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Singapore’s Deputy Prime Minister and Finance Minister Mr. Tharman Shanmugaratnam delivered his 2012 budget address to the Parliament today (17 Feb 2012). Here are some excerpts of his speech that specifically address SME businesses.
BUDGET SPEECH 2012 AN INCLUSIVE SOCIETY, A STRONGER SINGAPORE
- Changes to Dependency Ratio Ceilings
- Special Employment Credit
- SME Cash Grant
- Enhancement of Productivity and Innovation Credit
- Enhanced training support for SMEs
- Grants to Support SME Upgrading and Productivity
- Changes to Renovation and Refurbishment Deduction Scheme
- Changes to Mergers & Acquisitions Allowance Scheme
- Additional funding for Tourism Development Fund, R&D in Marine and Offshore sector, Exemption of GST for trading grade Gold, exemption of tax on disposal of of equity investments
C.9. We have no alternative but to slow down the growth of our foreign workforce. Some sectors, such as construction, will require significantly more foreign workers over the next five years, given our major housing and public transport projects. However, economy-wide, we will have to take further measures to avoid an ever-increasing dependence on foreign labour.
C.10. We will therefore introduce a calibrated reduction in Dependency Ratio Ceilings (DRCs) in the manufacturing and services sectors (The DRCs specify the maximum proportion of foreign workers that companies can hire). Firms that are the most heavily reliant on foreign labour will have to find ways to reduce their dependence. Many other firms in manufacturing and services are still well within their DRCs and have headroom to employ foreign workers. However, we should take the opportunity now of a slow growth year to lower the DRCs across the board in both manufacturing and services. All firms can then take this into account in their future hiring decisions. This will help to contain our dependence on foreign workers in the long term.
C.11. Depending on the growth of the foreign workforce in the next 12 months, we may also have to considerfurther increases in the foreign worker levy beyond July 2013.
C.12. The DRCs for Manufacturing and Services are currently 65% and 50% respectively. From 1 July 2012, we will reduce:
a. the Manufacturing DRC from 65% to 60%; and
b. the Services DRC from 50% to 45%.
C.13. We will also tighten up on the DRC for S Passes. We will reduce the S Pass Sub-DRC from 25% to 20% for all sectors from 1 July 2012.
C.14. We will give affected companies time to adjust to the new DRCs. From 1 July 2012, companies will not be allowed to bring in new foreign workers beyond the new DRCs. However, for their existing foreign workers, companies will be given until June 2014 to comply with the new DRCs. This two-year transition recognises that many companies would have already invested in their existing workers.
C.15. In total, we expect about 500 manufacturing companies and 8,500 services companies to be affected by the DRC changes. Most are small enterprises which will have to do with one or two fewer foreign workers.
C.16. We will also tighten up in the Construction sector. Besides the reduced S Pass DRC, we will further reduce the Man-Year Entitlement (MYE) quotas by 5% in July 2012, and raise levies for basic skilled workers hired outside the MYE quotas.
C.24. I will introduce several measures to help our SMEs to restructure, attract local workers, and grow. Besides these longer-term measures, I will also provide some temporary assistance to help our companies cope with the current environment of higher business costs.
Special Employment Credit
C.25. Older workers will be an increasingly important resource for companies. Compared to a decade ago, our businesses now recognise much more clearly the value of older workers.
C.26. I will provide a significant incentive to help them attract and retain older workers. All employers will receive a Special Employment Credit (SEC) for their Singaporean workers who are above 50 years old and earning up to $3,000 per month. The SEC will be 8% of wages. A lower SEC will also be provided for workers with a monthly wage of between $3,000 and $4,000. The SEC will cover almost 350,000 workers, or four-fifths of older Singaporean workers.
C.27. The SEC is unlike the Jobs Credit Scheme, which applied to all workers and was a one-off, counter-recessionary measure. The SEC will be in place for the next five years (2012-2016), to enable employers to plan ahead in hiring older workers. Beyond that, depending on labour market conditions, we will consider if the SEC should be retained, and if so in what form.
C.28. This is a substantial enhancement to the SEC which I first introduced in last year’s Budget. It will provide employers with benefits of about $470 million per year — more than twice the increase in their wage bill of $190 million as a result of higher employer CPF contribution rates for older workers, the details of which I will elaborate on later.
: In Budget 2011, a one-off Special Employment Credit (SEC) for Singaporean workers aged above 55 was introduced. This previous Special Employment Credit cost the Government an average of $33 million per year over three years.
C.29. I therefore strongly encourage companies to make full use of the SEC to hire older Singaporean workers and reward them well. The higher CPF contributions will also encourage older workers to participate in the workforce.
SME Cash Grant
C.30. Besides the SEC, I will provide a one-off cash grant to help companies offset higher business costs, which may persist in the business slowdown. The grant is sized to benefit smaller companies more. Companies will receive a cash grant pegged at 5% of their revenues in YA2012, capped at a payout of $5,000. They will receive the grant as long as they have made CPF contributions to at least one employee. The scheme will cost Government around $320 million in FY2012.
: The employee must not be a shareholder of the company.
C.33. 2011 was the first year in which businesses benefited from the PIC scheme, which provides for a 400% tax deduction on up to $400,000 spent on a broad range of productivity-related expenses, such as training or investment in equipment.
C.34. Our companies will enjoy tax savings totaling $650 million from the PIC claims they have made in this first year alone. Any company, be it small or large, new economy or old, can take advantage of the scheme. In fact, one in three small companies - those with turnover of $10 million or less – have used the PIC. They will see their taxes come down by 40% on average. And they will also see their benefits quickly because 90% of all PIC claims are processed within three months.
: These exclude companies whose status according to ACRA is dormant, inactive, no business done, in liquidation, receivership or has been dissolved.
C.35. We have received useful suggestions on how we can improve the PIC further, from business groups such as the Singapore Business Federation – SME Committee. I will introduce a few changes in this Budget:
a. To give businesses more cash upfront for their investments, I will enhance the PIC scheme to provide a 60% cash payout for up to $100,000 of firms’ PIC expenditures. This means a $60,000 payout from the Government, compared to the $30,000 given previously. This is a substantial subsidy for any SME investing in its workers or its operations. It is especially useful to companies with limited taxable income, which would not be able to benefit fully from the PIC tax deduction.
b. Next, they will get their cash payout faster, to help them with their cash flow. From 1 July 2012, companies will be able to apply for and obtain their cash payouts on a quarterly basis instead of having to wait till the end of their financial year.
c. I will also make it easier for companies to claim PIC benefits on their in-house training costs, by removing the requirement to have these training programmes certified by the Singapore Workforce Development Agency (WDA) or Institute of Technical Education (ITE). This will be for in-house training costs of up to $10,000 per year, which will cover the majority of training initiatives by smaller companies.
d. I will make other refinements to the PIC scheme which are contained in Annex A-4.
Enhanced Training Support for SMEs
C.36. I will introduce three further enhancements to support worker training.
C.37. First, more help will be given for SMEs who upgrade their workers through all courses certified by WDA, and Academic CET programmes at the polytechnics and ITE. They will henceforth get a 90% course subsidy. Together with the enhanced cash payout under the PIC, our new subsidies will effectively cover almost the full cost of training for SME-sponsored employees. Further, we will increase the absentee payroll cap from $4.50 to $7.50 an hour. This is therefore a very generous scheme, and we will let it run for three years. About 8,400 courses could potentially come under this scheme. More details will be announced by the Ministries of Manpower and Education in the Committee of Supply (COS) debate.
: For example, for a training course that costs $1,000, the SME will only pay $40.
C.38. We will provide similar training benefits for self-employed persons. WDA will work with our industry associations and agencies, such as the National Taxi Association and Media Development Authority (MDA), so that self-employed individuals such as taxi-drivers and freelancers in the creative sector can benefit.
Grants to Support SME Upgrading and Productivity
C.39. Second, we will step up grants to help SMEs transform their operations and raise productivity. L.S. Construction is an example from an industry with significant scope for improvement. We have all seen the traditional scaffoldings, covering the whole façade of a building and with working platforms at every level. Erecting such structures is labour-intensive. Their solution, using a grant from the Productivity Improvement Project (PIP) scheme under BCA’s Construction Productivity and Capability Fund, was to replace the current system of scaffoldings for high-rise building construction. L.S. Construction has introduced an integrated climbing scaffold and safety screen system commonly used in developed countries. This system moves up via cranes as the building construction progresses. The benefits — only 40% of the manpower required previously is needed to construct the scaffold.
C.40. This is not an example that involves major breakthroughs in technology. But I mention it to illustrate how companies can take advantage of our schemes to bring in existing innovations that can make a meaningful difference to their daily operations.
C.41. Third, we will increase grants for capability development amongst our SMEs from the current 50% to a 70% subsidy rate for the next three years under schemes managed by SPRING and IE Singapore. This will provide a $200 million boost over the next three years, which will help SMEs attract local talent and automate or upgrade.
C.42. Taking all these schemes together with those introduced in the last two Budgets, we will be providing substantial support to our businesses, mainly to help them upgrade and to hire older workers. This amounts to a total of about $1.4 billion this year, which will more than offset the additional amount businesses will pay due to increased foreign worker levies. This is true for our small businesses as well.
Renovation and Refurbishment Deduction Scheme
C.43. The next scheme is targeted especially at companies in the services sector. We introduced the Renovation and Refurbishment Deduction Scheme in 2008 to help businesses renew and refresh their premises, such as showroom displays or the décor for a restaurant. The scheme is due to expire next year.
C.44. Our service sector SMEs have found the scheme helpful. I will therefore make the scheme a permanent feature of our tax system, just like our capital allowance regime which our manufacturers have found helpful. I will also double the amount of expenditure that may be claimed from $150,000 to $300,000.
Mergers and Acquisitions
C.45. Another dimension of the restructuring of our economy will be through business consolidation or acquisition. It is how many of the more efficient and competitive players in each sector can gain economies of scale, acquire new capabilities, and raise overall industry productivity.
C.46. In Budget 2010, I introduced the Mergers and Acquisitions (M&A) Allowance scheme to support this. Companies are able to enjoy tax allowances of 5% of up to $100 million of the value of the acquisition. To provide further support to SMEs contemplating business consolidation, I will grant a 200% tax allowance on the transaction costs incurred, such as legal and tax advisory fees, subject to an expenditure cap of $100,000. More refinements to the M&A Allowance scheme are provided in Annex A-4.
C.57. In this year’s Budget, I am also providing further support to some of our growth industries so as to help them develop capabilities and to align the tax rules applying to them with international norms.
C.58. To develop distinctive and high-quality tourism offerings, and thereby attract higher visitor spend, we will inject an additional $905 million into the Tourism Development Fund (TDF).
C.59. Further, to capitalise on the vibrant growth of international cruise tourism, I will extend the GST Tourist Refund Scheme (TRS) to international cruise passengers departing from the Singapore Cruise Centre and the upcoming International Cruise Terminal.
C.60. I will also simplify and enhance the GST relief for goods brought in by travellers and residents returning from abroad, so as to keep pace with rising expenditures and bring the relief quantums closer to international practices. The details are in Annex A-4.
Marine and Offshore
C.61. Our Marine and Offshore industry, already a leader internationally, is developing new capabilities to take advantage of new growth opportunities. We will allocate $150 million from the National Research Fund to A*STAR and EDB to help our companies build R&D capabilities to develop solutions for deepwater oil production.
Gold Trading Hub
C.62. We will facilitate the development of gold trading, which can draw on Singapore’s strengths as an international financial centre and trading hub, to meet strong demand for investment-grade gold in Asia.
C.63. Investment–grade gold and other precious metals are essentially financial assets that are actively traded and are just like other financial instruments that do not attract GST. I will therefore exempt them from GST. This change brings our tax treatment of investment-grade gold and precious metals in line with the practices of many developed economies, like Australia, UK and Switzerland.
Providing Tax Certainty
C.64. One of the concerns of our business chambers in recent years has been the treatment of capital gains. Although Singapore does not have a capital gains tax, businesses face some uncertainty about whether the gains from the disposal of their investments would be subject to income tax. I will set out clear guidelines specifying when a company will not be taxed on their gains from disposal of equity investments. Details on this and other tax changes are in Annex A-4.
For the full budget speech and more information on other schemes announced during the budget, visit the Singapore Budget 2012 website here.