Highlights of the Singapore Budget 2016
Budget 2016 strikes a fine balance by incorporating measures to address the short-term challenges and schemes to transform and equip the nation, by means of enterprise, industry and people specific plans for the long-term economic goals. This year’s budget has shifted away from the broad based approach, as relayed by Productivity and Innovation Credit (PIC), to a more targeted approach to drive productivity through the Automation Support Package. The following is a snapshot of the key highlights of Singapore Budget 2016. The sector specific budget announcements will be discussed in a separate article.
| EXISTING | PROPOSED CHANGES | ||||||||
| MEASURES FOR SHORT TERM CHALLENGES | |||||||||
| Corporate Income Tax Rebate | |||||||||
| Companies received a 30% Corporate Income Tax (CIT) rebate, subject to a cap of $20,000 for each year for the YA 2016 and YA 2017 |
The CIT rebate will be enhanced to 50%.
But will remain capped at S$20,000 for each year for the YA 2016 and YA 2017. |
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| Special Employment Credit (SEC) | |||||||||
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The government offsets the wage expenses of employers who employ workers aged above 50 years and earn a monthly income of not more than S$4,000. The scheme was due to expire in 2016.
SEC Offset Rate Employee Age ≥50: 8% Employee Age ≥65: 8% A lower SEC is paid to workers earning monthly wages of $3,000 to $4,000. Maximum SEC Employee Age >50: S$255 Employee Age ≥65: S$345 Employers employing Persons With Disabilities (PWD), whose monthly income is below S$4,000, receive a higher offset, at a rate of 16% of their monthly wage, regardless of age. For workers aged 65 and above the offset rate is 22%. |
The scheme will be extended to another three years from 1 January 2017 to 31 December 2019. The extended SEC will provide a wage-offset to employers hiring Singaporean workers aged 55 and above, and earning up to $4,000. The wage-offset rate will be tiered as per the age of the employee with the maximum rate of up to 8%.
SEC Offset Rate Employee Age 55 – 59: 3% Employee Age 60 – 64: 5% Employee Age ≥ 65:8% (+3% until re-employment age is raised) A lower SEC is paid to workers earning monthly wages of $3,000 to $4,000. Maximum SEC Employee Age 55-59: S$90 Employee Age 60-64:S$ 150 Employee Age ≥65: S$240 Employers who hire Persons With Disabilities, who earn up to $4,000 a month, will continue to receive a credit of up to 16% of the employee’s wages regardless of age. |
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| SME Working Capital Loan new | |||||||||
| Did not exist | A new Scheme for SMEs offering loans of up to S$300,000. The government will co-share 50% of default risk with participating financial institutions. The funds should be used for daily operations, automation or upgrading of factory/equipment.
Available for three years starting from 2016. |
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| Foreign Worker Levy | |||||||||
| LEVY FROM JULY 2015 to 30 JUNE 2016
S PASS HOLDERS (All Sectors) Basic Tier workers – S$315 Tier 2 workers – S$550 WORK PERMIT HOLDERS Construction Sector R1/R2 workers – S$300/550 MYE Waiver R1/R2 – S$600/950 Service Sector Basic Tier R1/R2 workers – S$300/$420 Tier 2 R1/R2 workers – S$400/$550 Tier 3 R1/R2 workers – S$600/ $700 Marine Sector Basic Tier R1/R2 workers – S$300/$400 Process Sector Basic Tier R1/R2 workers – S$300/$450 MYE Waiver R1/R2 – S$600/750 Manufacturing Sector Basic Tier R1/R2 workers – S$250/$370 Tier 2 R1/R2 workers – S$ 350/$470 Tier 3 R1/R2 workers – S$550/ $650 |
The levy increase for Work Permit holders in the Marine and Process sector that were previously scheduled for 1 July 2016 will be deferred by one year, to 1 July 2017.
For the Construction sector Man-year Entitlement (“MYE”) waiver worker minimum experience requirement will be raised from 2 years to 3 years from 1 July 2017 For the Manufacturing sector the levies will remain frozen at July 1, 2014 rates until 2017. Proceed with levy increases for Services and Construction sectors and S Pass holders across all sectors as announced in Budget 2015. Accordingly – LEVY FROM 1 JULY 2016 S PASS HOLDERS (All Sectors) Basic Tier workers – S$330 Tier 2 workers – S$650 WORK PERMIT HOLDERS Construction Sector R1/R2 workers – S$300/650 MYE Waiver R1/R2 – S$600/950 Service Sector Basic Tier R1/R2 workers – S$ 300/$450 Tier 2 R1/R2 workers – S$400/$600 Tier 3 R1/R2 workers – S$600/ $800 Marine Sector Basic Tier R1/R2 workers – S$300/$400 Process Sector Basic Tier R1/R2 workers – S$300/$450 MYE Waiver R1/R2 – S$600/750 Manufacturing Sector Basic Tier R1/R2 workers – S$250/$370 Tier 2 R1/R2 workers – S$ 350/$470 Tier 3 R1/R2 workers – S$550/ $650 |
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| ENTERPRISE TRANSFORMATION | |||||||||
| Automation | |||||||||
| Automation Support Package new | |||||||||
| Did not Exist | A new scheme administered by SPRING Singapore having four components –
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| Scale-up Support | |||||||||
| Non-Taxation of Gains from Disposal of Equity Investments | |||||||||
| Subject to conditions gains derived from the disposal of ordinary shares during the period from 1 June 2012 to 31 May 2017 is exempted from tax. | The scheme is extended to another five-year period until 31 May 2022. | ||||||||
| Mergers & Acquisition Scheme (M&A) Scheme | |||||||||
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Qualifying Company can claim a tax deduction of 25% of the cost of acquisition per YA, for M&A deals of value of up to S$20 million. Accordingly a maximum of S$5 million tax deduction can be claimed per YA.
Stamp duty relief is available for up to S$20 million of the acquisition value of M&A deals. |
The cap on the M&A deal value has been enhanced to S$40 million.
Stamp duty relief is available for up to S$40 million of the acquisition value of M&A deals. Maximum of S$80,000 per YA. Applicable to qualifying M&A deals made from 1 April 2016 to 31 March 2020. More details will be released by IRAS in June 2016. |
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| SME Mezzanine Growth Fund SME MGF | |||||||||
| nine Growth Fund was launched in 2014 as part of government co-investment program. It is presently sized at S$100 million. | will be enhanced to S$150 million by matching up to $25 million of new private sector investment on a 1:1 basis.
This new funding will be pledged to smaller SMEs with annual revenues of $50 million and below at the time of investment. |
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| Internationalization Support | |||||||||
| Double Tax Deduction (DTD) for Internationalization Scheme | |||||||||
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Qualifying businesses can claim up to 200% tax deduction on qualifying expenses incurred for internationalization.
Automatic DTD on up to S$100,000 is allowed on qualifying expenditure without the need for approval from the Singapore Tourism Board (STB) or IE Singapore. While claims in excess of S$100,000 requires approval from the IE Singapore or the STB. The scheme was scheduled to expire on 31 March 2016. |
Both the DTD Scheme and Automatic DTD Scheme have been extended for four years until 31 March 2020. | ||||||||
| INNOVATION SUPPORT | |||||||||
| Writing Down Allowance (WDA) for Acquired Intellectual Property Rights (IPR) | |||||||||
| Companies and Partnerships can claim WDA on the acquisition cost of qualifying IPRs. It can be claimed over a period of five years commencing from the year of assessment relating to the basis period in which that expenditure is incurred. |
Companies can now elect to claim the cost of acquisition over a writing-down period of 5, 10 or 15 years.
The writing-down period must be elected at the point of tax return submission for the YA relating to the basis period in which such cost was incurred. The election is irreversible. The change applies to qualifying acquisitions made within the basis period corresponding to YA 2017 to YA 2020. An Anti-Avoidance measure has been incorporated to ensure the transacted prices of IPR are reflective of the Open Market Value (OMV) of an IPR, so that the WDA is granted on a transaction’s OMV. This measure empowers the IRAS to make adjustments to the transacted price, if the IPR is not transacted at OMV. Where acquisition price is higher than OMV, IRAS will substitute acquisition price with OMV, and restrict WDA. Where disposal price is lower than the OMV, IRAS will substitute disposal price with OMV and compute balancing charges. This anti-avoidance measure will be applied to all IPR transactions – acquisitions/sales/transfer/ assignments – made from 25 March 2016. |
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| Productivity and Innovation Credit Bonus (PIC) | |||||||||
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The scheme grants 400% tax deductions/ allowances on up to $400,000 (S$600,000 for PIC+) of spending per year in each of the six qualifying activities. The scheme is available from YA 2011 to YA 2018. (YA 2015 to YA 2018 for PIC+)
Instead of the tax deduction/allowance, eligible businesses can make an irrevocable option to convert up to $100,000 of their total spending in all six qualifying activities for each YA into a non-taxable cash payout. The cash payout conversion rate is 60%. Business may submit their application for cash payout via hardcopy or through IRAS PIC cash payout e-Service. |
The PIC scheme will lapse after YA 2018.
The cash payout rate will be slashed from 60% to 40% for qualifying expenditure incurred on or after 1 August 2016. Accordingly a maximum cash payout of S$40,000 can be claimed. Other conditions remain unchanged From 1 August 2016 all cash payout applications must be e-Filed. |
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| OTHER TAX CHANGES | |||||||||
| Land Intensification Allowance (LIA) | |||||||||
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The scheme is applicable for buildings/ structures used for qualifying business or trade activities that involve large land take and low Gross Plot Ratio (GPR).
LIA is granted as below: Initial Allowance – 25% of qualifying expenditure in the YA following the basis in which the expenditure is incurred Annual Allowance – 5% of qualifying expenditure, as along as the conditions are met in the basis period LIA is aimed to drive land productivity among industrial users by intensifying land use. It allows qualifying users to claim capital expenditure incurred on approved construction/ renovation of building/ structures. Qualifying buildings/ structures built on industrial/port/airport lands for carrying out prescribed business/trade activities can claim LIA if the following conditions are met:
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LIA is now extended to buildings used by:
LIA can be claimed on qualifying expenditure incurred after 25 March 2016. |
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| Expense Allocation (14 U and Pre-Commencement Expenses Part V/ITA) | |||||||||
| Under Section 14U of ITA, the day a business earns its first dollar is treated as the date of business commencement for tax purposes. A business can claim tax deduction on the expenses incurred by the business up to twelve months before the date of business commencement as well as the revenue expenses incurred before the first dollar is earned (collectively is known as 14U expenses).
Businesses awarded incentive in the year of business commencement, are not required to allocate the 14 U expenses to the pre-incentive and incentive income. Similarly, pre-commencement expenses granted deductions under Part V of the ITA (“the pre-commencement expenses”) is not required to be allocated between pre-incentive and incentive income. |
Section 14 U expenses and pre-commencement expenses that are directly incurred to earn the pre-incentive and incentive income must be tracked, specifically identified and set-off against the respective income.
Indirect expenses have to be allocated between pre-incentive and incentive income based on comparative income ratios (using turnover, gross profit). The changes will take effect for Section 14U and pre-commencement expenses that are incurred from 25 March 2016. |
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| Business and IPC Partnership Scheme (BIPS) new | |||||||||
| Did not Exist |
Presently businesses are allowed 250% deductions on qualifying donations made to registered IPCs, however this new BIPS has been launched to promote employee volunteerism.
Businesses sending employees to volunteer and provide services to Institutions of a Public Character (IPCs) will be granted 250% deduction on the wages and other incidental expenses, subject to agreement from the receiving IPCs. Secondments are also entitled to this deduction. The deduction is subjected to an annual cap of S$250,000 for each business and S$50,000 for each IPC. All types of entities including, sole-proprietorship, partnership, private limited company, are qualified for deduction. Wages of owners are disqualified for deduction. Available from 1 July 2016 to 31 December 2018. |
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| Extension of NPO Tax Incentive | |||||||||
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Approved Non Profit Organisations (NPO) are exempted from tax on the income derived.
The scheme is set to expire 14 February 2017. |
Extended until 31 March 2022 | ||||||||
| Mandatory E-filing of CIT returns | |||||||||
| Businesses may file their annual Corporate Income Tax (CIT) returns via paper filing or e-filing through the IRAS’ e-Services platform at myTax Portal. |
It will be made mandatory for businesses to e-file corporate income tax returns (including estimated chargeable income) to the IRAS in a phased approach from YA 2018.
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| Approved Investment Company Scheme Withdrawn | |||||||||
| In order to promote the growth of Investment Management Industry in Singapore, the gains made by Approved Investment Companies through disposal of securities were subjected to concessionary tax treatment. The gains were subjected to a tax schedule tiered according to the holding period of the securities. | It is deemed irrelevant now therefore the scheme will be withdrawn from YA 2018 | ||||||||
| Non-Residents Trading in Singapore | |||||||||
| Incomes derived by non-residents by trading in specified commodities, produced outside Singapore via consignment arrangement is exempted from tax | The scheme is irrelevant and it will be withdrawn from YA 2018. | ||||||||