PricewaterhouseCoopers comments on the Singapore Budget 2009

Singapore, 22 January 2009 – PricewaterhouseCoopers (PwC) Services LLP in Singapore unveils its comments for the 2009 Singapore Budget.

Against the backdrop of an unprecedented and truly global recession, Paula Eastwood, Head of Corporate Tax at PwC Services LLP (Singapore) comments, “A bold and inventive Budget with some decisive moves that not only address the current problems being faced in the downturn, but which also keep an eye on the future recovery with enhanced incentives in growth areas in a number of industries. The reduction in the corporate tax rate to 17 percent was not widely expected, but very welcomed for businesses that are able to remain profitable in 2009. As a longer term measure, a reduced tax rate helps Singapore’s competitiveness once the economy recovers.”

Personal Tax

James Clemence, Partner, PwC International Assignment Services (Singapore) Pte Ltd
“With employees facing salary cuts and no bonuses, the tax rebate will be welcomed. However, having contributed so much to the surpluses of previous years put aside by the government for a ‘rainy day’, white collar employees are not exactly going to be ‘singing in the rain’.

The Finance Minister seems to have taken the view that if you have a job, you should be grateful. Whilst this is clearly a generous Budget, I would have liked to see more being done to retain the foreign talent that the government has worked hard to get in recent years.”

Sentiments to Jobs Credit Scheme

Elaine Ng, Tax Partner, PwC Services LLP (Singapore)
“The government should be applauded for the Jobs Credit Scheme as an alternative to a CPF cut. This innovative measure addresses both the concerns of businesses and individuals. It helps businesses alleviate costs to preserve jobs, yet it also helps individuals preserve CPF contributions for their housing and retirement needs. It is hoped that the government will treat this as a non-taxable grant for businesses.”

Corporate Tax

David Sandison, Tax Partner, PwC Services LLP (Singapore)
“Extension to the loss carryback provisions and the one year tax amnesty for repatriation of foreign sourced income for companies (amongst other changes) demonstrates that the government listens to feedback and acts on it swiftly, with a pragmatism that is unique amongst developed economies.

The removal of the investment limits for local corporate investors into tax exempt funds and the recovery of GST on management fees charged to them will invariably put Singapore head and shoulders above any other city in Asia as a location for fund management. This was in many ways more than what was hoped for and is another demonstration of the government’s farsighted approach to maintaining the competitive strength of the Singapore economy.”

Peter Tan, Tax Partner, PwC Services LLP (Singapore)
A deeply thought out Budget creating a new “five C’s” for Singapore:

  1. Crisis management
  2. Confidence
  3. Competitiveness
  4. Cash flow
  5. Cash grant
Sunil Agarwal, Tax Partner, PwC Services LLP (Singapore)
“The various tax measures announced in respect of corporate tax reduction, carryback of tax losses, exemption for remittance of all foreign sourced income and accelerated capital allowances are encouraging and will certainly help taxpayers improve their cash flows in this difficult economic climate.”

Paul Cornelius, Tax Partner, PwC Services LLP (Singapore)
“The reduction in the corporate tax rate, acceleration of capital allowances and the Jobs Credit Scheme will improve Singapore’s competitive position and help attract investment in these tough times. Exempting foreign earnings from tax for a temporary period is a smart move to encourage companies to bring funds back to Singapore and encourage investment. The new amalgamation relief is welcome but appears to do little to address key issues such as interest deductibility on debt used to fund M&A transactions.”

Paul Lau, Tax partner, PwC Services LLP (Singapore)
“The tax framework for amalgamations will be much welcomed by the industry. Although the Companies Act has been revised to provide for this new form of business reorganisation, the tax framework has not been updated. This has impeded the utilisation of the amalgamation scheme. It is hoped that the new framework, when it is released, will allow for tax neutrality for businesses planning to reorganise their operations to achieve commercial efficiencies.”

Abhijit Ghosh, Tax Partner, PwC Services LLP (Singapore)
“The temporary measure to exempt all foreign sourced income with immediate effect will encourage businesses to remit cash out of offshore locations back to Singapore. The Finance Minister unveiled an aggressive lending Budget to tackle depressive times. A one percentage corporate tax rate cut backed by various incentives and grants will further enhance Singapore’s attractiveness as a key Asian business destination.”

Florence Tan-Nguyen, Partner, Private Clients Services, PwC LLP (Singapore)
“Very comprehensive and innovative approach addressing especially mid-size businesses and our fellow Singaporeans’ immediate concerns on cash flow, jobs and healthcare. The breadth of initiatives like the cash grants for employers, the extended loss carryback scheme and building a home for the future are very encouraging for Singapore businesses in tackling the various business challenges. The Budget has something helpful for everyone.”

Fund Management

Anuj Kagalwala, Tax Partner, PwC Services LLP (Singapore)
“There are four key changes for the fund management industry – all significant steps in the right direction. First, the liberalisation of the qualifying fund scheme. This will benefit Singapore companies by allowing them to invest more easily into funds managed by Singapore-based fund managers, and also benefit Singapore-based fund managers by allowing them to tap on a wider pool of potential investors.

Second, the recognition of funds set up in the form of limited partnerships as qualifying funds. Limited partnerships are commonly used fund vehicles and this recognition will allow many offshore fund managers to easily operate from Singapore without the need to restructure their funds or limit the activities in Singapore.

Third, expansion of the items of income exempt under the fund management scheme. The list is now expanded to include potential areas of growth in this time of economic crisis - emission derivatives and Islamic investment products.

Lastly, addressing the issue of GST leakage in Singapore resident funds. This should encourage fund managers to set up funds in Singapore instead of offshore jurisdictions such as the British Virgin Islands or the Caymans, which in turn will help reduce costs for fund managers, allow the use of Singapore’s tax treaties and allow the Singapore based financial services support industry to develop along with the fund management industry.

All four steps are significant improvements and once again, show that the Government is listening and acting fast.”

Mergers & Acquisitions

Chris Woo, Tax Partner, PwC Services LLP (Singapore)
“We are happy to see the help given to boost the Mergers & Acquisitions (M&A) industry. PwC has been a thought leader in this area and we are eager to see these measures increase M&A activity in and through Singapore.

Goods and Services Tax

Koh Soo How, Tax Partner, PwC Services LLP (Singapore)
The announcement to reduce the corporate tax to 17 percent was somewhat surprising. It does raise the question however of whether we will now see a quickening pace in the government’s shift to derive a higher proportion of their tax revenues from direct to indirect taxes to fund its spending for the future and strengthen long term competitiveness. This could set the scene to raise the GST rate in the future when the economic situation improves.

The proposal to allow qualifying funds to recover the input GST on their expense is not unexpected as this is something that we at PwC have been pushing for as a measure to enhance the growth and reduce the costs of the asset management industry in Singapore.

While that change and the other GST changes announced in the Budget do not have wide impact on individuals and businesses in Singapore, the government probably found it necessary to include it as part of a comprehensive package to help businesses reduce costs and improve business sentiments.

Shipping

Ho Mui Peng, Tax Partner, PwC Services LLP (Singapore)
“The Budget measures introduced are very relevant in improving business conditions and helping the cash flow of companies in various industries, particularly those who are not tax-paying or who are loss-making.

For example:
  • The risk sharing incentive for trade financing for exporters will improve shipping rates (ie. revenue) for ship owners and operators.
  • Job credit, property tax rebates, reduction in port charges and various business costs will improve cash flow.

The special risk sharing incentive for trade financing to help Singapore exporters will permeate through to Singapore-based shipping companies. The significant drop in shipping rates was attributed to a freeze in trade financing.”

Response to social initiatives

Elaine Ng, Tax Partner, PwC Services LLP (Singapore)
“It is heartening to note that the Budget proposals do not forget the charitable and social concerns which provide help for those in society who may not otherwise be able to help themselves.”

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Media Contacts

Sharon Ng , Direct Tel: (65) 6236 3963, Email: sharon.kl.ng@sg.pwc.com

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