New Year wish list for Singapore Budget 2009
Singapore, 5 January 2009 – PricewaterhouseCoopers (PwC) Services LLP in Singapore unveils its wish list for Singapore’s 2009 Budget against the backdrop of a shrinking economy. Focusing on costs and cashflow concerns, the wish list addresses the immediate need for financial relief for businesses and individuals.
“We may need to look backwards in order to turn the corner in 2009. A quick-fix rescue package rather than structural or long-term measures is what is needed to help ease the tension in this rising storm. Businesses need cash more now than ever before and Singapore could differentiate itself by introducing bold fiscal measures to boost investments and increase market liquidity,” says Paula Eastwood, Head of Corporate Tax at PwC Services LLP. “Tax cuts have been suggested to be of some help, but tax has never been able to do things on its own in a vacuum. However, when timing is so critical and businesses can disappear off a cliff in a matter of minutes, every little bit would help.”
Boosting businesses with new measures
- For companies, there is a tax cost attached to the remittance of foreign-sourced income to Singapore. A “tax amnesty” window period enabling tax-free repatriation of this offshore income would help businesses that need to bring cash back to Singapore to finance their business operations.
- Remove the S$100,000 limit – equivalent to S$18,000 in tax terms – on the amount of current year losses available for carry back to offset against the prior year’s taxable income and allow the carry back to even earlier years. Add on an efficient cash refund process and this will be a potent and equitable way of getting relief to otherwise sound but currently ailing businesses.
- Specific tax rules for amalgamations and deductions for interest costs for holding companies would facilitate businesses that are restructuring and streamlining their operations, or acquiring ailing businesses. Allowing an outright deduction for acquisition interest costs against the target’s business profits would give Singapore an edge over many Asian countries in the mergers & acquisitions space.
- Another quick-fix way to free up cash is to allow the postponement of tax payment without imposing late payment penalties in objection cases where the tax position is unresolved. At present, the taxes are collected upfront and remain out of the taxpayer’s reach for as many years (and this can be many years) as it takes to finalise the tax position.
- Allow interest expense deductions for construction projects by deeming the expenses to have been incurred on the first day of commencement of business.
Easing the financial burden on individuals
- Introduce GST zero-rating or exemption for management fees charged to approved Singapore funds.
- Bringing down the top rate of income tax (currently 20 percent) to at least match the corporate rate (18 percent) would put more disposable cash in the hands of the higher earners to enable them to invest more money back into the economy.
- To the larger population, an income tax rebate is always a welcome ‘windfall’ that boosts morale in addition to short-term spending power. It is also an excellent way to inject some cheer and pump extra cash into the system without being committed in the longer term to repeat the measures year after year.
Research & development (R&D) investments and “green” initiatives
Although the knee-jerk reaction at this time is to cut costs, hunker down and wait for the sun to shine again, past economic crises have shown that the businesses and economies that emerge stronger and more resilient are those that took the opportunity to gain an edge over the competition. With this in mind, it is important that the Singapore government sustain its efforts to support R&D and innovation.
- A scheme to defer income tax payments for those who have been retrenched and who are actively seeking work would help alleviate short-term financial worries. For example, monthly GIRO payment plans could be spread over a longer period until new employment is secured.
- Allow taxpayers to claim tax deductions for at least 100 percent of the expenditure incurred for R&D outsourced overseas in relation to a new business. This will help to grow entrepreneurship R&D development in Singapore. Currently, no tax deductions are available at all for these expenses even though the intellectual property (IP) rights are owned and exploited from Singapore.
- Introduce a specific tax incentive programme that offers a concessionary tax rate for income arising from specified IP management activities. Over the past few years, tax concessions were introduced to encourage IP creation, IP acquisition and patent registration. However, there are limited tax concessions to specifically encourage IP exploitation. Due to the inherent portability of IP, it is important to have a more competitive tax regime to attract and retain IP rights and related business activities in Singapore. Otherwise, the government’s R&D and IP developmental efforts may go to waste if IP assets created here are ultimately shifted out of Singapore and exploited from elsewhere.
“Whatever the outcome of this year’s budget, the Singapore government is going to be hard pressed to please all of the people with all of the measures introduced. With adversity comes opportunities, and as always, there will be winners and losers,” concluded Eastwood.
- “Green“ tax incentives or concessions to encourage businesses and individuals to adopt or retain environmentally friendly practices and to support taxpayers engaged in “green“ initiatives such as energy conservation, waste management, etc.
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