In today’s world of business disruption, all enterprises face the constant challenge of either adapting to change quickly, or running the risk of becoming obsolete.However, some companies may not be equipped with the know-how to develop and implement a transformation strategy relevant to their business model, while others may not even know how to begin.
With small and medium sized Singapore enterprises accounting for 72 per cent of the workforce and 47 per cent of the nominal value added to Singapore’s economy,1 more can be done to help accelerate this group’s transformation journey to ensure they fully harness the benefits of new technologies for growth. This will in turn drive significant contribution to the Singapore economy.
For a start, these enterprises need more support to create and implement their transformation strategy and develop growth plans.
Transforming Singapore enterprises can have a direct impact on Singapore’s tax revenues, as follows:
- Despite having a workforce of 3.5 million, only about 52 per cent pay income tax.2 This could be because the majority of the non-tax paying workforce are likely to be low-skilled foreign workers in Singapore. In view of this, a change in the composition of our workforce where a proportion, say 20 per cent, of the lowest paid foreign workers are replaced by a higher value workforce3 will result in a significant broadening of Singapore’s income tax base, while also boosting GST collections given that higher income earners tend to spend more.
- A large proportion of Singapore enterprises pay little or no tax4 due to losses or low profitability. Transforming Singapore enterprises will help boost profitability which will then translate to higher corporate tax revenues.
- Successful transformation of Singapore enterprises could also lead to increased profitability of overseas enterprises. Profits repatriated, while possibly exempt in Singapore, could help enterprises reinvest in R&D and drive further expansion. This can in turn boost profitability in the future and secure increased tax revenues.
A broad strategy canvas to change the mix of our current workforce into one that has a larger proportion of higher skilled workers can be as follows:
- Accelerate adoption of automation by Singapore enterprises in order to displace routine or manual jobs.
- Upskill/reskill workers with digital skills while providing wage support.
- Pave the way for new technologies to be quickly adopted by enterprises on their transformation journey.
- Provide talent support schemes to accelerate the development of Singapore’s next unicorns and decacorns.
Challenge # 1 :
Are enterprises getting the simple, actionable resources they need to transform their business?
Many Singapore enterprises find it difficult to envision the steps toward transformation. According to a 2018 Singapore Chinese Chamber of Commerce and Industry survey, most have little understanding of the Industry Transformation Maps (ITMs). In fact, 60 per cent of respondents were unaware of ITMs, while 62.5 per cent of those who heard of ITMs were unaware of how to participate in them.
The government needs to provide clear guidance for transformation in each industry cluster, and develop a broad-based approach for such adoption.
Challenge # 1 – Our Recommendations :
a. ‘Protect & Grow Scheme’ (PGS) which caters to businesses at different stages of their development
A scheme that aims to promote productivity in the ﬁrst three years of operation, then focus on growth and value creation for the following ﬁve years (’3+5)
Businesses can set the starting date of each incentive period at a time when they are ready to embark on a productivity or value creation journey. This will enable them to best optimize the ‘3+5’ support mechanism.
Unlike the previous Productivity and Innovation Credit Scheme which expired in 2018, this PGS caters to businesses at different stages of their development and aims to catalyze investments in productivity, innovation and internationalization.
The scheme can be structured as follows:
First phase (3 years) – Improving productivity
Companies can choose the start date for this phase according to their needs:
a) 300% capital allowances (subject to caps) for investments in automation (focusing on HR predictive analytics, intelligent finance automation and smart procurement).
b) 300% tax deduction for training.
Second phase (next 5 years) – Enhancing growth and value creation through innovation and internationalization
This phase will commence immediately after the end of the first phase, with the following:
a) 300% tax deduction for R&D (including overseas R&D).
b) 300% tax deduction for expenditure related to internationalization (e.g. branding, market studies). This includes activities related to participating in approved trade fairs, exhibitions or trade missions, overseas trade office, overseas investment development expenditure and overseas employees. These are currently incentivized under Sections 14B, 14K, 14KA which are due to expire in 2020.
c) 300% tax deduction/allowance for registration, purchases and licensing of intellectual property.
Cash payout of tax benefits should be available to cater for loss-making businesses, with higher limits for initial years (start-ups may not have taxable income).
The 300% tax deduction/allowance for various categories of expenses should be subject to a cap. There should be flexibility to combine the caps across automation and training categories in the first three years, and R&D, internationalization, registration/acquisition/licensing of intellectual property categories for subsequent years.
In addition, the PGS should include a form of Wage Credit Scheme as a wage increase subsidy for employees who have successfully completed retraining and upskilling courses.
Challenge # 2 :
How can we address the slow acceptance of cloud-based solutions by both enterprises and government agencies?
Many leading-edge technologies are offered through cloud-based services that significantly reduce the time for transformation, such as in the areas of AI.
There remains some level of resistance to new technology such as cloud platforms, due in part to the amount of effort required and security risks involved. In some cases, enterprises do not have the capability to assess or manage these security risks. However, these cloud-based solutions can bring significant benefits to enterprises.
Enterprise Singapore needs to encourage greater adoption of cloud-based services among enterprises.
Challenge # 2 – Our Recommendations :
a. Extend enterprise development grants to new technology with significant capital outlay
Grants of up to 50% of qualifying costs covering deployment and implementation of technology, such as cloud
Any qualifying expenditure for cloud migration (net of grants) should also be eligible for a 200% tax deduction.
b. Support cloud-related upskilling of IT professionals
Double tax deduction for cloud-related training programmes
To support the upskilling of IT professionals in Singapore enterprise
Challenge # 3 :
How can we attract world-class talent with the skillsets we need?
Singapore is well-positioned to be the place where enterprises grow into the next unicorns and decacorns. However, one of the key challenges our enterprises face is the limited availability of talent in data analytics and cyber security, among others.
There is an urgent need to build the talent pipeline for grooming and recruiting individuals with these relevant skillsets to drive sustainable growth in the digital economy.
Challenge # 3 – Our Recommendations :
a. Talent Search
Offer grants ranging beetween 50% to 70% to support talent search and hiring costs
Applicable to qualifying outlay by Singapore enterprises.
b. Talent Grooming
Offer grants ranging between 50% to 70% to develop or participate in leadership programmes
Applicable to qualifying outlay by Singapore enterprises.
c. Talent Development
Offer double tax deduction to encourage secondment
Double tax deduction to apply to secondment-related costs incurred by companies with a network in Southeast Asia, China and India which send at least 10 per cent of their employees aged between 25 to 35 overseas for work-related opportunities within a 5-year period.
d. Workforce Upskilling
As elaborated under the ‘3+5’ scheme
1 Source: SingStat
2 Based on Year of Assessment 2018 statistics provided by IRAS (https://www.iras.gov.sg/IRASHome/Publications/Statistics-and-Papers/Tax-Statistics/). In fact,
the percentage of tax paying individuals is probably lower as IRAS does not provide a breakdown of individuals paying tax based on the type of income earned. So
the taxable group (Year of Assessment 2018) includes individuals that pay tax on income other than employment income (e.g. rental income).
3 This percentage acknowledges that Singapore will face a continual demand for foreign workers in areas such as construction and marine and offshore engineering.
4 Based on IRAS statistics for Year of Assessment 2018, 70% of companies assessed pay less than $10,000 of taxes.