It's all about productivity and inclusiveness.
Ernst & Young has just released its wish list for Singapore Budget 2013. Adrian Ball, Head of Tax, Ernst & Young Solutions LLP said "Budget 2013 is about weaving a cohesive growth story, at the same time knitting a tighter fabric of society. This budget will need to keep the Singapore economy on an even keel. Productivity and inclusiveness will be major themes for socio-economic growth.”
Liberalise the Productivity and Innovation Credit: The Productivity and Innovation Credit (PIC) can be further liberalised to enable a broader swathe of companies to maximise its benefits.
Further, R&D is a crucial step in bringing new products and services to the market. Therefore, the scope of eligible spending for qualifying R&D activity should be broadened.
Widen tax relief for intellectual property: Currently, writing-down allowance is available for the acquisition of intellectual property such as patents, copyrights, trademarks and registered designs for use in the business. This can be extended to internally-generated IP.
Companies may own or control customer-related intangibles or trade secrets such as customer-supplier relationships, contracts, customer lists and distribution networks, which creates value for businesses.
Although the defined list of IP for the purpose of WDA includes “information that has commercial value”, there could be more clarity on its interpretation.
Help businesses with costs
Enhance the M&A allowance: The M&A allowance helps Singapore companies to defray a portion of the costs of acquiring shares in another company. It also allows a double tax deduction for transaction costs such as legal fees, accounting or tax advisor fees, and valuation fees incurred for the share acquisition,subject to an expenditure cap.
A company which borrows to fund share acquisition currently cannot get a tax deduction for the interest costs incurred, unless they undergo restructuring to “push down” the debt.
Exempt foreign-sourced income from tax permanently: Singapore’s current foreign-sourced income tax exemption regime deters companies from bringing back foreign income to meet working capital needs.
It puts Singapore a step behind Malaysia and Hong Kong, both of which already grant full tax exemption on foreign-sourced income.
Increase the SME cash grant: For the 2012 tax year, the SME cash grant was pegged at 5% of a company’s revenue, but capped at S$5,000. As SMEs form the backbone of our economy, the government can extend the SME cash grant to cushion SMEs from rising business costs.
Enhance Singapore’s tax framework
Promote greater tax certainty: Budget 2012 introduced a new measure, whereby gains from the disposal of shares in certain circumstances are not subject to tax. This was welcomed as it provided tax certainty on the tax treatment of such gains. This measure can be further enhanced.
Refresh the Development and Expansion Incentive: The current Development and Expansion Incentive (DEI) enables companies to enjoy a concessionary tax rate on qualifying profits above a pre-determined base for a set period.
This is conditional upon meeting agreed milestones. The DEI can be refreshed to maintain its attractiveness to companies.
Keep tax rates competitive
Lower withholding tax rate, maintain corporate tax rate: The current 15% withholding tax rate for interest payments made to non-residents took effect in 1996 when the corporate tax rate was 26%. It has not been changed since.
Extend personal tax relief and rebate: Resident individuals who receive income from their employment, business, profession or vocation are eligible to claim an earned income relief.
While the earned income relief for handicapped individuals and individuals aged 55 has been reviewed and increased, the same relief for individuals aged below 55 has remained at S$1,000.
Singapore’s personal income tax rates are already low by international standards and should be maintained. However, a personal income tax rebate will provide some relief against rising costs of living.
Resident employees are eligible to claim relief for their compulsory contributions to Central Provident Fund (CPF). If they are also self employed, they are able to claim relief for their voluntary contributions made to the CPF, subject to a cap.
Non-executive directors' contributions to the CPF are not mandatory under the CPF Act. However, if they were to make voluntary contributions to the CPF in respect of their director's fees, they are not eligible to claim a relief for these contributions.
Create an inclusive society
Encourage employment of older and disabled workers: The Special Employment Credit (SEC) is a wage subsidy that encourages employers to hire older workers and graduates from special schools for the disabled.
However, it is taxable in the hands of the employer, because it is given to defray employers’ operating costs and hence is a revenue receipt.
Enhance reliefs for medical care-related costs: Currently, individuals cannot get a tax relief for premiums paid for medical-related or health insurance policies. To deal with an ageing population, full tax deduction can be granted for these premiums.
Most companies offer medical benefits as part of a remuneration package to attract and retain talent. However, they can claim a tax deduction for their employees’ medical expenses of only up to 1% of the employees’ total remuneration for the year.
This cap is 2% if the company has implemented certain defined schemes. The 1% cap was first introduced in 2004, and it is timely to review this in the wake of escalating medical costs.
More From Singapore Business Review