Wish list for Singapore Budget 2019

Singapore, 10 January 2019

  • Share

EY today released its wish list for Singapore Budget 2019. The proposed measures seek to help shape a fiscally sustainable and secure future for Singapore by focusing on:

  • Driving growth of future sectors and hubs
  • Building a caring and inclusive society
  • Building corporate growth and innovation capabilities

Driving growth of future sectors and hubs

  • Help Singapore companies scale up and internationalise through M&A allowances

    Under the Mergers and Acquisitions (M&A) scheme, Singapore companies can offset a portion of the costs of acquiring shares in another company, subject to conditions. The M&A allowance scheme encourages the growth of Singapore companies through strategic acquisitions. However, the benefits to Singapore groups can be curtailed due to the restriction conditions and the fact that the M&A allowance cannot be transferred to other companies within the Singapore group as part of the group relief system.

    Allowing the M&A allowance to be transferred to other companies within the group under the group relief scheme would allow these taxpayers to better benefit from the scheme and thereby encourage growth through M&A. This is because in many cases, the acquiring company is the ultimate Singapore holding company or an intermediate holding company, which has no or limited taxable income.

  • Enhance growth as FinTech hub
    • Introduce a FinTech tax incentive

      Mr. Desmond Teo, Partner, Financial Services Tax, Ernst & Young Solutions LLP says:
      “The Monetary Authority of Singapore may wish to consider introducing and administering a targeted tax incentive, offering a preferential rate of say 5% or 10% (dependent on the conditions and levels of commitment) 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.”

    • Support development of FinTech and digital strategy

      In creating intellectual property (IP) and adoption of new technologies, the development and commercialisation of IP may take time as a group of entities continues to invest in new technologies and R&D. This results in substantial losses carried forward in one entity, while income from a successful IP or venture may be generated in other entities, translating to a timing mismatch of trade losses incurred and income generated.

      The government may wish to consider introducing provisions to allow tax losses carried forward (beyond existing current year tax losses) in one entity to be transferred within a qualifying group for deduction against income derived by another qualifying group entity, especially if such tax losses arise from encouraged activities such as FinTech, Artificial Intelligence etc.

  • Enhance appeal as cryptocurrency hub
    • Provide clarity on GST treatment of virtual currencies

      In recent years, the market has seen the emergence of virtual currencies and this trend is expected to continue. Currently, the supply of virtual currencies is treated as a supply of services, and so does not qualify for GST exemption as fiat currencies do. When virtual currencies are used to pay for goods or services, it is considered as a barter trade. An implication from such situation is double taxation: consumers who use virtual currency as payment may be paying GST twice – once on the purchase of the virtual currency (if purchased through a local GST registered virtual currency supplier) and again on the use of virtual currency in exchange for goods and services that are subject to GST.

      Mr. Yeo Kai Eng, Partner, GST and Indirect Tax Services, Ernst & Young Solutions LLP says:
      “Countries such as Australia, UK and Japan have taken the position to regard virtual currencies as equivalent to money, such that the supplies of virtual currencies will be treated as financial supplies and be exempted from GST. With this, a Singapore virtual currency supplier would be required to register for GST if its supply of virtual currencies exceeds the GST registration threshold, while one that is established outside Singapore (e.g., Australia) may not face the registration liability. This inevitably increases the cost of setting up a virtual currency trading entity in Singapore, and makes Singapore a less attractive location to build a global cryptocurrency hub. To this end, Singapore may wish to consider treating the supply of virtual currencies as an exempt supply, in line with the GST treatment in other countries.”

  • Enhance appeal as asset management hub
    • Extend tax exemption regimes for funds and family office investment vehicles

      In 2017, Singapore’s asset management industry reached a record asset under management (AUM) of almost S$3.3t, doubling from the AUM of S$1.62t in 2012.

      Mr. Desmond Teo, Partner, Financial Services Tax, Ernst & Young Solutions LLP says:
      “Extending the current Section 13CA/R/X tax exemption regimes, which is due for renewal by March 2019, for funds and family office investment vehicles will enable Singapore to continue to grow and serve as a global-Asia gateway for asset managers and investors. It will also encourage them to tap on the region’s growth opportunities, and enhance Singapore’s continued attractiveness as home for a growing pool of family offices and their investment vehicles.”

Building a caring and inclusive society

  • Empowering better health care
    • Provide tax deduction for medical-related insurance policies for individuals

      Currently, there is no standalone tax relief available for premiums paid on medical-related or health insurance policies.

      Mr. Panneer Selvam, Partner, People Advisory Services, Ernst & Young Solutions LLP says:
      “Allowing a tax deduction that is not tied to CPF contributions, subject to a cap of say S$5,000 for premiums paid for medical-related insurance paid by individuals for themselves or their family will encourage taxpayers to be more responsible for their health and wellbeing. Enabling a tax deduction for health insurance premiums will encourage more taxpayers to take up health insurance policies, and also offer them greater access to health care. A tax relief for medical costs incurred by those over 50 years old for health screening every other year may also be considered to encourage preventive care.”

    • Revisit the deduction rules on medical expenses for companies

      The deduction rules for computing the deductible medical expenses can be tedious and companies have to identify all the relevant staff costs to determine whether the medical deduction claims exceed the statutory cap of 1% or 2%, depending on the taxpayer’s circumstances.

      Mr. Chai Wai Fook, Partner, Tax Services, Ernst & Young Solutions LLP says:
      “The deduction rules can result in additional compliance and administrative costs for taxpayers which is disproportionate to the amount of medical deduction claim. Further the provision of medical benefits is a staff recruitment and retention tool by businesses. It is therefore timely to revisit the income tax rules for medical costs and simplify the deduction rules, especially for SMEs.”

  • Strengthen support for families
    • Provide special tax deduction for caregiver expenses for aged or special needs persons

      Specialised caregivers and nursing aides are increasingly being employed by families to care for their ageing family members or those with special needs.

      Ms. Kerrie Chang, Partner, People Advisory Services, Ernst & Young Solutions LLP says:
      “A special tax deduction on the costs associated with hiring these specialised caregivers and aides will help to defray the costs in caring for such family members. We suggest that a tax deduction of up to S$10,000 be granted to taxpayers who incur costs to hire specialised caregivers and aides to take care of their family members. The deduction claim may be restricted to the lower of S$10,000 and the actual costs incurred.”

  • Encourage volunteerism among organisations

    In Budget 2016, a pilot Business and IPC (Institutions of a Public Character) Partnership Scheme (BIPS) was introduced to incentivise employee volunteerism through businesses. Under BIPS, businesses enjoy an additional 150% tax deduction on salary expenditure and related expenses when they send their employees to volunteer and provide services to IPCs. This is subject to the receiving IPC’s agreement, with a yearly cap of S$250,000 per business and S$50,000 per IPC on the qualifying costs.

    Mr. Panneer Selvam, Partner, People Advisory Services, Ernst & Young Solutions LLP says:
    “It is heartening to see that more attention is given to volunteerism besides the traditional focus on charitable contributions in the form of cash and tangible goods. However, we observe that not many businesses are aware of BIPS and the deduction claim. The 2018 Income Tax Amendment Act has already included an extension of the scheme to 31 December 2021; it would be good if BIPS can be a permanent feature of the legislation.

    “To encourage higher participation, the BIPS claim process can be further simplified. Currently, the enhanced deduction is restricted to the salary expenditure and related expenses. As salary details are confidential information that many businesses may not wish to share freely with the IPCs, perhaps a certain fixed hourly rate can be developed instead, as employee volunteerism should be agnostic of rank and types of organisations they belong to. The fixed rate will also remove uncertainties on what constitutes related expenses.”

Building corporate growth and innovation capabilities

  • Encourage private funding for targeted innovative companies

    Start-up firms prefer to raise funds in the form of preference shares or convertible debt securities that do not pay interest if successfully converted to ordinary shares, and pay a fixed interest if not converted to ordinary shares. As such, investors expect to earn primarily by selling preference or ordinary shares, and in some circumstances, gaining interest on convertible instruments.

    To encourage large corporates to invest in start-up firms, a tax relief could be offered on gains on disposal of preference or ordinary shares that do not qualify for exemption per section 13Z of the Singapore Income Tax Act, and on interest received on convertible debt securities.

    Mr. Mriganko Mukherjee, Partner, Financial Services Tax, Ernst & Young Solutions LLP says:
    “Currently there are no tax measures to encourage private funding in companies that focus on innovation. As such, measures designed to help smaller, high-risk innovative companies to raise funds will be particularly important to unlock the potential of equity crowdfunding for private investment.”

  • Support growth and innovation in SMEs
    • New R&D incentives for smaller companies

      The existing R&D incentive scheme provides all eligible taxpayers with enhanced tax deductions for qualifying expenditure incurred on qualifying R&D activities. The Productivity and Innovation Credit scheme (including cash payout option) expired after Year of Assessment 2018.

      Ms. Tan Bin Eng, Partner, Business Incentives Advisory, Ernst & Young Solutions LLP says:
      “Local small and medium enterprises (SMEs) in a non-tax paying position have been slow to take up the current R&D incentive scheme; they are primarily focused on cash savings, rather than tax savings. Experience from other jurisdictions show that R&D cash incentives are more effective in incentivising R&D among SMEs. R&D cash incentives help SMEs prioritize spending on R&D activities. To specifically help SME to drive growth, the government may wish to offer R&D cash payout as an alternate option to enhanced tax deduction. Where necessary, to minimise abuse, such cash conversions could be approved on an application basis.”

    • Refining the renovation and refurbishment (R&R) deduction scheme for SMEs

      Mr. Chai Wai Fook, Partner, Tax Services, Ernst & Young Solutions LLP says:
      “This scheme is especially beneficial to SMEs in the retail, food and beverage and entertainment sectors. However, restrictions under the scheme, such as spending cap, three-year deduction period and qualifying expenditure have curtailed the intended benefits by adding additional administrative burden on SMEs in order to claim the deductions. To support SMEs, we suggest simplifying the scheme by increasing the spending cap and allowing one-year deduction claim; expanding qualifying R&R costs to include designer and professional fees; and extending qualifying R&R costs to those that affect the structure of the building, as the industrial building allowance has been phased out and the land intensification allowance scheme is only available to certain sectors.”

 

- Ends -

Notes to Editors

About EY

EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.

This news release has been issued by Ernst & Young Solutions LLP, a member of the global EY organization.