This Valentine’s Day, the Singapore government will be announcing Budget 2023, showing their love for the country by allocating its budget for the respective pillars.
Ernst & Young Solutions LLP (EY) released on Jan 3 its wishlist for the upcoming Budget 2023.
In the past year, the government has placed a focus on refreshing Singapore’s social compact as the nation advances on its economic growth journey, hence launching the Forward Singapore roadmap.
Accordingly, the proposal measures in EY wishlist are for Singapore Budget 2023 are aligned with the following six pillars: Empower: Economy and Jobs; Equip: Education and Lifelong Learning; Care: Health and Social Support; Build: Home and Living Environment; Steward: Environment and Fiscal Sustainability; and Unite: Singapore Identity.
Soh Pui Ming, EY’s Singapore Head of Tax, says: “Over the past two years, Singapore has displayed tenacity and cohesiveness as we rode through the disruption brought by the Covid-19 pandemic together. While the pandemic is behind us, Singapore continues to face a highly volatile and uncertain global environment. Hence, we should stay focused as a nation and prime ourselves for any potential challenges and upcoming opportunities.”
Soh adds: “Notably, tax and incentives have always been a critical policy tool to shape the nation’s economy and growth. With BEPS 2.0 Pillar 2 just around the corner, it is paramount that we have the right tax measures to continue to attract foreign investments as well as empower Singapore businesses and individuals to grow together.”
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Empower: Economy and Jobs
EY expects an enhanced mergers and acquisitions (M&A) scheme under this pillar that will encourage Singapore companies to grow and expand through strategic acquisitions. With the looming economic uncertainty, EY believe that there may be better opportunities for M&A.
To enhance its relevance and benefits to Singapore companies, EY suggests relaxed conditions on acquiring subsidiaries under the M&A scheme. Currently, an indirect acquisition will only qualify for the M&A scheme if the acquiring subsidiary of the acquiring company meet two qualifying conditions: that it does not carry on a trade or business in Singapore or elsewhere on the date of share acquisition; and it is a 100% owned subsidiary incorporated for the primary purpose of acquiring and holding shares in other companies.
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EY also suggests that M&A allowance be allowed to be transferred to other Singapore group companies as part of the group relief system. Currently, M&A allowances cannot be transferred to other Singapore group companies as part of the group relief system.
Also under this pillar, EY expects the government to refine the research and development (R&D) regime. The existing enhanced R&D deduction of 150% will expire after year of assessment (YA) 2025. More critically, with the impending introduction of BEPS 2.0 Pillar 2, which will significantly reduce any value to the R&D tax incentives, ensuring that Singapore continues to remain competitive in attracting global R&D activities is vital.
To encourage companies to continue to set up R&D hubs in Singapore, EY suggests extending the enhanced reduction regime and consider refinements such as the option of a qualified refundable tax credit, allowing companies to cash out benefits and enhancing R&D deductions (beyond 100%) base deduction) on overseas R&D activity.
Equip: Education and Lifelong Learning
The way EY sees it, labour crunch is an imminent concern and the top reason for job vacancies in professional, manager, executive and technician roles is due to a lack in talent with the necessary specialised skills and work experience. This talent gap is more acute among SMEs.
Samir Bedi, EY Asean Workforce Advisory Leader, suggests: “To help businesses, particularly SMEs, invest in the reskilling and upskilling of their workforce, we suggest bringing back the enhanced 300% tax deduction scheme for qualifying staff costs, similar to the Productivity and Innovation Credit scheme but applied in a targeted manner.”
“Specifically, we recommend that this enhanced tax deduction scheme be only available to staff training for SMEs. To accelerate the build-up of workforce with sustainability capabilities, businesses that engage in staff training in sustainability and green economy skills can enjoy the same 300% enhanced deduction claim on related training.”
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Furthermore, workforce transformation is a journey and requires a comprehensive approach. EY suggests the government to consider enhanced measures including enhancing enterprise reskilling support for unemployed individuals. Other initiatives can include higher levels of absentee payroll support to encourage more employers to send employees for upskilling efforts, as well as a top-up of SkillsFuture for Enterprises Credits (SFEC) to provide more resources for enterprise workforce transformation and upskilling efforts.
EY also suggests the government to provide tax relief for personal development.
Care: Health and Social Support
EY sees the requirement to extend reliefs for working mothers to their spouses, as child-raising is a joint responsibility of both parents.
To that end, EY also suggests the government to extend the Foreign Maid Levy (FML) relief to single people and married men to provide care and support to ageing parents.
Build: Home and Living Environment
The Covid-19 pandemic has changed workplace settings, making hybrid work arrangements the new norm, while workplaces are seen more as a place for collaboration and networking. EY sees the need for companies to renovate and redesign their spaces to allow flexibility and foster collaboration.
Toh Shu Hui, partner, tax services at EY, says: “To facilitate workplace transformation, we suggest raising the cap from the current $300,000 to $600,000; and shortening the relevant period from three years to two years. We also suggest that the enhancements to the cap and relevant period be made a temporarily one, for YA 2023 and YA 2024 only.”
Steward: Environment and Fiscal Sustainability
Under this pillar, EY suggests for the government to include carbon credits as designated investments for funds tax incentive schemes. Desmond Teo, EY Asean private tax leader, says: “We observed that investors are taking a keen interest in the carbon market to achieve sustainability objectives for their portfolios. To facilitate the trading liquidity of carbon credits, we suggest that carbon credits be included in the list of DI.”
Meanwhile, EY suggests further encouragement for the early adoption of electric vehicles (EVs). While the recent Budgets have introduced various incentives for early EV adoption, EY Asian indirect tax leader Yeo Kai Eng suggests: “To further encourage adoption, for GST, we suggest that input tax be claimable on the GST incurred for expenses incurred in relation to EVs. Likewise, expenses incurred on EVs by businesses should be fully tax deductible and capital allowances claimable on the purchase of EVs.”
Unite: Singapore Identity
EY suggests for the government to make the 250% tax deduction for qualifying donations a permanent feature under this pillar to encourage the spirit of philanthropy for corporates and in line with the call to make Singapore a more compassionate society.
EY also suggests a tax relief for volunteering time to acknowledge those that have given their time to serve the community. To recognise this personal commitment, EY suggests a tax relief of $3,000 for individuals who volunteer with an Institutions of a Public Character (IPC) in their personal capacities for 30 hours or more in a calendar year.
