Transformation has become part of who we are and what we do as a nation. Budget 2020 takes decisive steps to move our transformation journey forward, while bringing our nation closer to KPMG’s vision of Singapore becoming the Transformation Capital of Asia.
ESG aims to support up to 3,000 enterprises in FY 2020 with the Enterprise Development Grant (EDG). The EDG provides SMEs with up to 70% support in three areas: Core Capabilities, Innovation and Productivity, and Market Access.
Enterprise Leadership for Transformation (ELT), aimed at business leaders with the ambition and commitment to transform their business, is a three-year pilot focused on helping the professional growth of SME business leaders.
The programme comprises:
Even if business leaders do not know where or how to start the transformation of their business, the ELT programme provides personal coaching and guidance. Regardless of the company’s stage of growth, leaders of enterprises who are motivated to transform can now tap on this programme to gain knowledge and jump-start their journey.
With the target of 3,000 enterprises, ESG wants to help the wider pool of Singapore companies transform and scale to achieve their next phase of growth – be it strengthening their business foundation, embracing innovation or venturing overseas.
The EDG covers a broad spectrum of business needs under the three areas by supporting costs involved with initiatives such as business strategy development, financial management, automation and expanding overseas market presence.
Companies should definitely take advantage of the opportunities presented by ESG as soon as possible and embark on their transformation journey.
The MRA Grant is a broad-based enterprise grant scheme that provides 70% funding for eligible costs incurred by SMEs taking their first steps overseas.
It supports prescribed activities to help SMEs in the following areas:
To accelerate the internationalization efforts of SMEs, the MRA Grant will be enhanced as follows:
The larger MRA Grant cap is a long-awaited enhancement and will be welcomed by businesses.
Expanding overseas can involve significant investment in activities such as feasibility studies, getting advice on legal, business and tax considerations, business incorporation, etc. Hence, the previous cap may have been inadequate for comprehensive planning of expansion into a single market, let alone multiple markets.
The enhancement of the MRA Grant is therefore a step in the right direction. For example, companies can leverage on the enhanced MRA Grant support to engage consultants which can now include FTA and customs planning.
There should however be flexibility on how "new market" is to be interpreted. For example, Shanghai might be considered as a different market from Beijing in view of different tastes or buying preferences.
The Double Tax Deduction for Internationalization (DTDi) scheme currently gives businesses an automatic 200% tax deduction on qualifying expenditure of up to S$150,000 incurred on four specified activities. Businesses may apply to ESG or STB to claim double tax deduction (DTD) on qualifying expenses exceeding the expenditure cap, or those incurred for other qualifying activities.
Budget 2020 proposes to extend the qualifying period of this scheme to 31 December 2025.
The DTDi scheme is now enhanced to include the following expenses from 1 April 2020:
a. Third-party consultancy costs relating to new overseas business development to identify suitable talent and build up business networks
b. New categories of expenses incurred for overseas business missions
The enhancements provide better support to businesses venturing overseas; in particular, first-timers looking to establish an overseas business development team and network would stand to benefit. Businesses which may not have internal expertise could consider enlisting the help of third-party consultants to undertake internationalization activities.
Businesses that have already embarked on their internationalization journey would also appreciate the expanded scope of support.
In 2019, ESG co-organized 230 overseas business missions, involving an approximate 3,360 enterprises. With these enhancements, the number of enterprises involved is expected to grow.
ESG will provide further details by end March 2020.
To encourage enterprises to develop the skills of employees, a few of the pertinent measures introduced include:
Employees upskilling is crucial as Singapore takes further steps to help businesses thrive in a growing digital economy. Placing employees at the core of innovation will enable strong sustainable growth and deepen enterprise capabilities.
It is critical for enterprises to recognize the skills that their workforce must possess to stay ahead. Enterprises, especially SMEs that are experiencing funding issues, may utilize some of the measures to defray some of these costs while being able to train a talent pool to foster growth and to reduce the negative impacts of job displacement.
Presently, the M&A scheme allows eligible companies to claim tax deductions and enjoy stamp duty relief up to a certain cap for qualifying acquisitions.
These benefits were only available to acquiring companies held by an ultimate holding company that is incorporated in and is a tax resident of Singapore. For foreign-owned companies enjoying certain tax incentive schemes, a waiver of this condition may be obtained.
This scheme, which is scheduled to lapse after 31 March 2020, will now be extended to cover qualifying acquisitions made on or before 31 December 2025. However, the following changes are proposed for acquisitions made on or after 1 April 2020:
a. Stamp duty relief to lapse for instruments executed on or after 1 April 2020
b. No waiver to be granted for the condition that the acquiring company must be held by an ultimate holding company that is incorporated in and is a tax resident of Singapore
This extension of the M&A scheme will provide a continuous drive to encourage and support enterprises, especially SMEs, to continue to transform and grow via strategic acquisitions. However, the stamp duty relief (which is currently capped at S$80,000) will be withdrawn.
MOF also commented that the said waiver for MNCs will no longer be granted, so that the incentive will be more targeted at providing much needed support to SMEs.
MNCs with headquarters in Singapore that are looking to expand inorganically will not enjoy this benefit further.
The DRC refers to the percentage of foreign workers to local workers that businesses are allowed to hire. The S Pass sub-DRC refers to the percentage of foreign employees on S Passes to local workers.
The sub-DRC for S Passes for the construction, marine shipyard, and process sectors will be reduced from 20% to 15%. This will be done in two stages:
Current S Pass sub-DRC: 20%
S Pass sub-DRC from 1 January 2021: 18%
S Pass sub-DRC from 1 January 2023: 15%
The Government had lowered the DRC for S Passes and Work Permits (for semi-skilled and unskilled workers) in the services sector last year.
The DRC for the manufacturing sector will remain unchanged for now, while the earlier-announced foreign worker levy increases for the marine shipyard and process sectors will be deferred for another year. There are no changes to the policy on Employment Passes (highly-skilled foreign employees) for all sectors.
This announcement to tighten the foreign worker quota for the above industries is consistent with the Government’s policy of encouraging businesses to strengthen their Singaporean core workforce and regulate foreign worker reliance.
Those prepared to undertake transformation projects within the new DRCs can tap on the relevant assistance under the Lean Enterprise Development (LED) Scheme.
The overall DRC, which refers to the overall foreign worker quota across S Passes and Work Permits, is unchanged for these three sectors i.e. construction, marine shipyard, and process sectors. This means that businesses in these sectors can hire more Work Permit holders (semi-skilled and unskilled workers), as only the sub-DRC for S Pass (mid-skilled employees) is reduced.
The SMEs Go Digital Programme will be enhanced to support more Industry Transformation Map sectors – from the current 10 to 23. This will include new sectors such as healthcare, food manufacturing, adult, and early childhood education.
The Productivity Solutions Grant, where SMEs can receive up to 70% funding for pre-approved digital solutions, will also be enhanced to cover support for a more comprehensive suite of solutions and activities. New activities supportable under the grant will include job redesign consultancy services.
A new initiative introduced is Grow Digital, which aims to enable SMEs to access global markets via B2B and B2C digital channels. The Government will provide 70% funding for SMEs to participate in B2C e-commerce platforms. The Grow Digital initiative will also support SMEs to participate in B2B marketplaces to benefit from overseas procurement demand.
ESG and IMDA will provide further details in the second quarter of 2020.
The continuous efforts to increase technology adoption for SMEs further emphasizes its importance in this ever-connected digital era. Globally, companies have been riding the digital wave to secure international income sources. This makes the Grow Digital initiative an aptly-timed scheme which aims to help SMEs quickly scale up in the global arena.
By leveraging established online distribution platforms, SMEs will be able to develop multichannel / omnichannel B2B and B2C networks to reach out to a wider market much faster, as they will not be burdened with developing their own platforms and channels. The essence of speed coupled with the ability to utilize built-in capabilities such as advanced data analytics and artificial intelligence in such platforms will likely lead to increased revenue growth for SMEs. Having access to multichannel online platforms can also help increase brand loyalty as customers will be better served by seamless consumer usability and connectivity.
Overall, these enhancements will put SMEs in a better position to be competitive globally.
Tax depreciation is currently available under a writing-down allowances scheme for qualifying capital expenditure on the purchase of an indefeasible right to use an international submarine cable system.
This scheme, which was scheduled to lapse after 31 December 2020, has been extended till 31 December 2025.
Connectivity is key to Singapore's transformation as a Global-Asia Node of Technology, Innovation and Enterprise.
Keeping in mind the progressive roll-out of the 5G network by telecommunication companies in Singapore within the next two years, this ability to claim tax depreciation on significant capital expenditure on the purchase of an indefeasible right to use an international submarine cable system will be pivotal to maintaining and improving competitiveness.
As part of Singapore’s continuing commitment to combat climate change, the following are proposed:
Close to S$1 billion commitment for research on Urban Solutions and Sustainability
The change: This will cover a host of environmental solutions including circular economy models to manage waste, research on renewable energy alternatives, cooling measures and carbon capture.
The way forward: Given rapid global urbanization, it is the right time for Singapore to establish itself as a test case for innovative urban solutions. We need to replicate our success in NEWater – an initiative that created circular economy advantage.
NEWSand (using Incineration Bottom Ash) can be a ground-breaking sustainable solution for construction and infrastructure sectors. The commercial viability of these innovations will position Singapore to capture new opportunities offered by climate change initiatives.
Initial injection of S$5 billion for a Coastal and Flood Protection Fund to address the existential threat of rising sea levels
The change: This follows the National Day Rally 2019 estimate of more than S$100 billion over 100 years.
The way forward: This fund will not only encourage a suite of new climate change players to explore effective / innovative solutions to kick-start a climate adaptation and mitigation ecosystem; it will also position Singapore as a model for climate risk mitigation for other coastal cities and countries to follow.
The change: The Government will take a lead role by progressively procuring cleaner vehicles and moving towards a mobility future by putting in place an enhanced public charging infrastructure as well as incentives to encourage more pervasive adoption.
There will be a review of the existing vehicular tax structure as well.
The way forward: Amidst continued population growth, urbanization and environmental concerns, new forms of mobility are critical to support tomorrow’s population hubs and economic activities. Future mobility systems promise convenient, safe and economic mobility, with less impact to health and the environment. There are opportunities we should capture by swiftly adapting business and operating models and securing the right partnerships and acquisition targets.
The change: The HDB Green Towns Programme along with incentives for lower-income households to purchase energy-efficient appliances will encourage people-led, ground-up activities around reducing waste, water and energy use that are an essential part of an eco-friendly environment.
The way forward: The HDB Green Towns Programme is a heartlands initiative that fosters national pride, as individuals step up to do their part to reduce waste, water and energy use, supported by incentives to purchase energy-efficient household appliances.
Positive environmental impacts aside, its implicit value lies in strengthening the social fabric of our society. It is this same indomitable spirit that our pioneer generation had, and we can now replicate, to see Singapore into the next phase of transformation.