SBS Consulting Analyzes the Actual Rewards of Singapore Budget 2015 to the SMEs in Singapore
The Singapore budget 2015, also called as ‘Jubilee Budget’ promises to offer some splendid support schemes for the elderly and middle-income families. Nevertheless, while analyzing this budget at one point you might think that Singapore has again missed an opportunity to boost its productivity target. With increased taxes, decreased business incentive schemes and flourishing competitive business environment the costs of doing business in Singapore have also increased. Especially the small and medium sector in Singapore is finding it hard to invest in long-term productivity and innovation. Usually, SMEs invest their limited resources towards the immediate needs of business, but the increased labor costs, increased CPF Contributions and other similar changes forbid them to come over restructuring pain.
The Benefits of Singapore Budget for the Small and Medium Companies in Singapore
The importance of SMEs in Singaporean economy is far more than anticipated. Overall SMEs contribute about 50% of Singaporean economy and more than 70% in employment. Indeed, the Singapore government has offered exceptional support to SMEs to improve their productivity. The Expiring Wage Credit Scheme, Productivity and Innovation Credit Scheme, the innovation and Capability Voucher Scheme and many such schemes supporting SMEs adopt telecommunication and technology and finances for internationalize their business are already in place. However, in this blog we will look at the some of the key highlights in Budget 2015 that in one or the other way will affect the SME sector in Singapore.
A). Transition Support Package
The initial Transition Support Package was introduced in 2013 with an aim to help small and medium sized businesses in restructuring and sharing their productivity gains with the workers in the form of higher wages. The Wage Credit Scheme (WCS), Corporate Income Tax (CIT) Rebate and the Productivity & Innovation Credit (PIC) Scheme constitute the main elements of TSP. The revised changes as per Budget 2015 in each of these three schemes are given below
- WCS: 20% of the amount will be contributed by the government for the wage increase given to Singaporean workers earning monthly salaries up to S$4,000.
- CIT Rebate: The existing CIT rebate rate will be extended till 2017, but with a slight difference. The CIT will be capped at S$20,000 pulling it down from previous years S$30,000.
- PIC Scheme: The PIC Bonus scheme will lapse after the YA 2015. However, the main and other PIC schemes will continue to offer the same benefits to the SMEs they offered in previous years.
Over the period of three years, it is estimated that the disbursement under TSP will be about S$7.5 billion. Besides current TSP is extended over YA 2016 and YA 2017 for offering additional time and comfort to the SMEs for adjusting to the tight Singapore labor market.
B). Temporary Employment Credit (TEC)
Starting from YA 2015 the TEC is raised by 0.5% – 1% of wages.
Current TEC is extended for an additional two years, allowing enough time for the employers to adjust with the increased CPF Contributions
To allow offset two-thirds of the employer’s costs in YA 2016 due to the changed CPF contribution, the government will offer additional TEC at 1% per wages in the YA 2016 and at 0.5% of wages in the YA 2017.
C). Foreign Labor
As of now, Singapore is experiencing a real crunch in the skilled labor. Budget 2015 explains it would initiate defer planned levy increases for S Pass holders. The same change will also be effective for the Work Permit holders in manufacturing, marine and construction sectors.
The frozen levies at 2014 will be leveled for 2015 and 2016.
Defer announced the levy is increased to 2016 for service and marine process sectors.
Levy for highly skilled labor (R1) will be reduced in 2015 and 2016, whereas levy for basic skilled labor (R2) will be increased from 2015 – 2017.
D). Business Innovation
The Singapore government hoping to build a better future for the country has strengthened its support for innovation activities in Singapore companies.
A simplified application process is initiated for SMEs interested to apply for SPRING application under Capability Development Grants (CDG) for projects below S$30,000. In specific cases, increased support through these grants is expected to offer funding support of 70%, to the qualified SMEs.
The Collaborative Industry Projects (CIP) is expanded and the Partnership for Capability Transformation (PACT) will be enhanced and extended.
Helping companies commercialize and develop new products, the National Research Fund will be topped with additional S$1 billion in this year.
The co-investment cap in the SPRING’s Startup Enterprise Development Scheme and Business Angel Scheme will be increased.
In order to provide alternate financing to the high-growth companies, a venture debt risk-sharing program will be launched with the help of several financial institutes. SPRING is aimed to provide 50% risk sharing with partnered financial institutions for granting business loans. The said loan will be offered for an initial period of two years with an objective to catalyze about 100 venture debt loans. The estimated total for the scheme is about S$500 million.
E). Enhanced Support for Internationalization
The Singapore government has announced three primary majors to help local SMEs internationalize their business. The motive behind this enhanced support is to motivate a number of Singapore companies in expanding their business overseas while anchoring their key business activity HQ in Singapore.
- IE Singapore Grant Scheme: Offering benefits to almost 700 SMEs, qualified SMEs will receive increased support from 50% to 70% by IE for three years.
- Double Tax Deduction: To help SMEs flourish in the international market and enhance overseas employment of skilled Singaporeans, the Singaporean government has announced enhanced tax deductions from the salaries of Singaporeans posted overseas.
- International Growth Scheme: Companies fulfilling the qualifying criteria will now enjoy 10% concessionary tax rate on the incremental income they will be earning through qualifying business activities.
F). Enhanced Support for Merger & Acquisition
To spur acquire and acquisition and to motivate companies to acquire scale, attract talent and compete evenly in the international market, the Singapore government is planning to implement efforts approximating S$100 million over the period of five years.
Under these efforts, the Merger & Acquisition scheme introduced in 2010 is expected to continue for another five years. In addition to that, the tax allowances for the acquisition cost are expected to increase from 5 – 25% of the value of the acquisition.
Qualified companies are allowed to claim M&A benefits for acquisitions resulting in minimum 20% shareholding in the targeted or acquired company.
The Internationalization Finance Scheme (IFS) by IE Singapore is also extended in support of M&A.