FOCUS

BUDGET 2019

LOKE HOE YEONG, FELIX WONG, JOYCE HAN

PLANNING FOR THE FUTURE AMID GLOBAL UNCERTAINTIES

The 2019 Singapore Budget speech was delivered by Minister for Finance Heng Swee Keat in Parliament on February 18. In his speech, he noted that Singapore’s economy grew 3.2% in 2018 in tandem with global expansion. This year, however, global growth is expected to taper, given the greater uncertainties and downside risks. Amid the turbulent changes that continue on the world stage, this year’s Budget rang in initiatives to build and maintain a strong, united Singapore, with security and social issues taking up large portions of the Budget speech.

Pundits called the 2019 Budget a classic one, with the government redistributing the country’s surpluses among the most vulnerable in society. This was highlighted by government spending on multiple social initiatives aimed at making Singapore a more inclusive society, which helps to provide a balance against measures such as the impending increase in the Goods and Services Tax from 7% to 9%; the increase is scheduled to take place in the 2021 to 2025 period. Mr Heng also announced “goodies” such as the S$8-billion Merdeka Generation Package1 and initiatives to commemorate the 200th anniversary of the founding of modern Singapore, in the form of a broad-based S$1.1-billion Bicentennial Bonus. These will particularly benefit the mid- and lower-income earners, students and older workers nearing retirement.

In terms of economic restructuring, this Budget comes after the industry transformation maps (ITMs) across all 23 sectors have been rolled out. For Budget 2019, Mr Heng listed three thrusts to boost Singapore’s economic transformation journey:

  • Building deep enterprise capabilities;
  • Building deep worker capabilities, and
  • Encouraging strong partnerships within Singapore and across the world.

ISCA POST-BUDGET FOCUS GROUP 2019

Two days after Mr Heng delivered the Budget speech, 10 key representatives from trade associations and chambers (TACs), professional services firms and business leaders gathered for the ISCA Post-Budget Focus Group Discussion (FGD) on February 20.

On the whole, the panellists regarded the Budget positively – it is favourable to small and medium-sized enterprises (SMEs), and largely a continuation or expansion of existing initiatives. “The initiatives announced will support the TACs’ efforts to implement industry transformation in their respective sectors,” said Lee Fook Chiew, CEO, ISCA.

Improving Access To Resources For Capability-Building

The FGD panellists called for the government to place greater emphasis on improving the implementation of grants and other support programmes, in order to encourage more SMEs to tap on these enhanced measures.

It was also noted that larger SMEs were better able to commit resources towards grant hunting and application, compared to the “long tail” of smaller SMEs for which this was impossible and hence, the greater likelihood of the former being awarded such grants. The grant criteria for some SME-centric schemes may also exceed the reach of a large portion of small to mid-sized SMEs. Given these circumstances, a general perception among SMEs and TACs was that the government’s grant schemes tended to favour larger and more stable companies over smaller SMEs, even though the smaller SMEs were the ones that needed the grants more, such as to help them meet rising business costs.

However, it was noted that the SME category is a very broad one that groups micro-enterprises, mid-sized, as well as multi-million-dollar companies together.2 Some panellists floated the idea of tiering grant schemes along parameters such as the size of the annual turnover of the business. As a second step, the outreach efforts of government agencies in promoting these tiered grant schemes could also be similarly targeted at each of these SME sub-category types.

Encouraging Greater Digitalisation

The FGD panellists reported an observable growth in interest among SMEs to digitalise, as a result of previous policies to encourage digital transformation, such as the Productivity and Innovation Credit (PIC) scheme. While Budget 2019 built upon the existing SMEs Go Digital platform – through the introduction of more pre-approved solutions online – some panellists gave feedback that businesses preferred customised solutions to increase productivity, rather than plug-and-play-type products. It is hoped that the government would in future consider funding customised solutions rather than just pre-approved solutions. This was a suggestion previously cited by panellists at the ISCA Pre-Budget FGD held in October 2018.

Some businesses also called on government agencies disbursing grants to be less conservative in their approach. Companies highlighted that there was always an element of risk and failure when embarking on an innovation or transformation journey. Allowing one bad apple to spoil the whole barrel would be contradictory to national efforts to encourage digital transformation and innovation.

Related to this was the feedback that agency officers could be more understanding of the pain points faced by industry, with respect to the grant evaluation process. A suggestion was made for agencies to consider involving industry representatives to sit on evaluation panels, to fill the knowledge gap in the agencies.

Addressing Manpower Needs Amid Shrinking Workforce

Mr Heng warned that foreign labour growth, particularly in the broad services sector, was becoming unsustainable. He announced a two-step reduction to the services sector’s Dependency Ratio Ceiling (DRC) and the S-pass sub-DRC, with an overall 5% reduction to both by 2021.

This was a hard pill to swallow, especially among businesses in industries already facing a manpower and talent crunch. Still, the government deemed it a necessary measure that would nudge businesses to begin restructuring their payroll. That is in part because foreign manpower is projected to become scarcer in the coming years as other economies in the region develop further, making it more attractive for individuals to remain in their home countries to build a career.

Cognisant of this reality, the panellists offered suggestions for the government to consider, to help affected companies to transition. One food and beverage (F&B) company suggested that the Ministry of Manpower (MOM) allow companies some flexibility in the deployment of their staff to adjust to the changes. For example, companies in the F&B industry could be allowed to deploy their foreign staff across multiple sectors of operations (for example, central kitchens and front-line service), with a cap on man-hours to prevent abuse. Another panellist proposed that an innovative policy experiment would be to make it easier for Dependant’s Pass holders – that is, the family members of an Employment Pass or S Pass holder – to get clearance to take on part-time work – tapping on people already in Singapore as an alternative pool of workers.

Reinforcing Linkages With TACs As Part Of Wider Business Ecosystem

TACs and professional associations and organisations are natural allies in the government’s drive for national transformation. In his Budget speech, Mr Heng called on TACs to “spearhead worker upskilling and develop industry-wide capabilities, such as improving access to local and international networks”. He cited the ISCA-Singapore University of Social Sciences (SUSS) Business Analytics Certification programme, which equips accounting professionals with practical skills in data analytics, as an example of such an initiative. This was an area the Institute had anticipated high growth in as the profession transformed and business evolved online.

Overall, the TAC panellists acknowledged that when it came to transformation, there was still much work to get their industries moving. This was especially so for smaller, less tech-savvy SMEs that perennially fell behind in their awareness and capacity to transform. More cross-sectoral collaboration, even among TACs, could solve common resource challenges and increase the reach of their efforts. To this end, the focus group became, in itself, an avenue for the cross-sector panellists to bounce ideas for potential collaboration and forge connections with each other.

TAX MEASURES

Corporation Tax

Mr Heng indicated that as the current corporate tax rate of 17% is competitive, there would be no proposed changes to the corporate tax rate.

Separately, the government has reaffirmed its commitment to support innovation efforts of businesses through the extension of two key tax schemes. The Writing Down Allowance (WDA) for acquisition of qualifying Intellectual Property Rights (IPRs) will be extended for another five years to cover capital expenditure incurred in respect of qualifying IPRs acquired on or before the last day of the basis period for Year of Assessment (YA) 2025. Similarly, the 100% Investment Allowance under the Automation Support Package introduced in Budget 2016 will also be extended by two years, for projects approved by Enterprise Singapore from 1 April 2019 to 31 March 2021.

Towards A Greener Singapore

To safeguard Singapore’s environment for a more sustainable future, Mr Heng announced plans to further restructure diesel taxes towards a more consumption-based model. Effective from 18 February 2019, the excise duty on diesel fuel has been doubled from S$0.10 to S$0.20 per litre. Correspondingly, the annual special tax for diesel cars and taxis was permanently reduced.

Supporting Our People

A Personal Income Tax (PIT) rebate of 50% of tax payable was announced for YA 2019. The PIT rebate, albeit with a cap of S$200, came as a pleasant surprise for individual taxpayers, especially when no PIT rebate was granted in YA 2018. On the S$200 cap, Mr Heng explained, “I have set the cap at S$200 so that the benefits go mostly to middle-income earners.”

Working mothers who engage the help of their parents, parents-in-law, grandparents or grandparents-in-law to look after any of their children who is handicapped and unmarried, can also look forward to more support as the government relaxes the qualifying conditions for the Grandparent Caregiver Relief (GCR) scheme. Currently, working mothers can only claim GCR for a child aged 12 years and below (during the year preceding the YA of claim); with this change, they will be able to claim GCR in respect of a handicapped, unmarried dependent child, regardless of the child’s age, from YA 2020.

Still on the individual tax front, the popular “Not Ordinarily Resident” (NOR) scheme, which was introduced in Budget 2002 to attract talent with regional and global responsibilities to relocate to Singapore, will lapse after YA 2020. While this change may come as a surprise to some, it should not negatively affect individuals who have been accorded the NOR status as their NOR tax concessions will continue until expiry (the last such NOR status will expire in YA 2024). The government has also assured that Singapore will continue to build a conducive environment to attract and retain highly-skilled individuals through its competitive tax regime, stable political, economic and social environment, strong regional connectivity, and high standards of healthcare, housing and education.

Ensuring The Relevance And Resilience Of Our Tax System

A further tightening of our GST system was announced in this year’s Budget – the reduction of GST import relief for travellers. This follows the Budget 2018 announcements to raise GST by two percentage points some time between 2021 and 2025, in addition to the introduction of a Reverse Charge mechanism and an Overseas Vendor Registration regime to collect GST on the importation of services in respect of Business-to-Business (B2B) and Business-to-Consumer (B2C).

To ensure that Singapore’s tax systems remain resilient amid rising international travel and changing shopping trends, the quantum of GST import relief for travellers has been adjusted downwards from 19 February 2019. Following the change, travellers who spend fewer than 48 hours outside Singapore will get GST import relief reduced from the first S$150 to S$100 of the value of goods bought overseas, while travellers who spend at least 48 hours outside Singapore will get GST import relief reduced from the first S$600 to S$500 of the value of goods bought overseas. Practically, the change would only bring about a small increase in GST for travellers (up to S$7). Separately, travellers will also be entitled to less duty-free allowance for liquor products from 1 April 2019.

While numerous Budget schemes are introduced yearly to support businesses, there is a sense that businesses, particularly smaller businesses, may not have the expertise to fully understand and to utilise these schemes. On this, Professor Sum Yee Loong, ISCA’s Honorary Technical Advisor and SIATP’s Board member commented, “TACs are in a unique position to help businesses but are constrained by lack of resources. Each industry has its own unique challenges and focus and correspondingly, the TACs as well. The government could perhaps consider providing a broad funding programme that is flexible enough to enable TACs to assist their members in implementing the industry transformation.”


Loke Hoe Yeong is Manager, Insights & Intelligence, ISCA; Felix Wong is Head of Tax, SIATP, and Joyce Han is Executive, Insights & Intelligence, ISCA.


1 S$6.1 billion will be set aside to grow the funds needed for the Merdeka Generation Package, which is projected to cost over S$8 billion.

2 Enterprise Singapore’s current definition of an SME is one where the company’s group annual sales turnover is not more than S$100 million, or if the company’s group employment size is not more than 200 workers