EY’s reactions to Singapore Budget 2014

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Singapore, 21 February 2014 – EY today released its reactions to the Singapore Budget 2014 announcement.

Overall

Mr. Adrian Ball, Managing Partner, Tax – Asean, Ernst & Young Solutions LLP, says: “The government is trying to accelerate the pace of economic transformation and think that more of the current prescription around productivity will do the job.”

Mrs. Chung-Sim Siew Moon, Head of Tax Services, Ernst & Young Solutions LLP says: “Budget 2014 is about keeping the momentum of change that Singapore has embarked upon for its social and economic transformation. It is about building a better Singapore for all: the pioneer generation, handicapped, elderly, lower and middle income groups are all winners. It is about building a better and more sustainable future for our people and our businesses where no individual and business is left behind. It is also about supporting and rewarding businesses who dare to innovate and lead the change.”

Mrs. Chung-Sim Siew Moon, Head of Tax Services, Ernst & Young Solutions LLP says: “From a longer-term perspective, bold and decisive changes to reduce the complexity of Singapore’s tax framework will enhance the ease of doing business in Singapore. Tax liabilities should be clear and certain and the tax incentives regime simplified. This will reduce the compliance burden and enable businesses to plan their investment strategies for the long term.”

Ms. Tan Lee Khoon, Partner, Tax Services, Ernst & Young Solutions LLP says: “Budget 2014 is about transforming our economy to sustain employment and income, changing our social norms and mindsets, recognising the pioneer generation, taking care of the lower and middle income groups in education and healthcare, and supporting innovation. SMEs are also not forgotten.”

Ms. Tan Bin Eng, Partner, Business Incentives Advisory, Ernst & Young Solutions LLP says: “Economic restructuring is a long process and productivity may seem a never-ending journey. And businesses know that they have to swallow a bitter pill now in order to reap the fruits in the future.”

Ms. Amy Ang, Partner, Financial Services Tax, Ernst & Young Solutions LLP says: “The government is taking steps to strike a balance between pushing for economic growth while maintaining social equality and stability. This is an important recognition by the Government as otherwise, sustained growth is not possible.”

Ms. Amy Ang, Partner, Financial Services Tax, Ernst & Young Solutions LLP says: “Now that the blueprint is announced, it is time for SMEs and growth enterprises to take advantage of the intended benefits. The effectiveness of the various schemes will depend on ensuring awareness of the targeted companies of the many schemes and assistance plans.”

Ms. Amy Ang, Partner, Financial Services Tax, Ernst & Young Solutions LLP says: “Enterprises have to shift away from labour dependency, and start investing in technologies and tools to enable more productive and value-added growth.”

Ms. Amy Ang, Partner, Financial Services Tax, Ernst & Young Solutions LLP says: “A big ang-pow from the Government to our pioneer generation, senior citizens and future leaders.”

Mr. Russell Aubrey, Partner, International and Transaction Tax, Ernst & Young Solutions LLP: “Balancing the budget is a tricky act. The government needs to walk a fine line between addressing social needs such as looking after Singapore’s greying population, while ensuring that we have enough in our coffers so that we will not have a debt-laden future generation.”

Productivity and Innovation Credit (PIC)

Ms. Tan Bin Eng, Partner, Business Incentives Advisory, Ernst & Young Solutions LLP says: “Extending the PIC scheme for a further three years will provide companies with the much-needed time and certainty to execute projects. As we begin to see fruits of our productivity drive, we need a longer runway to further shift mindsets and push implementation, notwithstanding that the challenges of lack of know-how and resources remain to be tackled.”

Ms. Tan Bin Eng, Partner, Business Incentives Advisory, Ernst & Young Solutions LLP says: “Enhancing the PIC cap from S$400,000 to S$600,000 per year will benefit SMEs that are making significant investments to ensure that they continue to progress in their productivity initiatives.”

Ms. Tan Bin Eng, Partner, Business Incentives Advisory, Ernst & Young Solutions LLP says: "The extension of the PIC by another three years is much welcomed but small companies may be disappointed that there are no changes made to the level of cash payouts available."

Ms. Ang Lea Lea, Partner, Tax Services, Ernst & Young Solutions LLP says: “The extension of PIC recognises that the productivity drive needs a longer runway to entrench the habit and mindset to constantly innovate and elevate productivity.”

Mr. Russell Aubrey, Partner, International and Transaction Tax, Ernst & Young Solutions LLP: “Extending the PIC scheme for another three years is very welcomed.” 

Promoting R&D

Ms. Ang Lea Lea, Partner, Tax Services, Ernst & Young Solutions LLP says: “R&D is critical to innovation, and innovation is critical to success in the face of global competition. A single 10-year extension of the enhanced deduction for R&D expenditure sends a clear signal that the Government will help those who are willing to invest in innovation to succeed.”

Ms. Tan Bin Eng, Partner, Business Incentives Advisory, Ernst & Young Solutions LLP says: "Extension to the additional tax deduction for private sector R&D by another 10 years will be a welcomed move by companies. A sufficiently long incentive will give companies certainty and a longer runway to plan their R&D activities, which in many industries can take many years before returns are reaped."

Catalysing SMEs

Mrs. Chung-Sim Siew Moon, Head of Tax Services, Ernst & Young Solutions LLP says: “The SMEs are one of the biggest winners in this Budget. The suite of measures that are targeted just at SMEs reaffirms that Singapore's future lie in their hands and that fiscal help is available if they too show personal responsibility and commitment to drive quality growth for themselves.”

Intellectual property

Ms. Ang Lea Lea, Partner, Tax Services, Ernst & Young Solutions LLP says: “Whilst having a negative list will provide clarity of what is excluded from the writing down allowance for IP, we hope that consultation and feedback from the industry is sought so that it does not stifle Singapore's aim to be an IP hub.”

Withholding tax

Mrs. Chung-Sim Siew Moon, Head of Tax Services, Ernst & Young Solutions LLP says: "Waiving the withholding tax requirement for payments made to branches in Singapore is a dream come true for branches as it will reduce the hassle of applying for exemption from withholding tax every time a contract is acquired by a branch in cases where blanket waiver is not obtained from IRAS."

Ms. Amy Ang, Partner, Financial Services Tax, Ernst & Young Solutions LLP says: “With effect from 17 February 2012, banks, finance companies and certain approved entities are exempt from withholding tax on interest and related payments to non-residents (including permanent establishments in Singapore). The extension of this exemption to all Singapore payors will significantly remove the compliance costs for both the payor and the recipient.”

Corporate tax rate unchanged

Mrs. Chung-Sim Siew Moon, Head of Tax Services, Ernst & Young Solutions LLP says: “It is not surprising that there is no change to our headline corporate and personal income tax nor GST this year. Singapore has one of the lowest corporate income tax rates in the world and for many, the effective tax rate is lower than 17%. On the other hand, the personal income tax rebate would be sorely missed given inflationary pressures. And with the need to cover the increased cost of government social spending, future hikes – likely in GST – may be expected.”

Upgrading the construction industry

Mr. Russell Aubrey, Partner, International and Transaction Tax, Ernst & Young Solutions LLP: “The building construction and development sector is one of the most impacted by this Budget.  The use of productive technologies will be mandated for selected government land sales, and there is no letting up on restrictions on hiring foreign workers. Clearly this is a sector that the government is expecting great improvements in productivity.”

Pioneer Generation Package

Mrs. Mildred Tan, Managing Director, Ernst & Young Advisory Pte Ltd says: “The Pioneer Generation Package, which is not differentiated by income or limited by pre-existing conditions is very even-handed and equitable to the generation who has contributed to our nation-building. More importantly, the values honored in the Pioneer Generation Package should continue to set the direction for Singapore going forward – values of being self-reliant, a sense of purpose and a never-say-die attitude.”

Ms. Wu Soo Mee, Partner, Human Capital, Ernst & Young Solutions LLP says: “The Pioneer Generation Package is a tribute to those who have fought hard to build the Singapore that we have today. The pioneer generation, which did not have much of a social safety net, may not have had the opportunity to squirrel much savings away. The measures will help to defray their medical expenses.”

Mr. Yeo Kai Eng, Partner, GST Services, Ernst & Young Solutions LLP says: “I am happy for my parents – the pioneer generation. I like the fact that the Pioneer Generation Package will not be differentiated by income but to honour the contributions of this whole generation.”

CPF Medisave contribution rate increase

Mr. Grahame Wright, Partner, Human Capital, Ernst & Young Solutions LLP says: “The Medisave-focused 1% CPF increase helps Singaporeans to provide for future medical costs, reducing the need in future years for additional medical subsidies.”

Mr. Grahame Wright, Partner, Human Capital, Ernst & Young Solutions LLP says: “The one-year employment credits will help employers to cushion the cost of additional CPF costs for one year but the full effect will be felt from January 2016.”

Ms. Wu Soo Mee, Partner, Human Capital, Ernst & Young Solutions LLP says: “The increase in the employer's CPF rate across all age bands is unexpected as the government had restored the rate to pre-2003 rates before the CPF retuning. Recognising the increase in medical costs as one ages, the government has proposed an increase in employer's CPF of 1% into Medisave for employees. This proposal is an act to help Singapore to start saving for medical costs for its population.”

Ms. Kerrie Chang, Director, Human Capital, Ernst & Young Solutions LLP says: “Whilst there was an expectation for increased employer CPF contributions for older workers, the increase for all employees has come as a surprise. This will raise overall labour costs for employers.”

Building an inclusive society

Mr. Grahame Wright, Partner, Human Capital, Ernst & Young Solutions LLP says: “Budget 2014 provides a caring focus like no previous budgets. It offers a broad range of benefits aimed at the elderly, disabled and increasing social mobility of the lower income population.”

Mr. Grahame Wright, Partner, Human Capital, Ernst & Young Solutions LLP says: “Disabled Singaporeans and their families will benefit in meaningful ways from the subsidies and reliefs provided.”

Mr. Grahame Wright, Partner, Human Capital, Ernst & Young Solutions LLP says: “Enhanced education assistance will help the children of lower and middle income families to improve their lives for generations to come.”

Enhancing healthcare

Mr. Grahame Wright, Partner, Human Capital, Ernst & Young Solutions LLP says: “Budget 2014 faces head on the problem of an ageing population and increasing medical costs now and in the future.”

Enhanced tax reliefs

Ms. Kerrie Chang, Director, Human Capital, Ernst & Young Solutions LLP says: “The current tax reliefs for supporting parents and handicapped family members have not changed for a few years. The reliefs show the government's commitment to provide special focus on our elderly and the handicapped.”

No change to the personal income tax rate

Ms. Wu Soo Mee, Partner, Human Capital, Ernst & Young Solutions LLP says: “There has been quite a buzz about taxing the wealthier but no change was proposed in the Budget in that respect. It is not surprising that there is no tax rebate proposed for this year because of the spending in the Pioneer Generation Package.”

Ms. Kerrie Chang, Director, Human Capital, Ernst & Young Solutions LLP says: “Whilst there was speculation on increase in the headline personal income tax rate, it was not a surprise that the government maintained the rates. Our personal tax rates are already very competitive and one of the lowest in the region. Any increases would have diminished the competitive edge with Hong Kong.”

Ms. Kerrie Chang, Director, Human Capital, Ernst & Young Solutions LLP says: “High-income earners will heave a sigh of relief that there was no increase in the top personal income tax rate. On the other hand, middle-income earners would be disappointed that the tax rate bands were not amended to reduce their tax burden. Further, there was noticeably the absence of a tax rebate for the Year of Assessment 2014.”

No change to the GST rate

Mr. Yeo Kai Eng, Partner, GST Services, Ernst & Young Solutions LLP says: “As expected, the GST rate was left untouched. It would be premature to hike the GST rate now.”

Measures for the financial sector

Mr. Desmond Teo, Partner, Financial Services Tax, Ernst & Young Solutions LLP says: “The MAS continues to keep its ears close to the ground and level the playing field for Singapore trustees which seek to act for offshore trust funds.”

Mr. Desmond Teo, Partner, Financial Services Tax, Ernst & Young Solutions LLP says: “The changes to the basis of valuation for the computation of investor ownership levels for the fund tax incentive schemes are welcomed after much lobbying.”

Mr. Desmond Teo, Partner, Financial Services Tax, Ernst & Young Solutions LLP says: “The fund management industry remains a focus of the MAS and its support is welcomed.”

Mr. Desmond Teo, Partner, Financial Services Tax, Ernst & Young Solutions LLP says: “The changes to the DUT and offshore trust funds has rationalized the tax regime and are well thought through.”

Mr. Desmond Teo, Partner, Financial Services Tax, Ernst & Young Solutions LLP says: “The proposed tax rules governing the Basel III Additional Tier I debt instruments presents a huge relief for the Singapore-incorporated banks who were under a cloud of uncertainty.”

Ms. Amy Ang, Partner, Financial Services Tax, Ernst & Young Solutions LLP says: “The proposed certainty to treat hybrid instruments issued for the purpose of meeting the Additional Tier-1 capital requirement under Basel III as debt is a welcomed move to the financial industry. This removes one key grey issue faced by the Singapore-incorporated banks when issuing such hybrid instruments. It remains to be seen if similar basis will be adopted by the Singapore Revenue on similar issue of hybrid instruments by other companies.”

Ms. Amy Ang, Partner, Financial Services Tax, Ernst & Young Solutions LLP says: “The authorities have recognised the contributions made by the fund industry and to continue to consolidate Singapore's leading role in wealth management, the existing tax incentive schemes for funds managed by fund managers in Singapore will be refined and extended.”

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The views expressed by the makers of each statement are not necessarily those of Ernst & Young Solutions LLP.  Ernst & Young Solutions LLP disclaims all liability and responsibility to you in respect of the content in this document.

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