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This synopsis provides an overview of the key tax measures announced and analyses the implications.
The recent Budgets have retained a similar theme – transforming and future-proofing the Singapore economy. Over the past year, with the COVID-19 pandemic sweeping across the globe, this need for transformation has been amplified, and the window period for making this change narrowed.
In FY 2020, due to various health and economic measures taken to address the COVID-19 crisis, Singapore witnessed its largest budget deficit of S$64.9b since its independence. The support measures rolled out in the recent Budgets have helped businesses and workers to survive the worst recession for Singapore since independence.
Against this backdrop, Budget 2021, which was unveiled by Deputy Prime Minister (DPM) and Finance Minister Heng Swee Keat, continued with the expansionary approach. The focus is very much on supporting the hardest-hit sectors and investing for the future, with an expected overall deficit of S$11b.
DPM Heng has made a tough call to draw upon past reserves for the second consecutive year, while deferring the GST rate hike.
Apart from imposing GST on low-value goods imported and some tax measures to enhance the competitiveness of Singapore, there are no significant tax changes announced in this Budget. Nonetheless, sizable funds are set aside to enhance various programmes to help local enterprises digitalise, scale up and internationalise.
- In essence, this Budget addresses these three time horizons:
- Now: to provide relief in the immediate term
- Next: to invest strategically for growth and press on with the economic transformation in the medium term
- Beyond: to build a caring and sustainable home for generations to come
Now: providing immediate relief
There is uneven economic recovery across different sectors. Some businesses are forced to cease operations, while certain segments have enjoyed accelerated revenue growth during this pandemic.
This Budget is targeted in providing support to the hardest-hit sectors and households. Various support measures such as the Jobs Support Scheme will be extended up to September 2021 for the hardest-hit sectors to help them tide over the immediate challenges. These measures are designed to taper off in the coming months based on the projected recovery for the different sectors.
Budget 2021 has also set aside S$900m to provide additional support to families during this period of uncertainty.
Next: investing in growth and transformation in the medium term
To ride out the COVID-19 pandemic and emerge successfully, Singapore’s businesses and economic landscape need to transform for the future. As DPM Heng said: “Singapore must never stop thinking of the future, even as we respond swiftly to meet current needs. This is how we stay exceptional, and staying exceptional is how we survive”.
Indeed, this Budget focuses on building the following three enablers to drive the next phase of transformation:
- Grow a vibrant business community, with a strong spirit of innovation and enterprise, deeply connected with Asia and the world
- Catalyse a wide range of capital to enable businesses to transform and scale
- Create opportunities and redesign jobs, for our people to develop their skills, creativity and talents
Some of the interesting initiatives include:
- Emerging Technology Programme: to co-fund the costs of trials and adoption of frontier technologies like 5G, artificial intelligence and trust technologies
- Chief-Technology-Officer-as-a-Service initiative: to help firms to identify and adopt digital solutions by providing access to professional IT consultancies
- Digital Leaders Programme: to support promising firms in hiring a core digital team and in developing and implementing digital transformation roadmap
If rolled out and implemented well, these can really help SMEs make a difference.
Beyond: building a caring and sustainable home for future generations
There is also a slew of initiatives to build a sustainable Singapore for future generations, including the S$60m set aside for a new Agri-Food Cluster Transformation Fund, and the planned issuance of green bonds to finance up to S$19b of public sector green projects.
Conclusion
All in all, this is a Budget that weaves together the past (drawing on our reserves), present (providing immediate reliefs), and future (emerging stronger).
There is a very clear mandate to build the Singapore core: to help Singapore businesses transform and leapfrog the competition. It is about helping our workers and businesses innovate, grow and emerge stronger as one people and one Singapore.
Download the full Budget 2021 Synopsis
Summary
With the Singapore Government’s expenditure on health care, social, infrastructure and security expected to rise further, a GST hike will help fund the increased spending. While other forms of taxes may also be considered, taxing what is spent to consume instead of what is earned, saved and invested seems a more pragmatic option for now.
Regardless whether there is a rate hike, an efficient and robust GST reporting process is crucial to reduce the risk of non-compliance and its resulting penalties.