If you’ve not been tuning in to the Budget 2018, you should.
The Budget 2018 delivered by Finance Minister Heng Swee Keat has been the talk of the town. Many plans were laid out for the new financial year with the aim of making Singapore ready for the future. While most Singaporeans are focused on the impending GST hike and the one-time ‘hongbao giveaway’, this article will centre on only enterprise-related initiatives that will concern you as a business owner. We will bring you up to speed with how the Budget 2018 can affect your business.
Startup Tax Exemption (SUTE) Scheme
If you have a start-up company, this piece of information will be important to you. Previously, start-ups that qualify for SUTE has received 100% exemption for initial $100,000 of normal chargeable income. Under the revised SUTE scheme, the exemption will now be reduced to 75% instead. For the following $100,000 which comes under the normal chargeable income, startups get 50% exemption.
The conditions of this scheme remains unchanged. All the changes introduced in this scheme will come into effect after or on the year of assessment (YA) 2020.
The SUTE is part of the government’s initiative to lower costs for start-ups and smaller enterprises. Currently, the headline corporate tax rate for matured and established companies falls at 17%. However, startups and smaller firms are only taxed 4.3% and 8.1% respectively for the first taxable income of $100,000.
Corporate Income Tax (CIT) Rebate
The Singapore government understands the difficulties faced by businesses. To support restructuring and reduce business costs for companies, the government has since extended and enhanced the CIT rebate.
Earlier, companies could only obtain a 20% corporate income tax rebate, which came with a $10,000 cap. However, the corporate income tax rebate will now double to 40% of the payable tax in 2018. The current cap for the corporate income tax rebate will also increase to $15,000.
The ones who stand to gain the most from the extension and enhancement of the corporate income tax rebate would be the relatively matured small businesses. This would help businesses cope with increasing cost pressures while allowing them to grow.
Tax reduction rates for IP and R&D expenses
The government intends to enhance tax deductions for all research and development (R&D) expenditure for projects performed within the country. To push companies to innovate more rapidly, the tax deduction for consumables and staff costs for approved R&D projects will increase from 150% to 250%. All the other conditions that come under this scheme will continue to remain the same. The changes introduced by the government to the R&D expenses will come into effect from the years of assessment 2019 to 2025.
To help firms with the protection of their intangible assets, the government has also made tax reduction for IP protection and in-licensing. This initiative is also in place to support businesses in innovation. Tax deduction will increase to 200% from the earlier 100%, capped at the $100,000 to all IP in-licensing costs per year. Such costs that come under this tax deduction scheme include payments made to other businesses or research performers which are public funded. However, a business will not be qualify if previous allowances for IP payment were made. It also excludes party-related licensing payments.
Enterprise Development Grant (EDG)
Come April, the merger of Spring Singapore and IE Singapore will form a new joint agency – Enterprise Singapore. Thus, the government will be combining SPRING’s Capability Development Grant and International Enterprise (IE) Singapore’s Global Company Partnership for Enterprise Development Grant (EDG). This initiative allows home-grown companies to be able to compete not only on a national level, but also on a global scale.
Local companies that are looking to scale operations, internationalize, and build larger capabilities will get customisable and holistic support from the new Enterprise Development Grant. Enterprises can get up to 70% funding for product development and innovation costs.
This grant will be available in the forth quarter of 2018 on the Business Grants Portal. Currently, the two individual grants by SPRING Singapore and IE Singapore respectively are still available on the portal.
Productivity Solutions Grant (PSG)
One of the aims of the Budget 2018 is to make it easy for all business to apply for grants and support for productivity and technology solutions. As a result of this, the government is looking to streamlining current grant schemes which support off-the-shelf, pre-scoped, productivity solutions into one single grant known as Productivity Solutions Grant (PSG).
This grant will offer financial support for up to 70% of business costs that meet the requirements of the scheme. The offset expenses will also help businesses to adopt, build or co-innovate relevant technology solutions and equipment which are useful for their respective sectors. From 1st April, businesses can apply for this grant through the Business Grants Portal.
TechSkills Accelerator (TeSA)
Integrating digital technologies into businesses are becoming a norm now as we try to keep up with the digital age. To do so, the government would need to strengthen the digital capabilities of the workforce and improve workers’ employability in the technology industry.
Introduced in 2016, TechSkills Accelerator (TeSA) is an tripartite initiative by SkillsFuture, jointly partnered by Infocomm Media Development Authority (IMDA), Workforce Singapore (WSG) and SkillsFuture Singapore (SSG). TeSA has a variety of programmes for information and communications technology (ICT) professionals as well as those aspiring to join or convert to the profession. These programs can help such professionals to acquire and upgrade domain knowledge and skills, which will help them stay relevant in the digital technologies industry. The government intends to set aside an additional $145 million for the TeSA programme for the next three years.
If your business revolves around infocomm technology or if you are looking to digitalise your business, this programme would be useful and beneficial for you and your employees. Some of the programmes offered by TeSA include:
- Company-Led Training (CLT)
- Critical Infocomm Technology Resource Programme Plus (CITREP+)
- Tech Immersion and Placement Programme (TIPP)
Businesses can benefit from the TeSA programme through financial support as well as training support for ICT professionals looking to enhance their digital skills such as data analytics, artificial intelligence and the Internet of Things.
Wage Credit Scheme (WCS)
The rising cost of labour constitutes a huge chunk of a business’ operating costs. Therefore, the Wage Credit Scheme (WCS) has come into play to reduce such business costs by co-funding wage increases. To help businesses further with their manpower costs, the government plans to extend the WCS. This scheme provides funding as a short-term measure to help businesses cope with wage increases.
Introduced in the Singapore Budget 2013, it has gotten an extension in the 2015 iteration. For the old scheme, a $100 increase in an employee’s total monthly wage will qualify for a 20% funding under the WCS.
Under the new extension, the government has changed the rates for the WCS. From 2018 onwards, the extended scheme will co-fund 20% of the amount. In 2019, the co-funding by the government will be 15%. In 2020, the co-funding will reach 10% of the total amount. To be eligible for this programme, Singapore employees must be earning a gross monthly wage of up to $4000 and receive monthly pay rises of at least $50.
Calculation of Wage Credit Scheme (WCS)
Let’s say your business plans to give your employees a wage increase of $100 every year from 2018 to 2020. As per the latest changes in the WCS, you will get 20% co-funding from the government for $100 in 2018, amounting to $20. For 2019, the government’s 15% co-funding will be for $200, totaling the funds to $30. In 2020, you will get 10% co-funding from the government for the total amount of $300, amounting to $30.
|Year||Increment from the previous year||Total wage increase from the first year||Wage Credit Scheme (WCS) rates||Amount funded by WCS|
Direction for businesses
Open Innovation Platform
As mentioned earlier, the government is seeking to push home-grown businesses to be more innovative. The Open Innovation Platform is an initiative designed to help businesses find digital solutions through virtual crowdsourcing. It will first start as a pilot programme.
How businesses can utilise the platform is by listing their business challenges which can be addressed by digital solutions. They will then be matched with ICT firms and research institutes that are able to co-develop the relevant solutions. This will not only benefits businesses that are seeking for solutions to their problems, it will also benefit the digital solutions providers who are seeking opportunities to solve current problems faced by other companies.
IMDA will be managing this pilot platform, which will launch during the second quarter of the financial year 2018. The underlying purpose of Open Innovation Platform is to accelerate and encourage innovation between companies through the process of collaboration. As digitisation is growing rapidly, the only way to find wholesome solutions both economically and practically is through cooperation between companies.
More generous double tax deduction for internationalisation
Besides innovation, the government is also encouraging businesses to participate in cross-border innovation and boost their efforts to go abroad. Therefore, businesses can receive support in overseas market access through tax reduction. Prior to Budget 2018, businesses have a 200% tax reduction for investment development and market expansion expenses with approval from Singapore Tourism Board (STB) or International Enterprise (IE) Singapore.
Under the latest budget, the government is making enhancements to the scheme. The cap for expenditure claims without prior approval of STB or IE Singapore has witnessed a rise from $100,000 to $150,000. Businesses with expenses of more than $150,000 can continue applying to STB or IE Singapore. Qualifying expenses includes overseas business development trips, study trips as well as participation in approved local and global trade fairs.
According to the Singapore government, the changes will come into effect after or on the year of assessment 2019.
Partnerships for Capability Transformation (PACT)
The Partnerships for Capability Transformation (PACT) is also another new initiative by the government to consolidate four existing schemes:
- EDB’s Partnerships for Capability Transformation scheme
- Spring’s Partnerships for Capability Transformation scheme
- Spring’s Collaborative Industry Projects
- IE Singapore’s Global Company Partnership Grant
This is an initiative to streamline the existing grants into a single PACT scheme.
The PACT scheme funds ups to 70% of qualifying costs when companies engage in partnerships for co-innovation and knowledge transfer. Previously, only partnerships between large corporations and SMEs qualify for the scheme. With the adjustments to the scheme under the Budget 2018, tie-ups between start-ups and SMEs also qualify. This encourages forming business alliances and pooling resources.
With Singapore’s efforts to be more environmentally friendly, a carbon emissions tax will be imposed on businesses. This is to deter large companies that are responsible for the bulk of emissions from increasing their carbon output. The implementation of carbon tax will also drive businesses to reduce their emissions rate. This will ultimately push them to do their part to be environmentally conscious. Your business will be taxed once a minimum of 25,000 tonnes of greenhouse emissions is produced. The tax amount is dependent on the total amount of emissions by your business.
Companies will need to pay carbon tax in 2020, according to the greenhouse emissions during the year 2019. For every tonne of greenhouse gas your business produces, you will have to pay $5. The tax rate is uniform to all the sectors in Singapore.
The carbon tax will be applicable for all businesses till the year 2023, after which the fees will be reviewed and increased progressively. By 2030, the tax will rise between $10 to $15 per tonne.
We hope that you are now more informed about what the Budget 2018 entails and how it would affect your business.
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