the Inland Revenue Authority of Singapore (IRAS) e-services platform.
This effort is in line with Singapore’s SMART Nation initiative. The vision aims to use technology to improve productivity by simplifying processes which includes preparation of corporate income tax returns and finalisation of tax assessments.
Better Working Capital Loans for SMEs
Local SMEs will be provided with better access to financing starting 1 June 2016 via the Working Capital Loan offered by SPRING Singapore. The programme introduced in the 2016 Budget to encourage business growth and restructuring activities, will help SMEs with cash flow concerns and growth financing needs.
Unsecured working capital loans will be offered by 12 participating financial institutions (PFIs) while SPRING Singapore will co-share 50% of loan default risks. SMEs that need larger working capitals can apply for unsecured term loans of up to S$300,000.
Improvements to the Foreign Worker Levy Hike
In line with the Budget plan’s aims, foreign levy workers can also heave a breath of relief with the levy increases deferred for one year in the marine and process sectors. This comes as a response to the challenging business conditions and the reduction of Work Permit holders in these sectors. The same goes for the manufacturing industry.
The government, however, will still increase for the services and construction sectors as originally announced in the 2015 Budget.
Levy rates for the R2 workers of the services sector will be increased from $300 to $450 for the basic tier, $400 to $600 for Tier 2 workers, and $600 to $800 for Tier 3. Levy rates for S Pass holders will also be increased starting July 1 with the Basic Tier raised from $315 to $330 and $550 to $650 for Tier 2.
Productivity and Innovation Credit: The Changes
The Singapore government will lower the payouts for the Productivity and Innovation Credit (PIC) scheme from the current 60 percent to 40 percent. The scheme, which will be extended until the 2018 Year of Assessment will offer companies better breaks for taxes and cash payouts. This change aims to help businesses better invest on activities and technologies that can better improve their productivity.
Finance Minister Heng promised that the Republic’s agencies will work closely more than ever to integrate their support schemes to create a better and more focused approach in developing each industry.
Growing the Singapore brand: Tax Deductions for the Internationalisation Scheme
Singapore’s economy has been experiencing fierce pressure and competition from the global market. The global economy is now more interconnected with each other and the city-state’s response to this is to muster all its resources to focus on innovation and internationalisation.
As such, the 2016 Budget focuses on establishing a far-reaching plan to transform and help smaller firms at an estimated at budget of $4.5B. The Industry Transformation Programme will focus in transforming enterprises and industries by integrating different restructuring efforts, improving government and industry partnerships, and focusing more on technology and innovation while placing measures that are more focused in strengthening sectors.
For companies, the government will lend a helping hand to help them deploy more technologies and give them better capabilities to scale and internationalise. A good example of such effort is the Automation Support Package which targets to provide smaller firms the financing they need to scale their processes. The ASP will cover up to 50 percent for project costs, capped at $1 M.
Larger firms, on the other hand, can expect better support when it comes to growing their business more by having the Singapore government match up to $25 M of new private sector investment. The mergers and acquisitions allowance will be increased to twice the current cap of $20 M to $40 M. This scheme for internationalisation will be extended until March 2020.
Moreover, the SME Mezzanine Growth Fund will also be increased from the current fund size of $100 M to $150 M. This will be deployed by providing additional funding of up to $25 M to match new private sector investments on a 1:1 basis.
Business grants and development portals improved
To help bolster these changes, a new Business Grants Portal will be deployed to give companies better access to grants provided by different agencies. These grants will all be placed under one portal but strategically categorized to different needs such as international expansion, training, and capability building.
The Singapore government will also focus in developing solutions for industry-wide business challenges through SPRING’s collaboration with TACs. This project aims to drive 30 projects over then next three years to reach out to more than 3,000 SMEs.
Transformation through innovation
The use of innovation is another important leg to Singapore’s Budget for 2016. This year, the Republic aims to deepen its innovation capabilities by committing $4 B to industry-research collaboration and to deepen the capabilities of industries through research and development.
The Government will offer a top-up of $1.5 B to support the Research, Innovation, and Enterprise initiatives for 2020 through the National Research Fund. Moreover, the Singapore government will also provide more flexibility to businesses to write down IP acquisition costs for periods of 10 and 15 years in addition to the original 5 years.
A new entity called the SG-Innovate will be created to support start-ups in both new and existing industries. The new platform will help starting entrepreneurs by providing them mentors, connecting them with venture capital firms, giving them access to talents in research institutes, and opening up new markets. Lastly, the government will also launch the Jurong Innovation District with the aim of creating an innovative urban environment. The district is planned to be a melting pot of research, innovation, learning, and production of products and services following future trends.
Despite of the dynamic market trends and challenges that Singapore might experience, there is no doubt that the Republic remains its foothold as one of the best business locations in Asia. This can be attributed to the unrivalled focus and determination of the government to help business development and innovation in their shores.
Entrepreneurs can give themselves business leverage by streamlining their business processes. Additional help from corporate services providers can give them a leverage by giving dedicated attention to management processes. As a result, investors can focus on further developing their business models against a backdrop of an increasingly competitive global market.