27 March 2016

Singapore announces SME-friendly Budget 2016

Source: Budget in Brief document on Singapore Budget website. Corporate income tax rebates are now 50% of tax payable for YA2016 and YA2017.
Source: Budget in Brief document on Singapore Budget website.

Singapore's Minister for Finance Heng Swee Keat has introduced a new Industry Transformation Programme (ITP) to strengthen enterprises and industry, and to drive growth through innovation. The new initiative builds on efforts under the Quality Growth Programme, which was introduced in Budget 2013 to achieve growth driven by innovation and higher productivity. "The aim is to enable our firms to emerge stronger to benefit from the broader global recovery when it takes place," he said in his Budget speech.

The ITP will integrate different restructuring efforts, adopt a more targeted and sector-focused approach, deepen partnerships between the government and industry as well as among industry players, and stronger emphasis on technology adoption and innovation. It will include initiatives at both the firm and industry levels, such as a Business Grants Portal, an Automation Support Package, an expanded SME Mezzanine Growth Fund, an extension of the Double Tax Deduction for Internationalisation scheme, a National Trade Platform, support for the National Robotics Programme, and an enhanced Local Enterprise and Association Development programme (LEAD-Plus). In addition, to drive transformation through innovation, a new entity, SG-Innovate, will be established to provide stronger support for startups. There will also be a topup to the National Research Fund, and the launch of the Jurong Innovation District.

The ITP has three key thrusts. "First, we will support the transformation of enterprises, to build deep capabilities, deploy technology, develop scale and internationalise. Second, we will support the transformation of industries, to adopt technology and innovate faster, come up with common industry solutions, seek new markets overseas, and deepen industry partnerships. Third, we will drive transformation through innovation," said Heng.

Transforming enterprises

Heng highlighted the experience of Xin Ming Hua, one of the largest distributors of engines and power systems in Asia today, as how enterprises can transform effectively. "It has been active in innovating and building up in-house design and manufacturing capabilities; adopting automation to achieve productivity gains of up to 75% with the help of Republic Polytechnic1; and internationalising and scaling up its operations to serve customers better," he said.
i. Automation Support Package from SPRING

Over S$400 million in the next three years to support firms in scaling up automation projects
  • Grant to roll out or scale up automation projects (up to 50% project cost, capped at S$1 million) 
  • New investment allowance of 100% for automation equipment for qualifying projects
  • Improve SMEs’ access to loans for qualifying projects (government ups risk share with participating financial institutions from 50% to 70%)
  • IE Singapore and SPRING to help businesses access overseas markets
"Currently, there is no support for the scaling up of automation projects. As these involve significant financial outlays, some companies find it difficult to commit," explained Heng.

ii. Financing and tax incentives 
  • Expand SME Mezzanine Growth Fund from S$100 million to S$150 million by matching up to S$25 million of new private sector investment on a 1:1 basis. 
  • Merger & acquisition (M&A) allowance on up to S$40 million of consideration paid for qualifying M&A deals, up from the present $20 million cap per year of assessment (YA) 
  • Upfront certainty of non-taxation of companies’ gains on equity investments extended until 31 May 2022
iii. Support for internationalisation 

"In 2015, IE supported 34,000 companies in their internationalisation efforts, a 21% increase over 2014. In 2016, IE expects to help around 35,000 to 40,000 companies of all sizes to venture overseas2," Heng noted.

Extend Double Tax Deduction for Internationalisation scheme till 31 March 2020. The deductions cover qualifying expenses incurred for activities such as participation in overseas business development and investment study trips.

iv. Business Grants Portal 

Make application of government schemes easier for businesses, to be ready in Q416

Heng acknowledged that businesses can find it difficult to find the grants that best apply to them, and announced a one-stop Business Grants Portal that will address the challenge. "This portal will be organised along core business needs of capability building, training and international expansion. Firms will not need to go from agency to agency to figure out which schemes apply to them," he said.

"The portal will also prepopulate details that are available in the Accounting and Corporate Regulatory Authority (ACRA) database. The Business Grants Portal will start with grants from IE Singapore, SPRING, Singapore Tourism Board (STB) and DesignSingapore and progressively include grants from other government agencies.

"We will also continue to review and simplify the various support schemes, to improve access, and to strengthen assistance for enterprises at various stages of growth."

Transforming industries

"Industry-level transformation works best if firms partner one another, or if industry associations lead the effort, because they know their needs best. Government agencies can support by initialising lead demand or through regulatory changes. We need to form close partnerships among firms, industry associations and government to drive industry-level transformation," noted Heng.

i. National Trade Platform

• Next-generation platform to support firms in trade
• Electronic data sharing among firms and the government
• Estimated S$600 million worth of man-hour savings each year for firms

Heng said the National Trade Platform would support firms, particularly in the logistics and trade finance sectors. "This will eventually replace our current TradeNet and TradeXchange systems.
As a one-stop trade information management system, the National Trade Platform will enable electronic data sharing among businesses and government. Firms only have to provide trade information once and authorise its use by logistics providers as well as business partners. The information can also be used for customs and other trade regulatory approvals. This will be especially helpful for SMEs, to cut costs and streamline processes," he said.

"The National Trade Platform is not just an IT system. We will develop it as an open innovation platform, so that other service providers can develop value-added services and apps in areas such as operations, visibility and trade finance."

ii. National Robotics Programme

• Over S$450 million set aside in the next three years to scale up development and adoption of robots

"Robotics technology can enable us to work more effectively in a tight labour market. It can also create more high value-added jobs," noted Heng, sharing that Singapore hospitals typically use robotic technology in the pharmacies to select and pack medication accurately and quickly. 

"This frees up time for pharmacy staff to provide advice on medication. Autonomous transporters are used to move supplies efficiently in the hospital. Our hospitals are also trying power-assisted bed transport technologies to reduce the manual effort in moving patients. All these technologies can improve efficiency and transform the healthcare industry," he said.

"Apart from healthcare, robotics and automation technology can be applied widely to transform sectors such as construction, manufacturing and logistics. We announced the National Robotics Programme last year. We will now scale up our efforts, and in particular, work with solution providers to offer packaged solutions to SMEs at a reasonable cost." 

iii. Local Enterprise Association and Development (LEAD) Plus
• Funding support for trade associations and chambers to strengthen capabilities and drive industry-wide solutions to common challenges
• Up to 20 public officers seconded to interested TACs as part of LEAD-Plus over the next five years. Various TACs have already expressed interest.
• Up to S$30 million set aside over the next five years

Transforming through innovation

i. Deepening innovation capabilities

• Up to S$4 billion for industry-research collaboration under the Research, Innovation and Enterprise (RIE2020) plan; S$1.5 billion topup to the National Research Fund to support the first set of RIE2020 initiatives
• Greater flexibility for cost of acquiring intellectual property rights (IPs) to be written down over five, 10 or 15 years. The scheme, extended at Budget 2014 till YA2020, allows businesses to claim writing down allowance on the cost of acquiring IP rights, including patents, trademarks, registered designs, copyrights, over a period of five years.

Heng highlighted Procter and Gamble Singapore, which worked with A*STAR and EDB to set up the Singapore Innovation Centre (SgIC). "It is one of P&G’s major innovation centres, focusing on research and product development for its global business units in homecare, healthcare, grooming and skincare. "The SgIC will be a key open innovation hub to accelerate and facilitate collaborations between P&G and partners in Asia, including Singapore enterprises," he said. 

ii. SG-Innovate

• New entity to match budding entrepreneurs with mentors and introduce them to venture capitalist firms
• Facilitate access to technology, talent, markets and investors

"SG-Innovate will build on what has been done by the Infocomm Investments Private Limited (IIPL), and work with SPRING and EDB to expand the accelerator programmes to new and emerging sectors such as smart energy, digital manufacturing, fintech, digital health, and the Internet of Things," Heng said.

iii. Jurong Innovation District

• Bring researchers, students, innovators, and businesses together to develop products and services of the future
• First phase to be completed by around 2022

"Our earlier industrial estates were developed for specific industries, focused mostly on production. Today, however, learning, research, innovation and production are closely intertwined. The Jurong Innovation District will create an environment to house these different activities within a single, next-generation industrial district. This has the potential to transform how we live, work, play, learn and create," said Heng.

Jurong Town Corporation (JTC) is currently constructing Launchpad @ JID, to be completed in 2017, to serve as a space for entrepreneurs, researchers and students to design, prototype, and test-bed their new innovations. JTC has also launched an Open Innovation Call to invite private sector technology owners to test-bed and develop innovative and sustainable infrastructure solutions within the District. According to Heng, the first phase of Jurong Innovation District is targeted for completion around 2022.
Source: Tan Seng Kee Foods (TSK). TSK is known for its KangKang (康康) fresh, preservative-free shelf-stable noodle range.
Source: Tan Seng Kee Foods (TSK). TSK is known for its Kang Kang (康康) fresh, preservative-free shelf-stable noodle range. The company is launching Express Meal Kits, which incorporate its noodles together with sauces for laksa (middle), curry mee (right) and the non-spicy prawn mee (left). All products are halal. 

Minister Heng described the local food manufacturing industry as an example of how the ITP can work successfully. "The food manufacturing sector shows the importance of mindset – as one of the industry’s leaders told me: “There is no such thing as a sunset industry, only sunset thinking!” he said, noting how Singapore food companies have put in place many innovations. Tan Seng Kee, for instance, has become the first company in Singapore to export fresh noodles that can be easily prepared with special sauce mixes, and Foodgnostic which is growing through internationalisation and food exports.

"As an industry, our food manufacturers built on their innovations and Singapore’s trusted reputation for high quality and safe food to jointly create the Tasty Singapore brand. Using this brand, they are internationalising and selling to China, India, the Middle East, and even Africa. They are now expanding through e-commerce, using websites such as Tmall.com," he said.

"The food industry integrated their efforts. The combined novelty and quality of their individual products allowed them to stand out as a group. The sharing of common facilities gave them economies of scale. And building the Singapore brand together won them global recognition. In turn, their success creates a virtuous cycle of investments."

The food industry has also been investing in people, and partnering with industry associations, educational institutions3, government agencies4, and with each other, he added. "As a result, what once appeared to be a sunset industry – because of low margins and high labour cost – is now a thriving sector. Value-add per worker has grown considerably from 2010 to 2014," he said. "It shows that transformation comes not only from individual firms but the industry as a whole working together."

"We are launching the Industry Transformation Programme to transform our enterprises, transform industries and transform through innovation. These three thrusts will take concerted partnership to realise. I have highlighted a few examples of how enterprises and entire industries can embark on this transformation journey, but these are just a beginning," Heng summarised. 

"As a government, we must adopt a more integrated approach to support transformation. Our agencies will work more closely together, integrating their different support schemes to take a more targeted approach to developing each industry. We will work closely with enterprises and at the industry-level to develop transformation maps for each sector. These will help us allocate the resources to develop each sector appropriately."
The Corporate Income Tax (CIT) Rebate will be raised this YA from 30% of tax payable to 50% of tax payable, with a cap of S$20,000 in rebates each year for YAs 2016 and 2017. "The last time we had this 50% rebate was in YA 20015," Heng noted. "The higher percentage rebate is targeted at SMEs."

Heng also announced the "tapering of broad-based measures". The PIC scheme, which currently offers cash payouts in tandem with tax deductions, will have lower cash payout rates - from the current 60% to 40% for expenditures incurred on or after 1 August 2016. The 400% tax deductions remain unchanged. The PIC scheme is to expire after YA 2018, Heng added.

A Special Employment Credit (SEC), due to expire this year, will be modified and extended to the end of 2019 to provide employers with a wage offset for workers aged 55 and above earning up to S$4,000 a month6The SEC will cover about 340,000 workers, or about three in four older Singaporean workers. Employers with Singaporean workers aged 65 and above will continue to receive a wage offset of up to 8%, in addition to the wage offset of 3% for the re-employment of workers aged 65 and above till the re-employment age is raised in 2017. The SEC will be up to 5% for workers aged 60 to 64 and up to 3% for those aged 55 to 59, Heng said.

An SME Working Capital Loan scheme will be introduced, for loans of up to S$300,000 per SME and available for three years. Under this scheme, the government will co-share 50% of the default risk of such loans with participating financial institutions to encourage lending to SMEs.

An existing Transition Support Package, introduced in FY2013, will also continue to support firms in raising productivity. Heng noted that firms will receive a total of S$1.9 billion for qualifying wage increases given under the Wage Credit Scheme7, the largest payout to date.

The Singapore government will also support people through change, by enabling them to learn new skills especially in new, fast growing sectors, and in facilitating employment and job-matching. Singaporeans will see career support through continued investments in SkillsFuture, help through the Adapt and Grow initiative to find jobs, and a new approach to jobs and training that partners companies and industry associations more closely. Wage support schemes will be expanded for workers facing difficulties in finding new employment, and Professional Conversion Programmes will be expanded to more sectors.

The new TechSkills Accelerator, a skills development and job placement hub for the ICT sector, will develop more Singaporeans to take advantage of job opportunities in the sector, and help to drive the Smart Nation effort. The accelerator will facilitate training opportunities for in-demand ICT skills, develop industry-recognised skills standards and certification, and place greater value on certified skills proficiency.

KPMG called the Singapore Budget "finely-balanced", noting that it focuses on two broad groups — the small and medium sized enterprises (SMEs) and the people, "highlighting the importance of a concerted partnership between enterprises, trade associations and chambers (TACs), government agencies, and unions".

"It pledges support for SMEs that are venturing into innovation and exploring foreign markets, by affording easier access to government grants and support. It also looks at adopting effective short-term measures that will help our economy to continue restructuring and growing domestically, while being equipped to also compete internationally. The focus is outside of large multinational companies, yet the approach is sector-focused, with calibrated measures that address the unique needs and challenges faced by Singapore’s SMEs," said Tham Sai Choy, Chairman of KPMG’s Asia Pacific Region and Managing Partner, KPMG in Singapore.

There are pros and cons for companies, however. “The increase in the corporate tax rebate largely benefits SMEs who are paying tax. Startups who are making losses will not be able to enjoy the benefits. In fact, the reduction in PIC cash payout may be a let-down for startups who have invested in PIC initiatives and are cash-strapped,” noted Anna Low, Tax Partner, KPMG Singapore.

For new ruling on IP has long-term advantages, on the other hand. “The flexibility to claim writing-down allowances on the acquisition cost of IPs over a longer period will help companies to take full advantage of foreign tax credits on foreign royalty income arising out of such IPs. Previously these were often lost due to higher amount of claims squeezed over a fixed period of five years. While we do not have a 'Patent Box' regime yet, tweaks like this go a long way in encouraging companies to bring IPs to Singapore as these help to minimise the tax impact," commented Ajay Sanganeria, Partner, Pharma and Life Sciences, KPMG in Singapore.


Read more about the Budget 2016 announcements

Watch the delivery of Singapore Budget 2016 on video

Visit the VSlashR blog for embeddable charts on Singapore Budget 2016 and data.gov.sg for charts on government expenditure

Read the WorkSmart Asia blog post about PwC Singapore's recommendations on the Budget prior to the announcement
Read the WorkSmart Asia blog post about how the Singapore food industry is innovating to grow
Read the TechTrade Asia blog post about developments in Jurong

Hashtags: #SGBudget2016

1 Centre of Innovation for Supply Chain Management

2 This targeted assistance is provided through the Global Company Partnership and Market Readiness Assistance.

3 The Food Innovation & Resource Centre (FIRC) is a Centre of Innovation in Singapore Polytechnic. It was established in 2007 to provide food enterprises with technical expertise in new product and process development, including packaging, shelf-life evaluation and market testing. FIRC also works closely with the Singapore Food Manufacturers' Association to organise workshops for the industry. From 2010 to 2015, FIRC supported more than 300 companies on shelf life extension, product innovation and process improvement.

4 From 2011 to 2015, SPRING supported more than 900 innovation, automation and standards adoption projects, benefitting some 500 companies.

5 The rebate for YA 2001 was 50% of tax payable on the first S$25,500 (i.e. cap of S$12,750), and 5% of tax payable on the excess of S$25,500.

6 A lower SEC is provided for workers with a monthly wage of between S$3,000 and S$4,000.

7  This includes wage increases given in 2015, as well as those sustained from 2013 and 2014.