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Singapore Budget 2016 Special: Policy changes affecting Singapore SMEs
We bring you the latest on how policy changes announced in the Singapore Budget 2016 will help SMEs deal with short and medium-term challenges, and transform in line with country’s changing economy.
Delivering his maiden Budget speech in Parliament on March 24, Finance Minister Heng Swee Keat spoke of how far Singapore has come in 50 years and the new challenges the nation faces ahead. Describing the Singapore Budget 2016 as the beginning of a journey towards SG100. Minister Heng urged enterprises and industries to come together as partners to transform the nation’s economy through innovation.
Here’s a look at how SMEs can participate in this journey. First off are a few short-term support measures to help businesses cope with the current slowdown in the economy:
Enhancing the Corporate Income Tax (CIT) Rebate
CIT tax rebate will be raised from 30 percent of tax payable to 50 percent of tax payable, with a cap of S$20,000 each year for the Years of Assessment 2016 and 2017. This will help companies, especially SMEs, address near-team concerns.
Extending the Special Employment Credit (SEC)
Taking into account the uncertain economic scenario, the SEC has been modified and extended so that employers can benefit from the SEC for three more years (until 2019) for workers aged 55 and above earning up to S$4,000 a month. This will cover about 340,000 workers or three in four older Singaporean workers. Employers will continue to enjoy up to 8 percent wage offset for Singaporean workers aged 65 and above, up to 5 percent for workers aged 60 to 64 and up to 3 percent for workers aged 55 to 59.
SME Working Capital Loan Scheme (NEW)
SMEs with cash flow concerns or who want to continue growing their business can avail of a new SME Working Capital Loan scheme, which will offer loans of up to S$300,000 per SME.
Under this three-year scheme, the government will co-share 50 percent of the default risk of such loans with participating financial institutions.
Foreign Worker Levy Changes
In view of challenging business conditions and the reduction in the number of work permit holders in the marine and process sectors, foreign worker levy increases in these sectors will be deferred for one year. Manufacturing work permit levies will remain unchanged for another year, as announced at Budget 2015. However, planned levy increases for services and construction work permit holders, as well as S Pass holders in all sectors, will proceed as planned.
The minister then spoke about the need for economic transformation to emerge stronger in the long term, announcing a new programme that will integrate the government’s various restructuring efforts, take a more targeted and sector-focused approach to meeting the needs of firms, deepen public-private partnerships and place a stronger emphasis on technology adoption and innovation.
Launch of the Industry Transformation Programme
Three thrusts have been identified:
- Transformation of enterprises: This will help firms build deep capabilities, deploy technology and develop scale and internationalise.
- Transformation of industries: This will see the government supporting industries to adopt technology and innovate faster, come up with common industry solutions, seek new markets overseas and deepen industry partnerships.
- Transformation through innovation: The goal is to make innovation pervasive throughout society.
To achieve the first, several measures have been introduced as part of the Singapore Budget 2016.
Business Grants Portal (NEW)
Businesses no longer need to be confused by the “alphabet soup” of government schemes and agencies with the enterprise-centric Business Grants Portal, which will be organised along core business needs of capability building, training and international expansion.
Due to be launched in the fourth quarter of this year, the portal will first include grants from International Enterprise (IE) Singapore, SPRING Singapore, Singapore Tourism Board and DesignSingapore Council, and progressively include grants from other government agencies. For added convenience, it will also pre-populate fields based on details that are available in the Accounting and Corporate Regulatory Authority (ACRA) database.
Automation Support Package (NEW)
Companies finding it hard to embark or scale up automation projects because of costs will receive help in four ways:
- A grant (capped at S$1 million) that covers up to 50 percent of project costs.
- A new 100 percent Investment Allowance for automation equipment for qualifying projects.
- Improved access to loans, with the government increasing its risk share with participating financial institutions from 50 percent to 70 percent for qualifying projects.
- Easier access to overseas markets due to help from IE Singapore and SPRING Singapore in relevant cases.
Financing and Tax Incentives to Support Scale-Ups and Internationalisation
- SMEs needing more capital can look to the SME Mezzanine Growth Fund, which will be expanded from S$100 million to $150 million. The government will match up to S$25 million of new private sector investment on a 1:1 basis.
- To support more mergers and acquisitions (M&As), M&A allowance will be granted on up to S$40 million of the value of the deal, instead of up to S$20 million currently. With the enhanced 25 percent rate announced in Budget 2015, companies now enjoy up to $10 million of M&A tax allowance per Year of Assessment.
- Offering upfront certainty to companies for corporate restructuring, there will also be an extension (until 31 May 2022) of the non-taxation of companies’ gains on disposal of their equity investments.
- The Double Tax Deduction for Internationalisation scheme will also be extended until 31 March 2020 to support firms’ internationalisation efforts. This covers qualifying expenses incurred for activities such as participation in overseas business development and investment study trips.
As for supporting industry-level transformation, these are among the measures that have been highlighted.
Developing a National Trade Platform (NEW)
This next-generation platform will be a one-stop trade information management system that enables electronic data to be shared among businesses and government, facilitating close partnerships. The National Trade Platform (NTP) has the potential to result in over S$600 million worth of man-hour savings each year for firms, especially those in the logistics and trade finance sectors.
NTP will also be developed as an open innovation platform, so that other service providers can develop value-added services and apps in areas such as operations, visibility and trade finance. It will eventually replace the TradeNet and TradeXchange systems.
Adopting New Technologies
Announced last year, the National Robotics Programme will receive a S$450 million boost over the next three years. The government will also work with solution providers to offer packaged solutions to SMEs at reasonable costs.
Lastly, in order for innovation to play a key role in Singapore’s transformation, several steps have been outlined.
Setting up of SG-Innovate (NEW)
The new entity will match budding entrepreneurs with mentors, introduce them to venture capital firms, help them to access talent in research institutes and open up new markets.
Encouraging companies to acquire Intellectual Property
Businesses will now have the flexibility to write down the cost of acquiring intellectual property over different periods of five, 10 or 15 years, instead of the current five only.
Creating the Jurong Innovation District (NEW)
The industrial park of the future will be the centre of innovation for enterprise, learning and living. The first phase is targeted for completion around 2022. 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.
With these initiatives, however, broad-based measures such as the Productivity and Innovation Credit (PIC) scheme will see a reduction in support. SMEs should note that the PIC cash payout rate will be lowered from 60 percent to 40 percent for expenditures incurred on or after 1 August 2016. The 400 percent tax deductions under the scheme remain unchanged.
Analysts feel the Singapore budget 2016 has provided well-targeted support to help businesses deal with the current and future economic scenarios by:
- Offering relief in the short term through measures such as enhancing the Corporate Income Tax Rebate.
- Supporting transformation through the Industry Transformation Programme.
- Focusing strongly on innovation with initiatives like SG-Innovate and Jurong Innovation District.
For the full speech by Minister Heng, click here.
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