Companies should make the most of available government support to address increased business costs as well as challenges in manpower availability and retention.
Staying ahead of the curve
To further enhance productivity, innovation and workforce quality for businesses to stay competitive in the new environment, DPM Wong announced a new Enterprise Innovation Scheme (EIS). The EIS appears to have taken its roots from the expired broad-based Productivity and Innovation Credit (PIC) scheme.
In contrast to its predecessor, the EIS focuses on innovation and is more targeted. It offers an enhanced tax deduction for qualifying expenditure incurred on activities related to R&D in Singapore; registration of intellectual property (IP); acquisition and licensing of IP rights; qualifying training programs as well as innovation with polytechnics, the Institute of Technical Education and other qualified partners.
The EIS cash conversion option is also a step in the right direction, particularly because it targets firms that have yet to turn profitable and are unable to maximize the tax deduction benefit. With the EIS spanning across the years of assessment 2024 to 2028, we hope for the modest 20% cash conversion ratio and S$20,000 cap each tax year to be further enhanced in future Budgets. By comparison, the cash payout under the PIC scheme in its year of expiry was capped at S$40,000 each tax year.
Any increase to Singapore’s corporate income tax (CIT) rate, which remains one of the most competitive globally, must be weighed against the need to attract foreign investments. Despite an overall projected fiscal deficit of S$2b and S$400m for financial years 2022 and 2023 respectively, Singapore’s headline CIT rate remains unchanged at 17%. Instead, the government has judiciously used the levers of asset-related and “sin” taxes, for example, by increasing buyer’s property stamp duty rates, making vehicle registration fees more progressive and increasing excise duties across all tobacco products. These are expected to generate S$800m in additional revenue each year.
While there were no enhancements to existing schemes to support businesses in their transition as part of the Singapore Green Plan 2030, the country’s resolve to be resilient in the face of the existential threat of climate change remains clear in the Budget.
Budget 2023 reflects the government’s gumption in managing trade-offs necessary to propel the nation through the current economic strain felt by Singapore households and businesses alike. We share DPM Wong’s confidence that the nation will emerge a stronger economy as we rally as one people to build the Singapore we want for tomorrow with poise and confidence.
This article was co-authored by Sandie Wun, Partner, International Tax and Transaction Services, Ernst & Young Solutions LLP and former EY partner Russell Aubrey.
Our related articles
Summary
Once BEPS 2.0 is implemented, Singapore will face a greater challenge in using tax incentives to attract new investments. In response, the government has announced that a Domestic Top-up Tax will be implemented in 2025 to preserve the country’s tax integrity. To address increased business costs and manpower woes, companies should make the most of government support announced in Budget 2023, such as the new Enterprise Innovation Scheme.
