Budget Wishlist 2010

PricewaterhouseCoopers unveils wish list for Budget 2010 as Singapore prepares for an upturn in an uncertain world

SINGAPORE, 27 January 2010 – PricewaterhouseCoopers (PwC) Services LLP in Singapore unveils its wish list for the Singapore 2010 Budget against a backdrop of what seems to be signs of economic revival.  Focusing on cashflow to enable businesses to take advantage of the upturn, the wish list also addresses the need to attract talent and nurture its target industries.

Personal Tax

Attracting the talent

The government should consider aligning the highest personal tax rate with the corporate tax rate of 17%.  This would help bring the Singapore personal tax rates down very close to those of Hong Kong.  In addition, the not ordinarily resident scheme (which taxes individuals only by reference to the time spent in Singapore) should be tweaked in order to make it permanent.  It does not seem to make sense to penalise individuals with higher taxes once they have been here for five years.  This would also bring it on a par with what is available in Hong Kong. 

“In that light, it would be difficult to contemplate how a London banker, faced with super-tax on his bonus and 50% on his earnings coming up, would be able to resist the prospect of a move to Singapore”, quips David Sandison, Tax Partner, PwC Services LLP.

Bringing in their businesses

The government should also consider reviewing the reduced tax rates for incentives and the final withholding tax rates. With the reduction in the corporate tax rate over the years from a high of 40% (where the 10% incentive rate represented only a quarter of the full rate), the differential between the current 17% and the incentive rates (10%) and final withholding tax rates (15%) may no longer be a big enough draw for businesses considering Hong Kong as an alternative.

Catching the tourist wave

The availability of industrial building allowances, which give companies the ability to deduct the tax depreciation of certain buildings, should be extended to align the scheme with the government's aim of making Singapore a tourism, media and entertainment hub.  For example, IBA claims could be allowed for hotel buildings and restaurants. The savings could go to reducing hotel and entertainment costs, thus making Singapore a cheaper location to visit for tourists and offsetting the inevitably high labour costs in a tight market.

Liquor duties should be removed or reduced.  This will allow Singapore to compete more effectively with Hong Kong as a wine hub and it also supports on-going efforts to attract tourists and exhibitions to Singapore through the integrated resorts.

Providing cash-flow

The group relief system, whereby the losses of one group can be set off against the profits of another, should be enhanced in the following manner:

• Reducing the minimum equity holding requirement to 51% from the current 75%;
• Extending group relief by removing the Singapore holding company requirement as it should be sufficient that the group has common ownership. The group relief system should also be extended to non-corporate entities such as limited partnerships and limited liability partnerships;
• Introducing consortium relief. Under this, consortium members are allowed to take a proportionate share of the losses of the consortium company.
• Allowing companies more flexibility to decide the amount that should be set off. Currently there is nothing.

This will maximise cashflow efficiencies that leverage off the tax asset created by losses and thus provide additional support for expansion.

Currently there is a limit on the amount of tax losses that can be carried back to prior years.  Whilst this limit was increased to $200,000 in the 2009 Budget, it is still considered to be well short of the mark if it is to have any noticeable impact on ailing businesses and their shortage of cash.  Essentially, the limit should be removed.

For SMEs

The government should introduce incentives to encourage the growth of local SMEs and support entrepreneurial activity.

“Currently, incentives are confined to rewarding failure rather than courage in investing. Getting cash to assist start-ups and expansion is particularly important in a difficult and uncertain economic environment where entrepreneurial activity is likely to be high as a matter of necessity”, adds David Sandison.

Investors should be allowed tax deductions for investments that are made into funds set up to assist local SMEs.  This could also apply to investments in local start-ups.  There could also be exemptions for tax on disposal gains upon the expiry of a predetermined investment period.  This was an approach which was put to good use in the UK back in the 1980s and 90s.

Goods and Services Tax

Towards a clinical testing hub

GST zero rating should be allowed for clinical testing services.  Currently, testing services performed by clinical trial companies are standard rated if the tests are performed on imported samples that are not subsequently re-exported.  To encourage Singapore's objective of creating a home for clinical trials in Singapore, the services should be zero rated regardless of the subsequent disposal of the samples in Singapore. 

Help for the telcos

Zero rating should also be extended for international telecommunication transmission services to local leased circuit lines (LLCs) or networks, so long as they are to be used in connection with the international leased circuit lines (ILCs) or networks.  At present, zero rating relief is only available to the LLC if it is provided as part of the provision of the ILC, and the LLC and ILC is provided by the same supplier.  This reduces competitiveness.

The retirement timebomb

The CPF has become less and less significant as a retirement savings mechanism over the years.  Reasons for the reductions have been cited as the need to reduce the cost to business.  Not all businesses however are struggling, but the current trend has been to assume that everyone is, and impose on them restrictions that might not be appropriate to their desires or circumstances.  Therefore the government should introduce a range of tax-deductible statutory CPF contribution rates to give some latitude to companies who want to contribute more to help their employees save for their retirement, to do so.  To ensure that the objective of saving for retirement is met, certain rules may be implemented to ensure the contributions made in this manner are channelled to the Special or Medisave accounts of the employees instead of the ordinary account where they can be used for housing.

Fund management

Protected cell companies and open-ended investment companies should be introduced to allow investors greater flexibility when using Singapore as a fund location.  This would complete Singapore's armoury of fund vehicle options and put it on a par with all the choice fund locations elsewhere in the world.

Tax compliance and administrative matters

Holding company issues

What we have seen recently is a more rigorous approach by the Inland Revenue Authority of Singapore when being asked to provide certificates of residency.  These are generally required by Singapore's tax treaty partners when allowing benefits under the tax treaties.

This has caused some concern in relation to Singapore's continued appeal as a holding company location for the region.  To remove this concern and introduce some certainty, the government should consider amending legislation to treat a company incorporated in Singapore as a tax resident.  This is the criterion applied for example in the UK.  It should then be left up to the tax authorities in the requesting jurisdiction to determine, by reference to their own criteria, whether the company is there simply for tax purposes or has a commercial basis which allows them to give the treaty benefits.

Simplification made difficult

FRS 39 tax treatment should be elective instead of requiring taxpayers to opt out.  Under this treatment, companies can use the accounting treatment in relation to financial assets and liabilities for tax purposes, rather than have to track purchases and disposals that have been traditionally dealt with on a realisation basis.  In practice however, only companies in the financial services sector would have the sufficient volumes of transactions to make compliance with the traditional method that difficult. Turning the treatment from an opt-in rather than opt-out, reduces the risk of failing to opt out for the majority of taxpayers who will generally not benefit from the treatment anyway.

Levelling the playing field

It should be possible for taxpayers objecting against assessments to obtain postponement of the tax charged by the assessment without the imposition of late payment penalties.

- ENDS -

Media contacts:
Daniel Heng - +65 6236-7262, daniel.ck.heng@sg.pwc.com
Gary Gan - +65 6236-4074, gan.sa.gan@sg.pwc.com
Chia Sher Ling - +65 6236-3961, sher.ling.chia@sg.pwc.com

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