Ernst & Young Solutions LLP (EY) released its wish list for Singapore Budget 2021.
The theme for EY’s Budget 2021 wish list is “Riding the tide together, emerging stronger”. The proposed measures focus on the following areas:
- Cushion the economic impact of COVID-19 pandemic
- Enhance productivity and innovation
- Drive workforce transformation
- Enhance the tax regime – key sectors and others
Ms. Soh Pui Ming, Singapore Head of Tax, Ernst & Young Solutions LLP says:
“Now that the worst of the pandemic looks to be behind us, it’s time to focus on supporting businesses to strengthen and transform for the future, while ensuring that the most impacted individuals and households are given help to rebuild their lives and livelihoods. With the significant amount drawn from the reserves last year, it is important that the proposals in Budget 2021 are designed with a long-term, prudent view to help Singapore work towards restoring its finances.”
Cushion the economic impact of COVID-19 pandemic
Cashflow is a key challenge that many companies face during the pandemic. To support companies who seek to leverage borrowings or employee outplacement to keep the business going, or execute M&As or divestments as part of their capital and growth strategy, we propose these measures:
a. Liberalised tax deduction on interest cost on working capital borrowings
Currently, interest expense is tax deductible if it is payable on capital employed in acquiring income that is subject to tax in Singapore. Where interest is paid on borrowed money used for funding the group’s business overseas, the interest expense is not deductible.
Ms. Soh Pui Ming, Singapore Head of Tax, Ernst & Young Solutions LLP says:
“This restriction may be magnified if the borrower is headquartered in Singapore where it has significant investments overseas. We propose that interest expenses arising from new working capital loans undertaken by business during the pandemic, e.g., under the Temporary Bridging Loan Programme, to be tax deductible.”
b. Allow transfer of M&A allowances to other entities within the group
The M&A allowance scheme encourages Singapore companies to grow through strategic acquisitions. Under the scheme, Singapore companies can offset a portion of the costs of acquiring shares in another company, subject to conditions. However, the benefits to Singapore groups can be curtailed given that M&A allowance cannot be transferred to other Singapore group companies as part of the group relief system.
Ms. Sandie Wun, Partner, Transaction Tax, Ernst & Young Solutions LLP says:
“Allowing the M&A allowance to be transferred to other companies within the group under the group relief system will allow these taxpayers to truly benefit from the scheme and help accelerate growth through M&A.”
c. Extend and enhance corporate income tax rebate
For YA 2020, companies enjoy a 25% corporate income tax rebate capped at S$15,000.
Mr. Chai Wai Fook, Partner, Tax Services, Ernst & Young Solutions LLP says:
“To alleviate the impact suffered by many businesses, particularly the small and medium enterprises, we propose extending the corporate income tax rebate to YA 2021 and increase the cap to S$30,000, instead of S$15,000 that applies to YA 2020.”
d. Introduce additional tax deduction on outplacement support expense
Currently, businesses are eligible for 100% tax deduction on outplacement support expenses incurred, provided such expenses are not related to any cessation of business.
Mr. Teh Swee Thiam, Partner, Tax Services, Ernst & Young Solutions LLP says:
“To encourage and recognise employers who continue to assist terminated employees to transit to a new job through outplacement support, we propose that the tax deduction on outplacement support expenses incurred to be increased to 200%.”
e. Allow tax exemption on allowance or benefits-in-kind provided due to COVID-19
To help their employees cope with the pandemic, some employers have given additional allowances or benefits to their staff.
Mr. Chai Wai Fook, Partner, Tax Services, Ernst & Young Solutions LLP says:
“We propose a tax exemption for employees that received allowances or benefits-in-kind from their employers, directly in response to the COVID-19 pandemic. These benefits can include allowances or reimbursement for purchase of office equipment for use at home.”
f. Extend and enhance 250% deduction for donations
Currently, donors are eligible for a 250% tax deduction for qualifying donations made to Institutions of a Public Character and other qualifying recipients from 1 January 2016 to 31 December 2021.
Mr. Teh Swee Thiam, Partner, Tax Services, Ernst & Young Solutions LLP says:
“To encourage Singaporeans and businesses to continue to give back to the society, we propose that the 250% deduction for qualifying donations be extended or included as a permanent feature of the legislation. We also propose that similar deductions be allowed for non-cash donations (e.g., food, medical and essential supplies) made through local charities and community initiatives during the COVID-19 pandemic.”
g. Introduce a COVID-19 relief or rebate
While the government has been supporting jobs and reskilling, there are limited direct reliefs for individuals. Existing reliefs range between S$600 and S$1,200, with additional payments available for parents and those over age 50.
Mr. Panneer Selvam, Partner, People Advisory Services – Mobility, Ernst & Young Solutions LLP says:
“As the impact of COVID-19 may continue to be felt in the coming years, an additional rebate or one-off relief for the tax-paying population would be welcomed to help reduce the overall impact to individuals.”
Enhance productivity and innovation
Singapore has been focusing on driving productivity and innovation in the past decade. The pandemic has underscored the need for companies to look into productivity, digitalisation and innovation to futureproof their business.
a. Introduce provisions for businesses with digital strategy and FinTechs
Currently, only current year tax losses can be transferred to other group companies to offset taxable income. This is important as the R&D activities may be done by one entity, while the Intellectual property (IP) rights are held in other entities within the group for economic, commercial or legal considerations. However, the development and commercialisation of IP may take time, translating to a timing mismatch of trade losses incurred and income generated.
Mr. Johanes Candra, Director, Business Incentives Advisory, EY Corporate Advisors Pte. Ltd. says:
“The government can consider introducing provisions to allow tax losses that cannot be fully utilised within the group to be allowed to be transferred and utilised by other group companies in the future years, especially for tax losses arise from R&D activities that the government wants to encourage, such as digital and FinTech-related R&D activities.”
b. Consider a non-taxable tax credit for R&D expenditure
The reduction of taxable income via an R&D tax deduction does not always result in the tax savings being channelled back into R&D activities.
Mr. Johanes Candra, Director, Business Incentives Advisory, EY Corporate Advisors Pte. Ltd. says:
“Countries such as Australia, Canada, Ireland, New Zealand, the UK and US have shifted from R&D deductions to R&D credits. These credits are treated as above-the-line for accounting purposes and can be used to offset R&D expenditure. This benefit goes back to the company to supplement their R&D budget regardless of whether the company is in a tax-paying or tax-loss position.”
c. Top up SkillsFuture Credit for citizens picking up digital roles
To further encourage Singaporeans to take timely action to reskill and upskill, a one-off SkillsFuture Credit top-up of S$500 was provided to every Singapore citizen aged 25 years and above in October 2020.
Mr. Samir Bedi, EY Asean Workforce Advisory Leader says:
“We suggest a further top-up of SkillsFuture Credit for citizens in the lower income bracket to attend certain pre-qualified digital courses.”
Drive workforce transformation
The pandemic has transformed the way people work and behave, and how companies adapt to these changes will be critical. It is crucial to drive workforce resilience when reinforcing enterprise resilience.
a. Top up SkillsFuture Enterprise Credit (SFEC)
To encourage employers to transform their workforce and enterprise, the government announced a one-off S$10,000 credit to cover up to 90% of out-of-pocket expenses for supportable enterprise capability development and workforce transformation programmes.
Mr. Samir Bedi, EY Asean Workforce Advisory Leader says:
“We suggest a top-up of SFEC beyond the S$10,000 credit announced in Budget 2020 to help enterprises embrace the transformation and upskilling imperative to pull through and recover from the COVID-19 crisis.”
b. Further enhance Support for Job Redesign under Productivity Solutions Grant (PSG-JR)
PSG-JR aims to encourage companies to work with pre-approved consultants to redesign work processes, tasks and responsibilities, to support and drive business and workforce transformation. PSG-JR provides up to 70% funding, capped at S$30,000 per company.
Mr. Samir Bedi, EY Asean Workforce Advisory Leader says:
“We suggest further enhancement to the PSG-JR to increase the cap beyond S$30,000 for sectors heavily impacted by the pandemic, such as aviation, tourism, hospitality. The focus is on making jobs more productive and attractive for employees, and help firms hire and retain good workers that support the business through the difficult time.”
c. Further enhance Jobs Growth Incentive (JGI) Scheme
The JGI scheme provides salary support to employers for a 12-month period for new local employees hired between September 2020 to February 2021, subject to increase in the overall local workforce size.
Mr. Samir Bedi, EY Asean Workforce Advisory Leader says:
“We suggest to extend the scheme to apply to new hires of Singaporeans aged 40 and above to beyond February 2021.”
d. Extend SGUnited Jobs, Skills Package and Enhanced Hiring Incentive beyond 2021
The SGUnited Jobs and Skills Package aims to expand job, traineeship and skills training opportunities for jobseekers. Under the Enhanced Hiring Incentive, employers that hire a local worker aged 40 and above that underwent an eligible reskilling or training programme can receive salary support of 40% for six months, capped at S$12,000 in total.
Mr. Goh Jia Yong, Partner, People Advisory Services, Ernst & Young Advisory Pte. Ltd. says:
“The SGUnited Jobs, Skills Package and Enhanced Hiring Incentive can be extended beyond 2021 to provide further incentives for individuals to reskill, upskill and access expanded employment opportunities while encouraging enterprises to hire locals, especially those in mid-careers.”
Enhance the tax regime – key sectors and others
To support the growth of certain sectors that are key to the economy, we propose the following measures:
a. Telecommunications: Allow tax deduction or allowances for expenditure incurred on 5G spectrum
Spectrum auction fees (upfront payment) are considered capital expenditure and are not tax deductible. As well, such fees do not qualify for capital allowances or other tax reliefs.
Mr. Chia Seng Chye, Partner, Tax Services, Ernst & Young Solutions LLP says:
“To encourage mobile network investments and support Singapore’s effort in rolling out SMART Nation and 5G initiatives, we propose a tax deduction on the upfront payment for spectrum auction fees. If the fees are capital in nature, the authorities can consider allowing capital allowance claims or writing down allowance (e.g., payment for indefeasible right of use).”
b. Financial services: Consider a FinTech tax incentive
Financial innovation is critical to the further development of financial services in Singapore.
Ms. Amy Ang, EY Asia-Pacific Financial Services Tax Leader says:
“We propose introducing a targeted incentive offering a preferential tax rate to promote financial innovation-related activities by financial services companies in areas such as digital and mobile payments; authentication and biometrics; blockchain; cloud computing; big data; and robotics.”
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Notes to Editors
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