Press release

2 Jan 2020 Singapore, SG

Wish list for Singapore Budget 2020

SINGAPORE, 2 January 2020 Ernst & Young Solutions LLP (EY) today released its wish list for Singapore Budget 2020.

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Ernst & Young Solutions LLP (EY) today released its wish list for Singapore Budget 2020. The proposed measures seek to help shape a fiscally sustainable and secure future for Singapore by focusing on the following themes:

  • Business growth, innovation and costs
  • Training and employment
  • Support for families

Ms. Soh Pui Ming, Singapore Head of Tax, Ernst & Young Solutions LLP says:  
“With the geopolitical risks and other challenges ahead of us, Budget 2020 can play the important role in helping small and medium enterprises (SMEs) stay relevant and competitive, as well as assisting companies to cushion any potential impact from the global economic slowdown.” 

Business growth, innovation and costs

Maintaining Singapore’s corporate income tax regime and building a robust tax system
Singapore’s corporate income tax rate has remained at 17% since the Year of Assessment (YA) 2010. 

Ms. Soh Pui Ming, Singapore Head of Tax, Ernst & Young Solutions LLP says:  
“Singapore’s tax regime and corporate tax rate should be considered against the anticipated tidal wave of change in the international tax front, such as the OECD Base Erosion and Profit Shifting (BEPS) 2.0 initiative. The government would likely maintain the existing tax rate of 17% whilst keeping a keen eye on the international tax developments.” 

Cushioning the impact of economic slowdown for businesses
The current geopolitical tensions around the world and softening and desynchronising of the global economy has put increased pressure on businesses. In November 2019, the Ministry of Trade and Industry forecasted that Singapore’s economy will grow at between 0.5% and 1% for 2019. The real gross domestic product (GDP) for 2018 was 3.1%. 

During the economic downturn in 2009, the government had introduced various measures to help businesses cope with the challenging economic environment. Although Singapore’s economy is not in technical recession, it may be worth considering if similar measures should be looked into. 

With that, EY proposes the following measures to ease cashflow and lighten the tax burden of businesses:

  • Extend corporate tax rebate
    Companies enjoy a 20% corporate income tax rebate (capped at S$10,000) for the YA 2019. In Budget 2019, no corporate income tax rebate was announced for YA 2020. 

Mr. Teh Swee Thiam, Partner, Tax Services, Ernst & Young Solutions LLP says:  
“To ease business costs and support for companies, in particular the SMEs, we propose extending the corporate income tax rebate for YA 2020 and YA 2021.” 

  • Enhance loss carry-back relief
    The loss carry-back relief scheme was first introduced in YA 2006 to help small businesses cope with cash flow problems, particularly during a cyclical downturn, and to provide more timely relief.  

Currently, businesses may carry back up to S$100,000 of its current year unutilised capital allowance and unabsorbed trade losses and deduct them against its assessable income for the immediate preceding YA. 

In Budget 2009, this was enhanced for YA 2009 and YA 2010 by increasing the losses to S$200,000 (instead of S$100,000) to be carried back for deduction against taxable income for the preceding three years of taxable income. 

Ms. Sandee Saw, Director, Tax Services, EY Corporate Advisors Pte. Ltd. says:  
“We propose that the existing one-year loss carry back be enhanced to allow up to S$300,000 to be carried back (from the amount of S$100,000) for up to three prior years (from the one year that is allowed currently). Such enhancements would allow businesses to receive cash refunds on taxes they paid in previous years, to ease business costs.”

Encouraging innovation and digitalisation
To transform into a knowledge-based innovation-driven economy, it is important that companies are encouraged to continue to carry out R&D activities in Singapore. 

  • Make available a non-taxable credit for R&D expenditure 
    Mr.Johanes Candra, Director, Business Incentives Advisory, EY Corporate Advisors Pte. Ltd. says:  
    “The reduction of taxable income via an R&D tax deduction does not always result in additional funds for R&D activities. There has been a recent global trend by various countries (e.g., Australia, Canada, Ireland, New Zealand, the UK and US) to shift from R&D deductions to R&D credits, as credits are treated as ‘above-the-line’ for accounting purposes and can be used by companies to internally offset R&D expenditure. In this regard, the benefit could go back to a company’s R&D team to supplement their R&D budget regardless of whether the company is in a tax paying or tax loss position.” 

Mr. Candra adds:
“For companies that are in a tax loss position, allowing companies to cash out the R&D credits (up to a cap) could help sustain R&D activities. This has been done in countries such as Australia, Canada, Ireland, New Zealand and the UK.”

  • Promote digitalisation to stay ahead  
    Companies are embarking on their digitalisation journeys, whether through strategic joint ventures and alliances to acquisitions and investments in digital solutions and tools. 

Ms. Toh Shu Hui, Partner, Tax Services, Ernst & Young Solutions LLP says: 
“To position Singapore strategically in the industry value chain, we suggest special M&A allowances for companies that invest in Singapore-based technology start-ups that provide digital solutions and tools.” 

Ms. Toh adds:
“Further, rather than developing capabilities in-house, companies may also form consortium or joint ventures to co-develop digital platforms and technology solutions to address issues faced by the industry. To increase Singapore’s attractiveness as a technology incubator, certainty in exit tax implications, including tax exemption on potential gains on disposal of the shares in such joint ventures and consortiums, will be welcomed.” 

Enhancing the S-REITs sector
According to the REIT Association of Singapore, we are the largest REIT market in Asia, ex-Japan. S-REITs are an important component of the Singapore’s stock market, forming about 12% of the market capitalisation. It is critical to have sustainable growth in the S-REITs market.

EY proposes enhancements to the tax treatment of S-REITs in the following areas: 

  • To provide stamp duty relief for consolidation of REITs
    Consolidation of REITs is a normal cycle in the REIT industry. Some of the smaller REITs may find it difficult to continue on a standalone basis and may need to consider a merger or consolidation. This would strengthen the S-REIT industry. 

Ms. Lim Gek Khim, Singapore Real Estate Tax Leader, International Corporate Tax Advisory, Ernst & Young Solutions LLP says: 
“Upon consolidation, the acquiring REIT may want to simplify the holding structure by merging the properties of the acquired REIT into the acquiring REIT. We propose that stamp duty remission be granted for such merger. Given that stamp duty remission is no longer available to S-REITs and that they are now on a level playing field with other forms of entities, it is timely to widen the scope of stamp duty relief for transfer of assets between associated permitted entities to include S-REITs as ‘permitted entities’.”  

  • Section 13(12) tax exemption to cover foreign rental income
    Section 13(12) tax exemption granted to S-REITs currently applies to foreign-sourced dividends, interest, trust distributions and branch profits. 

Ms. Lim Gek Khim, Singapore Real Estate Tax Leader, International Corporate Tax Advisory, Ernst & Young Solutions LLP says: 
“In today’s taxation landscape, businesses are trying to streamline or simplify the holding structure to the extent possible. Hence, it is in line with the underlying spirit of section 13(12) tax exemption to extend the scope to cover rental and ancillary income that S-REITs or its Singapore resident subsidiaries (regardless of where they are incorporated) derived from ownership of foreign properties. It would make sense for tax exemption to be granted on interest income on loans that S-REITs extend to its Singapore resident subsidiaries where such interest income is paid out of rental and ancillary income derived from the ownership of foreign properties.” 

Enhancing certain tax incentives
Tax incentives are an effective fiscal policy tool in strengthening Singapore’s value proposition as a compelling global hub for business and investments. It would be important to keep our incentives up to-date and relevant.

  • Finance and Treasury Centre incentive  
    The Finance and Treasury Centre incentive (FTC) is aimed at encouraging companies to grow treasury management capabilities and use Singapore as a base for conducting treasury management activities for the region.

To date, there are three jurisdictions with treasury incentive regimes having passed the OECD Forum on Harmful Tax Practices (FHTP) Peer review – specifically Singapore, Hong Kong and Mauritius. This places Singapore in a favourable position to attract regional and global treasury centre investments and it is important for Singapore to keep the incentive up-to-date. 

Mr. Johanes Candra, Director, Business Incentives Advisory, EY Corporate Advisors Pte. Ltd. says:
“Under current FTC incentive regulations, non-financial institutions are not qualifying source of funds. With the rise of corporate venture company (VCs) and family offices as a key source of capital in  the overall corporate finance structure, the authorities should look at relaxing this source of fund requirements to allow for VCs and funds managed by family offices as FTC qualifying source of funds.”

  • Global Trader Programme (GTP) and Structured Commodity Finance (SCF)
    The SCF is meant to strengthen the business model of the GTP companies by strengthening the commercial linkages with finance and insurance companies.

Ms. Angela Tan, Partner, International Corporate Tax Advisory, Ernst & Young Solutions LLP says: 
“One area of enhancement is to lower the cost for the GTP companies to access financing from overseas financial institutions and related companies. One such barrier is the withholding tax payable on interest payable to non-resident lenders. Currently, the interest withholding tax exemption is available in incentives such as FTC and Aircraft Leasing Scheme. We suggest that the interest withholding tax exemption be incorporated as part of the GTP-SCF scheme as well.”

Training and employment

As Singapore continues to transform its economy and business landscape and strengthen its enterprise capabilities, ensuring that workforce skills are kept relevant is important. This is particularly so as the country faces economic challenges and rapid technological advancement.

Consider a targeted funding model for SkillsFuture Credit 
The SkillsFuture Credit aims to strengthen individual ownership of skills development and lifelong learning. All Singaporean citizens aged 25 and above will receive their SkillsFuture Credit of S$500 from January 2016.

Mr. Samir Bedi, EY Asean Workforce Advisory Leader, Ernst & Young Advisory Pte. Ltd. says: 
“It is critical that Singaporeans continuously upgrade themselves and keep their skills relevant to seize new opportunities in this ever-changing environment. Going into the fifth year of introduction of the SkillsFuture Credit, it is timely to consider a more targeted funding model to address the specific gaps that remain – whether it is to encourage skilling in certain sectors or demographics or to meet particular workforce demands.” 

Provide support for Industry 4.0 transformation
Mr. Samir Bedi
, EY Asean Workforce Advisory Leader, Tax Services, Ernst & Young Advisory Pte. Ltd. says: 
“Through strong collaboration between the public and private sectors, Singapore aims to transform itself into a digital manufacturing hub. We propose additional grants and funds to enable SMEs to transform with accelerators for redesigning jobs and reskilling.” 

Support for families

Singapore aims to build a caring and cohesive society where individuals and families are given ample support to better prepare for the future and care for one another.

Enhance reliefs traditionally only provided to working mothers 
Currently, the Grandparent Caregiver Relief (GCR) and Working Mothers Child Relief (WMCR) are given to encourage mothers to stay in or return to the workforce. Married women and divorcees and widows with school-going children can claim these reliefs. If the working mother is not able to utilise the relief due to not earning enough taxable income, the benefit to the household is lost.

Mr. Panneer Selvam, Partner, People Advisory Services – Mobility, Ernst & Young Solutions LLP says: 
“Given the rise of dual income families, these reliefs would be more beneficial to the household if they could be shared with the husband, perhaps on the     condition that the wife is also working.”

Lift personal income tax relief cap for working mothers with handicapped dependent children
With effect from YA 2020, grandparent caregiver relief will be available for working mothers of dependent children, who are handicapped and unmarried, without any age limit on the child. The removal of   the age limit will provide greater support and recognition to working mothers with handicapped and unmarried dependent children (incapacitated by reason of physical or mental infirmity). In addition,   this is aligned with the claim of Handicapped Child Relief, which has no age and income limit. 

Mr. Panneer Selvam, Partner, People Advisory Services – Mobility, Ernst & Young Solutions LLP says: 
“Given that the aggregated amount of personal income tax reliefs is currently capped at S$80,000 per YA per taxpayer, high-income working mothers with handicapped dependent children may not benefit from this proposed change. We suggest increasing the S$80,000 personal relief cap for working mothers with handicapped dependent children, recognising the higher financial costs in being long-term caregivers to their children.” 

 -ends-

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