Singapore Budget 2016 – Highlights for Businesses

With global economic uncertainties, increasing costs and more competition from neighbouring countries, how has the government decided to pave the way for Start-Ups and SMEs? Our business advisory experts break down what every business owner should know.

Enhancing and Continuing the Wage Credit Scheme

What is the Wage Credit Scheme (“WCS”)?

For new business owners and entrepreneurs unfamiliar with the term, the WCS is a scheme administered and governed by the Inland Revenue Authority of Singapore (“IRAS”), where co-funding is provided for up to 40% of wage increases given to Singapore Citizen employees who are earning a gross monthly wage of S$4,000 and below.

The purpose of the WCS is to lessen the burden of rising manpower costs on employers; and the following criteria must be satisfied :-

• Employee(s) have received CPF contributions from the same employer for at least three calendar months;
• Employee(s) have been on the payroll for at least three calendar months;
• Employee(s) received a minimum gross monthly wage increase of at least $50
• Employee(s) are not the business owner*

*i.e. the employee mentioned in the criteria above cannot be the sole proprietor, partner, or shareholder and director of the company.

Do note that local government agencies, international organizations and businesses that are not registered in Singapore, would not qualify for WCS.

How do I apply for the WCS?

IRAS will automatically compute and send letters to eligible employers by March 2016 to inform them of the total payout that will be given. The payout will be issued either in the form of a cheque or credited directly to the employer’s bank account.

What does it mean for me as a business owner?

From a broad perspective, the WCS encourages business owners towards several key objectives:

• Raising the average income levels of the mid to lower income group;
• Lessening the burden of rising manpower costs on employers;
• Encouraging employers to hire and retain more Singapore Citizens; and
• Encouraging employers to be more forward-thinking and channel resources towards improving productivity

Indeed, savvy employers will recognize the government’s increasing emphasis on the hiring of local talent; while taking advantage of the incentives provided for productivity and innovation. Interestingly, as with many other business incentives introduced by the government, sole proprietors do not stand to gain from WCS. Are sole proprietors hence always at a disadvantage?

Raising the Corporate Income Tax (“CIT”) Rebate

Having recognized increasing competition from the neighbouring countries, the government has increased the CIT rebate for companies, in an effort to help them enhance their competitiveness. Indeed, Singapore’s CIT rebate has been one of the key reasons why the country has been ranked as the world’s best place to do business in the World Bank’s survey for the 10th consecutive year .

Is the CIT Rebate applicable to all companies?

There are actually three types of rebates that companies can benefit from in Singapore:

1. Tax Exemption Scheme for new Start-Ups
2. Partial Tax Exemption for all companies
3. Corporate Income Tax Rebate

The new enhanced CIT provides for 50% rebate on corporate tax rebate, subject to a cap of S$20,000 for each year of assessment.

A key-determining factor is the type of business entity that your company is, as well as the type of business activities that your company engages in. For example, partnerships and sole proprietorships would not qualify; while companies that engage in property development or are investment holding companies, would also find that these rebates are not applicable.

How do I claim these tax rebates?

The company must file its corporate tax forms to IRAS, known as the Estimated Chargeable Income (“ECI”) within three months from the company’s financial year-end and the Form C-S or Form C by 30 November of each year.

IRAS will then compute the CIT rebate and any other rebates according to the information filed.

Is there a way for me to estimate the amount of CIT rebate for my business?

As the CIT rebate is calculated after the company has declared its chargeable income and after all the applicable tax concessions have been considered, companies should evaluate their tax position from a holistic point of view. Our tax experts have written a substantial and comprehensive guide here on the various tax reliefs available in Singapore, which business owners can read to gain a better understanding.

Once the company is aware of its chargeable income, try out our tax calculator here to compute the tax payable and relevant CIT rebate.

Extending Special Employment Credit (SEC)

With a falling birth rate and an ageing population, SEC is one of the government’s incentives to encourage employers to hire and retain ageing employees and persons with disabilities (“PWDs”). The SEC has been extended to 31 December 2019 and will be paid out every March and September.

Which of my able-bodied employees fall under this band?

For able-bodied employees, eligibility depends on the monthly salary (estimated according to CPF contribution) and the employee’s age.

Do note that a lower SEC will be provided for salaries between $3,000 and $4,000; and no SEC will be paid out for employees earning beyond $4,000.

How about my employees who are PWDs?

For PWDs, the SEC is applicable for up to 16% of his or her monthly wage, subject to a cap of S$240.

What does this mean for my business?

Having considered Singapore’s ageing population and tight labour market, incentives such as the SEC are pushing employers to consider the following key objectives:-

• Retaining and investing in older employees (complemented by the SkillsFuture initiative)
• Moving towards a less labour intensive economy to an automated one; which will allow older workers to continue working for longer (complemented by the Productivity and Innovation Credit scheme)
• Giving fair consideration to older candidates for jobs

Indeed, statistics show that Singapore’s life expectancy and the average age of the general population have steadily inched upwards over the years ; and with the falling birth rate, it is inevitable that Singapore’s population patterns will mimic countries such as Japan. Hence, it would be prudent for employers to begin investing in their employees now and introduce more measures and policies to retain experienced and valuable employees; rather than engaging into a wage war to compete for younger, fresh talent. In the long run, this may in fact be more economical for companies, particularly if they wisely invest in measures to increase productivity, while reducing reliance on manpower.

SME Working Capital Loan

As with most SMEs, cashflow is always a concern, particularly when the SME requires the capital to significantly expand or restructure its business, or take advantage of certain opportunities in the market.

What does Working Capital mean?

In layman’s terms, working capital can simply be described as business expenses that can be attributed to the company’s daily operations. In this instance, the Ministry of Finance also considers expenses incurred for the automation and upgrading of the company’s factory and equipment as part of working capital .

How can my business qualify for this loan?

Under this scheme, the government will undertake up to 50% of the default risk with the participating financial institutions, to encourage them to extend loans to SMEs; and reduce the barriers that SMEs have when lending from banks. Participating financial institutions have thus removed barriers such as the need to review the company’s audited accounts, the need to mortgage collateral, etc.

That said, the loan is restricted to the following conditions and subject to a maximum quantum of S$300,000:

• Company is registered in Singapore
• At least 30% of the shares are held by local shareholders
• Company’s group annual sales do not exceed $100 million or the group does not employ more than 200 employees.

What kind of interest rates can business owners expect for the SME Working Capital Loan?

A general review of the Participating Financial Institutions (“PFIs”) by our experts has revealed that the average interest rates for a loan tenure of up to four years is about 4.25% – 4.75%.

Do note that the SME Working Capital Loan is not the only government-assisted scheme; and companies can consider other types of government assisted loans that complement their needs. For example, the Micro-Loan scheme does not restrict the type of activities that the funds from the loan are used for. To learn more about loans that you can consider for your company, reach out to our business advisors.

Suggested Readings

What You Need to Know about the Singapore Budget 2018 How businesses will be backed as part of the Singapore Budget 2020 Singapore Budget 2018 – Overview of Tax Changes for Businesses and Individuals Everything to know about the Singapore Budget 2021