What You Need to Know about the Singapore Budget 2018

In his budget speech made on February 20, 2018, Singapore Finance Minister Heng Swee Keat outlined the robust performance of the economy for the past one year and introduced several measures to prepare the city-state for the next decade.

Singapore’s robust economic performance in financial year (FY) 2017

Gross Domestic Product (GDP)

The country’s GDP grew by 3.6% in FY 2017, up by more than one percentage point as compared to last year. GDP growth was 2.4% in FY 2016.

Productivity

What is even more heartening for the Government – which has invested plentiful resources in productivity growth over several years – was that productivity growth was 4.5% as measured by real value-added per actual hour worked, and 3.8% as measured by real value-added per worker. These are the highest figures clocked since 2010.

Surplus

Overall, the minister expects the overall budget surplus of $9.6 billion or 2.1% of GDP for the financial year 2017, which is much higher than the $1.9 billion or 0.4% of GDP forecasted a year ago.

“This increase of $7.7 billion is mainly due to exceptional Statutory Board contributions of $4.6 billion, primarily from the Monetary Authority of Singapore (MAS), and increased stamp duty collections of $2.0 billion due to the recent property market pick-up. We do not expect either to occur every year. It is not a structural surplus. I will therefore use some of this year’s exceptional surplus to save ahead for future spending,” he added, setting aside $5 billion for the Rail Infrastructure Fund; a further $2 billion for premium subsidies and other forms of support for Singaporeans when the ElderShield review is complete; and a $700 million one-off SG Bonus to all Singaporeans aged 21 and above, where they will enjoy a “hongbao” of $300, $200 or $100 depending on their income.

Changes in Goods and Services Tax (GST)

Currently, GST is not applicable on imported services provided by an overseas supplier which does not have an establishment in Singapore. Now, the Minister has announced an introduction of GST on imported services that kicks in beginning January 1, 2020.

From that date, B2B imported services will be taxed via a reverse charge mechanism. Only businesses that: (i) make exempt supplies, or (ii) do not make any taxable supplies need to apply reverse charge.

“The majority of businesses make taxable supplies and thus would not be affected by this reverse charge mechanism. The reverse charge mechanism requires the local business customer to account for GST to IRAS on the services it imports. The local business customer can in turn claim the GST accounted for as its input tax, subject to the GST input tax recovery rules,” informed the Minister.

The taxation of B2C imported services will take effect through an Overseas Vendor Registration (OVR) mode. This requires overseas suppliers and electronic marketplace operators which make significant supplies of digital services to local consumers to register with IRAS for GST. IRAS will release further details by end February, 2018.

Carbon Tax

Building on his announcement last year – to implement a carbon tax from 2019 – the Minister added, “I will proceed with a carbon tax on all facilities producing 25,000 tonnes or more of greenhouse gas emissions in a year. It will be levied on the total emissions of each of these facilities. The first payment will be in 2020, based on emissions in 2019. The carbon tax will be $5 per tonne of greenhouse gas emissions in the first instance, from 2019 to 2023.”

The Government will review the tax rate in 2023. “We intend to increase it to a rate of between $10 and $15 per tonne of emissions by 2030. In doing so, we will take into account international climate change developments, the progress of our emissions mitigation efforts and our economic competitiveness,” the Minister noted.

• The carbon tax will apply uniformly to all sectors, without exemption, and will be levied on major emitters, which account for about 80% of Singapore’s emissions. The Government expects to collect carbon tax revenue of nearly $1 billion in the first five years.

Financial help to all companies in Singapore – support for business restructuring

Wage Credit Scheme (WCS)

WCS which co-funds wage increases for Singaporean employees, up to a gross monthly wage of $4,000, will be extended for three more years. The WCS will provide 20% co-funding for 2018, 15% for 2019 and 10% for 2020, costing the Government about $1.8 billion over the next three years. The Scheme was introduced in Budget 2013 and was extended in Budget 2015.

Under the current WCS, if an employer increases the gross monthly wage of a qualifying employee by $100 in 2017, the Government will co-fund 20% of the $100 wage increase.

Under the WCS extension, if the employer sustains this $100 wage increase in 2018, 2019 and 2020, and provides further wage increases of $100 each year in 2018, 2019 and 2020, the Government will co-fund 20% of the total wage increase of $200 in 2018, 15% of the total wage increase of $300 in 2019, and 10% of the total wage increase of $400 in 2020.

Career Trial and other Government-sponsored skills-development programmes

To strengthen employment support for lower- to middle-income workers, Work Trial (a programme under Adapt and Grow) will be upgraded into Career Trial to help jobseekers try out new jobs and assess new careers. Career Trial will be administered by the Ministry of Manpower (MOM).

Additionally, companies which want their Singaporean workforce to develop deep skills, can take advantage of the following schemes:

1. For the young, schemes like the SkillsFuture Earn and Learn Programme, a work-learn programme, as well as the Go Southeast Asia Award, which matches undergraduates with regional internships.
2. For those with more work experience, schemes like the SkillsFuture Mid-Career Enhanced Subsidy, Capability Transfer Programme and the Professional Conversion Programmes (PCPs). In particular, the PCP for South-east Asia Ready Talent will equip Singaporeans with the know-how to do well regionally.
3. For corporate leaders needing skills to transform their businesses, schemes like SkillsFuture Leadership Development Initiative (LDI), and soon-to-be-launched ASEAN Leadership Programme, and SBF-SMU LEAD-CHARGE Initiative.

Corporate Income Tax (CIT) rebate

Giving a major boost to the business sector – especially the smaller companies, the minister has extended the CIT rebate for two more years. It will be 40% of tax payable, capped at $15,000 for the Year of Assessment (YA) 2018. For YA 2019, the CIT rebate will be at a rate of 20% of tax payable, capped at $10,000.

Earlier, companies would have qualified for a CIT rebate of only 20% of tax payable, capped at $10,000, for Year of Assessment (YA) 2018. The enhancement and extension will ease business costs and support restructuring by companies.

Double Tax Deduction for Internationalisation (DTDi) scheme

Till now, under the DTDi scheme, businesses are allowed tax deductions of 200%, on qualifying market expansion and investment development expenses , subject to approval from IE Singapore or STB. Now, the Government is enhancing the scheme.

The $100,000 expenditure cap for claims without prior approval from IE Singapore or STB will be raised to $150,000 per YA. This change will apply to qualifying expenses incurred on or after YA 2019. Businesses can continue to apply to IE Singapore or STB on qualifying expenses exceeding $150,000, or on expenses incurred on other qualifying activities. All other conditions of the scheme remain the same.

IE and STB will release further details of the change by April 2018.

Partial Tax Exemption (“PTE”) scheme

All companies (excluding those that qualify for the SUTE scheme) and bodies of persons, can qualify for, in each YA: a) 75% exemption on the first $10,000 of normal chargeable income; and b) 50% exemption on the next $290,000 of normal chargeable income.

Now, the tax exemption under the PTE scheme will be adjusted to: a) 75% exemption on the first $10,000 of normal chargeable income; and b) 50% exemption on the next $190,000 of normal chargeable income.

All other conditions of the scheme remain unchanged. This change will take effect on or after YA 2020 for all companies (excluding those that qualify for the SUTE scheme) and bodies of persons.

Explaining the changes in the SUTE and PTE schemes, the Minister said in his Budget speech, “These schemes help lower costs for smaller firms and start-ups, but do not directly help firms develop capabilities, which we want to achieve. In addition, every profitable company should pay some taxes. This is sound and equitable. Also, even with these adjustments, corporate tax will remain low for start-ups and smaller firms. For a taxable income of $100,000, the effective corporate tax rate is 4.3% for start-ups and 8.1% for older firms, as compared to the headline rate of 17%.”

Foreign Worker Levy

In good news for the Marine Shipyard and Process sectors, the earlier-announced increases in Foreign Worker Levy rates have been deferred by one year.

Related Article: Singapore Budget 2018-Overview of tax changes for businesses and individuals

Financial help for companies engaged in innovation, R&D, collaborations

With this Budget, the Singapore Government has clearly indicated its mission to make innovation pervasive throughout the country’s economy. As such, it has introduced several measures to propel businesses towards that mission, including launching a pilot Open Innovation Platform later this year. This will be a virtual crowd-sourcing platform, where companies can list specific challenges that can be addressed by digital solutions. They will then be matched with info-communications and technology (ICT) firms and research institutes, to co-develop solutions.

Productivity Solutions Grant

All existing grants supporting the adoption of pre-scoped, off-the-shelf technologies will be streamlined into a single Productivity Solutions Grant (PSG).

The PSG will provide funding support for up to 70% of qualifying costs. Businesses can apply for the PSG through the Business Grants Portal (BGP), with effect from April 1, 2018. The portal will guide businesses through the application process, by allowing them to select from a list of supportable equipment and technology solutions relevant for their sectors.

Enterprise Development Grant (EDG)

In April, SPRING and IE Singapore will merge into Enterprise Singapore, which will provide integrated support to companies, for internationalisation as well as the development of other capabilities, so as to help them compete better both locally and abroad.

To provide more holistic and customised support to local enterprises seeking to build deep capabilities, scale up, and internationalise, SPRING Singapore’s (SPRING) Capability Development Grant (CDG) and IE Singapore’s (IE) Global Company Partnership (GCP) grant will be combined into the Enterprise Development Grant (EDG).

The EDG will provide funding support for up to 70% of qualifying costs from FY 2018 to FY 2019. Businesses can apply for the EDG through the BGP, with effect from Q4 2018. Before then, businesses can continue to apply for the CDG and GCP grants, through the BGP. EDG will be administered by Enterprise Singapore (ESG).

PACT

To provide more holistic support to encourage collaboration between enterprises of all sizes, all existing grant schemes that support various forms of partnerships between companies, will be combined into the PACT scheme.

It will provide funding support of up to 70% of qualifying costs, for collaborations between companies in areas including capability upgrading, business development, and internationalisation. PACT will be administered by Economic Development Board (EDB) and ESG.

Research and Development (R&D)

The tax deduction for qualifying expenses incurred on R&D done in Singapore has been raised from 150% to 250%. This change will take effect from YA 2019 to YA 2025.

IP registration

The Minister has raised the tax deduction for IP registration fees from 100% to 200%, to help firms protect their intangible assets. This will be capped at $100,000 of IP registration fees per year. This change will take effect from YA 2019 to YA 2025.

Licensing payments for IP use

With the expiry of the Productivity and Innovation Credit (PIC) scheme, the tax deduction on licensing payments has reverted to 100% for YA 2019 and beyond. This has been raised to 200%, capped at $100,000 of licensing payments per year. This change will take effect from YA 2019 to YA 2025.

New commercialisation vehicle – NRF-Temasek IP Commercialisation Vehicle.

This year, the National Research Foundation (NRF) and Temasek will launch an NRF-Temasek IP Commercialisation Vehicle. This new investment venture will bring together Temasek’s global investment networks and NRF’s connections with the Singapore R&D community, to grow companies that draw on IP from publicly-funded research. At least $100 million will go into this joint venture – $50 million from the Government, and at least $50 million from Temasek

Strategic advantages of Singapore highlighted in the Budget 2018 speech

Geographically

Singapore is well-connected to the world, with flights to over 400 cities and shipping routes to over 600 ports globally. Within Asia, the city-state has extensive connectivity to over 100 Asian cities by air and more than 250 Asian ports by sea. This augurs well as analysts have unanimous agreement on the shift in global economic weight towards Asia.

Moreover, to strengthen Singapore’s status as an air and sea hub, the Government will launch an Aviation Transformation Programme (ATP) and a Maritime Transformation Programme (MTP) this year. Through these programmes, it is aimed that Singapore’s airport and seaport will become platforms for companies to develop, test and use new technologies. “The solutions that emerge can be rapidly adopted in other parts of Singapore, or even exported overseas. We will provide support of up to $500 million for the two programmes, with additional matching investments expected from industry partners,” the Minister noted.

Digitally

Singapore is already connected to the world with over 500 terabits per second of potential capacity; and continues to enhance this connectivity by investing in digital infrastructure, as well as land links such as the KL-Singapore High Speed Rail.

Ever since, it was launched last year, SMEs Go Digital Programme has benefited more than 650 businesses. The Government is also working on a nationwide e-invoicing framework.

The Tech Skills Accelerator – launched in 2016 – has also seen over 27,000 training places taken up or committed. The Government will expand the Accelerator into new sectors like manufacturing and professional services, where digital technologies are increasingly important. Notably, the Tech Skills Accelerator (TeSA) is a tripartite initiative by the Government, industry, and NTUC, to build and strengthen the digital workforce for the Singapore economy, and to enhance employability outcomes for individuals in the information and communications technology (ICT) profession.

A Smart Nation Sensor Platform to deploy sensors and “Internet of Things” devices to enhance municipal service delivery; as well as a National Digital Identity system to enable citizens to authenticate their identities securely and easily when making online transactions, are other developing initiatives.

Industry transformation

In a bid to anchor Singapore as a Global-Asia node of technology, innovation and enterprise, the Government has already launched 21 out of the proposed 23 Industry Transformation Maps (ITMs), with the support of businesses, Trade Associations and Chambers (TACs) and unions. The tripartite Future Economy Council (FEC) is now overseeing the implementation of these ITMs and the strategies laid out by the Committee on the Future Economy (CFE). The remaining two will be launched by the end of March. Though new, the ITMs are helping to prepare Singapore companies for a new phase of growth.

Robotics

The National Robotics Programme (NRP) was launched in Budget 2016 to address labour force constraints in sectors such as healthcare and cleaning through the development and deployment of robotics and automation technologies.

Now, the NRP will be expanded to cover the built environment and construction sectors, to transform work processes in areas such as Design for Manufacturing and Assembly (DfMA) and create better job opportunities. This will be done through collaborations between public research performers and companies to develop technologies that can improve productivity and safety at construction sites and integrated construction and prefabrication hubs (ICPHs)

The NRP for the built environment and construction sectors will be administered by Building and Construction Authority (BCA).

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