Techblog
SME Reactions to Budget 2018
The 2018 budget is a roadmap for Singapore's growth over the next decade. It focuses on helping SMEs expand, innovate and transform. But it features several prudent measures that might raise business costs.
This year's budget, which was delivered by Finance Minister Heng Swee Keat on February 19, has its sights set on long-term growth.
With the rise of Asia, Mr Heng urges Singapore businesses to distinguish themselves in order to flourish. On its end, the government will up investments in education, infrastructure and innovation, among others.
Some prudent measures, such as the impending rise of the Goods and Services Tax (GST) from 7% to 9%, were the talk of the town. But local SME owners are largely unfazed.
“The GST hike will increase costs, but I think it will only affect small businesses who are competing on tight margins without any product or service differentiation,” said Jeremy Ko, co-founder of Javy Group.
“For most businesses, their margins should be able to cover the increase. Or they can increase their prices and blame it on the policy. It’s a free market,” he quipped. “Life goes on. If there’s a business opportunity, seize it. You can worry about the taxes later.”
Founded in 2013, Javy Group is the holding company of two brands: Movement First and Javy Sports and First Aid. The first targets adults looking to get fit, while the other caters to school-going children.
Brad Robinson, co-founder and chief executive officer of Ritual Gym, called the GST hike “an apples to apples issue for us and everyone else”.
“It’s been messaged well and communicated early so I don’t anticipate it impacting consumer behaviour all that much. Most of the schemes announced are a positive,” he added.
SMEs were more concerned about measures that had an immediate impact on their daily operational challenges or expansion plans.
Hiring and retaining staff
The Wage Credit Scheme, which co-funds wage increases for Singaporean employees (up to a gross monthly wage of $4,000), has been extended for three years under Budget 2018.
Ritual Gym has tapped on this scheme to grow. The gym, which opened its doors in Raffles Place in 2013, started with five employees. It now has around 60, spread across three outlets.
“Singapore has been an incredible place for us. The wage credit scheme is great for start-ups, and I'm happy to see that move in a positive direction,” Mr Robinson said.
“We have very little turnover – and this is in an industry where staff retention is the single biggest headache. We have a team of rock stars and I think that's because our first policy when it comes to hiring is: 'It's either a hell yes, or a hell no. There is no middle ground'.”
Even so, Mr Robinson expressed concern over the tightening of the foreign worker quota, or an increase in their levies in the future.
Premarajan Ponnambath, managing director of Pixel Automation, had a similar take. The company designs and builds automation solutions for various industries. More than 50% of its employees are foreigners.
“Traditionally, Singaporeans are not willing to work in this kind of industry. This is a fact. We have been depending on foreign talent to supplement this gap, especially in the area of machine design and programming,” Mr Ponnambath said.
“Maybe there are other sectors that are depriving Singaporeans of opportunities. But there are specific industries, like us, which are really having a problem (with hiring locals).”
For now, businesses in the Marine Shipyard and Process sectors still facing weak growth will not have to pay the Foreign Worker Levy rates for another year.
Developing new products
Budget 2018 announced that the Corporate Income Tax rebate will be doubled to 40% of tax payable, with a cap of $15,000.
Mr Ponnambath welcomed the enhanced rebate and said that the money could go a long way.
“This is definitely something good for us. As you see, more companies want to embark on automation in the move towards Industry 4.0. So the money that we save through the rebate can be channelled towards the development (of new products) for the market.”
Local footprint
Also announced were adjustments to the Start-up and Partial Tax Exemption schemes. Besides a tightened limit, start-ups will receive a 75% exemption from corporate tax, instead of the current 100%, for the first $100,000 of chargeable income.
Mr Ko, who is looking to open other businesses, was disappointed by the move. “Tech start-ups would find it hard to turn in a profit in their first 5 years, hence it won't affect them. However, for bread and butter start-ups tackling inefficiencies in old industries, it is not uncommon to turn in a profit within the first 3 years,” he said.
“Profits are channeled back into the business for expansion purposes, but may have to be amortised over a few years as expenses. I feel that this slight increase in tax revenue does not justify creating the confusing perception of the government’s support of entrepreneurs.”
Overseas exposure
Initiatives like the improved Double Tax Deduction for Internationalisation encourages companies of all sizes to venture overseas.
Javy Group is exploring all the possible options. “As a forward looking business, we are constantly exploring trends in overseas markets to bring back locally, possible overseas expansion, or even vertical integration with factories. When the opportunity arrives, we will be tapping into these grants,” Mr Ko said.
In addition, SPRING Singapore and IE Singapore will merge in April to form Enterprise Singapore. This could also result in more synergy in grants that support companies' capability development and expansion into international markets, according to Mr Ponnambath.
“Our engagement with IE has been very meaningful. IE has given us many opportunities to expand our network. I'm interested to see what the new Enterprise Singapore would do to promote local businesses, and encourage more SMEs to enter the international market,” he added.
Although the budget had a strong focus on innovation, there is still some way to go before Singaporeans can put theory into practice.
“Innovation is a big word. But it doesn't come from school; it is a mindset. To support this, future budgets need to have focused spending that is driven by innovation,” Mr Ponnambath concluded.
Summary
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SME owners appear largely unfazed by the rise in GST
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Some industries have expressed concern over the tightening of the foreign worker quota
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Doubling of the Corporate Income Tax rebate will help SMEs develop new products
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The decrease in Start-up and Partial Tax Exemption schemes will mean some start-ups cannot channel profits back into the business
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The improved Double Tax Deduction for Internationalisation will encourage SMEs to look at overseas expansion
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There is interest to see how the merging of SPRING Singapore and IE Singapore will help local business grow