In many ways, this year’s Budget is a continuation of the process to transform Singapore’s economy. The push is for quality growth, while building an inclusive society.
Most Singaporeans had something to gain from this year’s Budget. Examples include enhanced subsidies for school-going children, greater CPF contributions for workers, and subsidies for low and middle-income groups.
However, the key feature in this year’s Budget has to be the Pioneer Generation Package.
In one of the boldest announcements to date, the Government will set aside S$8 billion for this initiative aimed at recognising the contributions of first-generation Singaporeans. To qualify, these Singaporeans had to be born in 1949 and earlier, and received citizenship by 1986.
This package honours and recognises the contributions of this generation in nation-building, and strives to offer them peace of mind by supporting their healthcare costs.
Benefits come in three forms, through MediShield Life, Medisave top-ups and Outpatient care. Expected to benefit 450,000 Singaporeans, further details will be announced in the coming months.
As Singapore’s Deputy Prime Minister Tharman Shanmugaratnam puts it, the best we can do for the Pioneer Generation is to live out their values as we seek to build a better future for Singapore.
Enhancing productivity
The Government recognises that economic and social enhancements need to go hand in hand for sustainable long term economic progress.
The drive towards greater productivity has finally begun to take root in Singapore, but there is still a lot of work to be done.
Therefore, the announcement that the popular Productivity and Innovation Credit (PIC) scheme will be extended for another three years until Year of Assessment (YA) 2018 recognises that the productivity journey is a long and continuous one.
We are naturally pleased, as this was one scheme we had expressed a hope of seeing in our Budget 2014 wishlist.
Extension of this scheme will especially help companies who are only starting out on their productivity journey to bite the bullet and restructure their business.
Better yet, this was enhanced with the announcement of PIC+, which increases the claim for expenditure cap from S$400,000 per year to S$600,000 annually, up to a maximum of $1.8 million over three years.
Noteworthy that this is clearly intended to benefit Singapore’s enterprises most, PIC+ is targeted at companies with turnover under S$100 million and employing less than 200 workers.
Innovation gets a nod
Businesses are also cheered by the extension of the research and development (R&D) incentives for a further 10 years to 2025. This points to a recognition that innovation activities involve long term investments that take a longer time to bear fruit than productivity investments.
Announcements were also made to encourage an increase in other value-creating activities surrounding the exploration of new markets, and building of new capabilities through adoption of information-communication technology (ICT).
And these were exactly what we had called for in our Budget Wishlist.
Combined with existing broad-based measures such as the S$5,000 Innovation and Capability Voucher (ICV) and the Capability Development Grant (CDG) schemes, businesses are getting a leg up in value-creation activities.
However, we wonder if these incentives will go far enough to support cash-strapped businesses. Since they are allowed only to receive up to $60,000 in cash grants per year under the PIC, these may not cover more significant investments, especially in R&D.
Nevertheless, we can see that they were developed with an eye on Singapore’s small and medium-sized enterprises (SMEs).
Further, with the push to encourage SMEs to adopt infocomm technologies through the new ICT for Productivity and Growth (IPG) programme, SMEs can now tap on more innovative ICT solutions for growth, going beyond the usual purchase of computers and software.
These measures, which include others such as the financing provided to support internationalisation, will help more companies in their bid to innovate.
Brands need more credit
While laudable, we regret that we did not see more measures aimed at encouraging companies to focus on growing their brand, which had been on our wishlist.
One area that businesses may be particularly disappointed in is how there isn’t more support for branding initiatives.
Current incentives do not recognise the intangible nature of efforts to create a strong brand.
KPMG had called for a tax incentive by way of a tax allowance for internally-generated brands. Branding helps to improve competiveness of businesses.
This is unfortunate, given that the single market of the ASEAN Economic Community (AEC) come into force in 2015.
Singapore may have lost an opportunity in this year’s Budget to place the Republic’s businesses in a position of strength to exploit the potential benefits of the AEC.
Having stronger, local brands will allow them to compete more effectively in the region.
We hope this is something the Government can look into for future Budgets, to encourage local companies to grow their brand, pursue originality and value creation.
This article is contributed by Tay Hong Beng, Partner and Head of Tax, and Harvey Koenig, Tax Partner at KPMG in Singapore.