KPMG Budget Proposal aims for Singapore to seize growth opportunities for transformation
20 January 2021, Singapore – KPMG in Singapore has released its proposals on Budget 2021 for Singapore to seize growth opportunities and lead transformation at a national and enterprise level. Guided by a 3R framework proposed by KPMG in Singapore, KPMG’s Budget 2021 recommendations are set out to re-imagine Singapore’s economy post COVID-19 environment, re-plan the industry to boost organisational changes and re-create Singapore as a city state of infinite possibilities.
The impact of COVID-19 on the Singapore economy has been significant, severely affecting various sectors. KPMG’s 3R framework proposal for Budget 2021 ensures greater effectiveness of government policies preparing the nation for when the economy rebounds. The recommendations seek to accelerate Singapore towards a smart nation and world leading supply chain hub, embracing internationalisation while creating an enterprise resilience environment. Parallel to this, the budget proposals aim to propel the nation to a new frontier by setting up green-based industries, prioritising food security, and positioning the nation as a center for asset management.
Mr Ajay Kumar Sanganeria, Partner, Head of Tax at KPMG in Singapore, said, “In the past year, the Singapore government has rolled out many programmes that have helped to soften the impact of COVID-19 among individuals and organisations. Among the measures we have proposed are introducing new programmes such as tax incentive packages to catalyse digitalisation and promote business transformation, grants to support local enterprises, and special propositions to enhance skills of the workforce in Singapore. Our proposals for Budget 2021 will further strengthen existing policies as well as propel Singapore to emerge from the crisis stronger than ever.”
“5G network will be a key driver for data consumption and create demand for innovation in the development of technological platforms. There is a need for more government support to enable faster 5G development and adoption on a larger scale, thus we propose tax depreciation for spectrum rights payments to offset costs to telcos. If left unaddressed, such costs may potentially be priced into products and services for consumers,” said Sanganeria.
Additional recommendations to drive technology adoption and digitalisation include the following initiatives:
a. Setting up a 5G technology and innovation fund to provide grants of up to 50% of expenditure for prototyping and innovation of 5G enabled solutions.
b. Extending the Market Readiness Assistance grant to provide funding for enterprises to explore solutions in 5G-ready markets.
The COVID-19 pandemic has shown that digital transformation is key to business survival. In view of the substantial costs involved and importance of digitalisation, we recommend to introduce a Digital Transformation Package, consisting of tax incentives to catalyse business transformation by supporting significant capital outlay and the workforce.
For example, we suggest additional support should be provided to encourage business to accelerate the adoption of collaboration technology, including enhanced capital allowances or enhanced tax deductions of up to 200% to 300% for investment in digital technology and training.
Sanganeria shared, “As the world becomes increasingly global and connected, dynamic geopolitical factors impact the outlook for organisations in Singapore, including supply chains. To manage supply chain risk and disruption, we suggest that Singapore should support incubation and adoption of micro supply chain models which are independent with parallel processes, structured in a simple way, and have strategic category segmentation.”
This can be done through the following recommendations:
a. Support a ‘Connected Enterprise’ model, enabling business to connect the front, middle, and back offices in order to operate an effective and efficient supply chain function.
b. Expand section 19B of the tax provision to allow writing down allowances on costs incurred on a broader range of intangible assets which are critical to the operation of supply chain and trading principles.
c. Grant 300% enhanced tax deductions for costs incurred by Singapore companies for the acquisition of new ERP system or upgrading of existing systems.
d. Introduce a ‘Regional HQ Package’ comprising of incentives and grants such as concessionary tax rate of 10% for income from regional HQ functions and grants to encourage investments to transform regional HQ functions e.g. through greater use of RPA, machine learning etc
Singapore faces several pressing challenges in the talent landscape such as an ageing population and the availability of more skilled and more employable local talent. As such, we recommend exploring a few potential opportunities:
a. Re-skilling/up-skilling workforce in technologies such as Cloud technologies, AI, Data Analytics, Robotics and 5G as well as introducing these technologies at a secondary education level.
b. Relaxation of permanent establishment rules to allow Singapore tax resident individuals to work in Singapore for their overseas employers to gain the relevant experience.
c. Deferral of tax for founding and pioneer key employees on employee equity awards to support approved new start-ups in innovative businesses.
d. Special tax rebates for local professionals in qualifying industries critical to Singapore’s economy and eco-system.
Key concerns faced by enterprises now, that arose due to COVID-19 are cash flow due to lower spending by consumers and manpower constraints. In addition to placing cash in the hands of enterprises, it is equally important to ensure cash outflow is minimised in both short- to medium-terms when the economy is picking up, as well as helping enterprises hire and train the right talent to ensure enterprise survival and resilience. To achieve this outcome, KPMG recommends the following:
a. Enhanced Group Relief (GR) scheme to allow utilisation of prior years’ unabsorbed capital allowances, trade losses and donations, etc.
b. No cap on the 3-year loss carry back for losses arising due to the impact of COVID-19
c. Corporate income tax rebate of 15% capped at S$100,000 for companies that hire a certain percentage of personnel who had earlier lost jobs due to COVID-19
Sanganeria said, “Singapore and its financial eco-system have the potential to become a green finance hub by facilitating the establishment of sustainable finance and funding corridors in line with international standards and regulations. To assist in early-stage development of a green economy, we are proposing grants and subsidies to be deployed to line up the Singaporean eco-system to fund and finance projects in ASEAN.”
KPMG recommends that the following considerations should be given:
a. Special grants of up to $250,000 for investments in infrastructure and technology platforms for decarbonisation.
b. Enhanced 200% tax deduction for finance costs on loans applied and grants to co-fund 70% of consultancy and professional fees incurred to re-design of processes for environmental optimisation.
To improve food security, Singapore will need to consider encouraging urban farming using existing real estate assets, maximising current land usage for vertical farming, and boost diversification into sustainable sources of protein. These approaches to handling food security and taking advantage of the latest food technologies will help Singapore generate new employment and productivity avenues through the following recommendations:
a. Land intensification allowance to be extended to agri-tech and aqua-tech industries.
b. Introduce a new incentive for agri-tech and aqua-tech industries, for example, tiered concessionary income tax rates of 5/10%, subject to conditions such as production capacity and nutrition value of the food produced.
c. Enhanced R&D Tax Incentive Scheme which includes extending the list of eligible expenditure to capital expenditure on plant and machinery, utilities, as well as to remove the deemed 60% rule on outsourced R&D expenditure to accelerate innovation in these industries.
The tax exemption regime of the Singapore Income Tax Act has propelled Singapore to be a fund domicile of choice. This list should be reviewed on an annual basis to consider investment trends to enable Singapore domiciled funds to achieve tax neutrality for new investment products that are currently not included in this list. To support the growth and development of this ever-evolving sector, KPMG recommends further liberalising the framework by:
a. Providing a framework that automatically exempts all Singapore Special Purpose Vehicles (SPV) wholly owned by an exempt fund as long as certain conditions are met to cut down uncertainty of tax treatment and compliance burden.
b. Creating a new tax incentive regime for managers of emerging alternative investment asset classes to boost growth and accelerate the creation of an ecosystem for these new asset classes by providing preferential regime of 0% or 5%.
There is a growing trend for family offices and Singapore should roll out initiatives to compete on a global scale. We recommend providing flexibility for family members to be counted towards the Investment Professional (IP) headcount under 13X, even on a part-time basis (subject to certain conditions). Many families may want to set up family offices for their second generation to manage family investments, but these individuals may still be in the early stages of their career and unable to commit to a full-time IP under 13X incentive.
Please refer to KPMG Budget 2021 Proposal for more details on our recommendations.
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