Gearing up for our future
PwC comments on the Singapore Budget 2012

SINGAPORE, 17 February 2012 – PwC responds to Singapore Budget 2012, delivered this afternoon by Finance Minister, Tharman Shanmugaratnam.

Alan Ross, Head of Tax at PwC Services LLP (Singapore) shares, “The Finance Minister has presented a thoughtful, balanced and caring budget this afternoon. The clever engineering of assistance to the elderly, the support to encourage employment of older workers through the Special Employment Credit, yet continuing to focus on productivity and innovation through improvements to the Productivity and Innovation cash grant and inclusion of in-house training, is to be applauded. SMEs may feel slightly short changed and clearly had looked for more support, but I think overall the Deputy PM has set the tone and focus for the future.”

Sustaining growth in our economy

Ng Siew Quan, Partner at PwC LLP (Singapore) comments:
"I think the measures targeted at the SMEs are very encouraging such as the one-off cash grant and Special Employment credit. The improved PIC and the ability to use it for internal training is also very helpful and timely as the SMEs continue to innovate and increase productivity in the face of economic challenges and the tougher restriction on use of foreign labour. It will be good if the implementation of these measures will be simple, straightforward and targeted. The various business chambers and associations can perhaps play a role to educate and promote these schemes to their members."

Special Employment Credit

Ho Mui Peng, Tax Partner at PwC Services LLP (Singapore) comments: 
"The government is clearly using a “carrot and stick” approach to promote the restructuring of our economy. For instance, the Special Employment Credit accorded to employers who hire older workers will exceed the higher CPF contributions for these workers. The grants to be awarded to encourage staff training and productivity initiatives will be greater than the increase in foreign worker levies. These measures will help close the employment cost gap between local and foreign workers."

Lennon Lee, Tax Partner at PwC Services LLP (Singapore) comments:
"While it is encouraging to see that the Government is taking care of older workers especially with an ageing population in Singapore, in my opinion, I do not see the need to exclude workers aged above 50 and earning more than $4,000. These workers can still make significant contributions with their experiences. But with this enhancement to the SEC, they will become less competitive compared with those who earn less than $4,000, thus affecting their employability."

James Clemence, Partner PwC International Assignment Services (Singapore) Pte Ltd comments:
"The SEC is an innovative solution to encourage employers to retain and hire older workers but there is a concern that it will create a glass ceiling for wages at $3,000 per month. I would have preferred to see a credit for all workers over 50 years old with a cap of $240 (8% of $3,000)."

Foreign Labour

David Sandison, Tax Partner at PwC Services LLP (Singapore) comments:
"The Minister announced that there is “no alternative but to slow down the growth of foreign workers”. However, he was not entirely clear as to why no alternative existed. The proposed reductions in the Dependency Ratio Ceiling do not appear to be addressing an already dangerously tight labour market. The proposed measures will simply make it more difficult for local businesses, which are starved of appropriately qualified human capital, to meet their resource needs. It remains to be seen whether the measures introduced to encourage employment of older workers will counter-balance this proposed move to restrict the employment of foreign workers."

Chris Woo, Tax Partner at PwC Services LLP (Singapore) comments:
"The government is reacting well to the undercurrent of unhappiness over the sharp increase in recent years of foreign labour. With the new measures announced, Singapore-based companies will be forced to reduce their dependency for foreign labour and increase the hiring of Singaporeans. Industries highly dependent on large numbers of workers (e.g. construction, hotel, retail) will likely be impacted as the government seeks to encourage them to find alternative solutions, for example, the use of innovative technology. The buffet of changes in incentives and grants will help."


Alan Ross, Head of Tax at PwC Services LLP (Singapore) comments:
"The continued focus on productivity and innovation training is most welcomed. Singapore remains slightly behind countries such as the US in terms of productivity. It is also slightly behind competitor countries in terms of the ratio of expenditure on research and development vis a vis the GDP. To address the issue, the focus must begin with SMEs. The measure to enhance the PIC scheme by doubling the cash payout option to $60,000 from $30,000 puts non-tax paying SMEs in a similar position to larger, profitable businesses. It should encourage investment. The ability to obtain the cash payout on a quarterly basis instead of the end of the year will also assist the SMEs’ cashflow – critical during difficult economic conditions."

Abhijit Ghosh, Tax Partner at PwC Services LLP (Singapore) comments:
"The budget focused on fine-tuning the PIC Scheme to make it easier as well as attractive enough for SMEs to enjoy the underlying benefits, provided they spend on qualifying expenditure for enhancing productivity and innovation. In particular, the measure to raise the cash payout rate from 30% to 60% of qualifying expenses (up to $100,000) and allowing payout claims on a quarterly basis should be well received. In addition, doing away with the certification requirement for claiming PIC benefit for in-house training expenses will encourage SMEs to spend on upgrading the skills of their employees and keep them relevant in a constantly changing business environment."

Yip Yoke Har, Tax Partner at PwC Services LLP (Singapore) comments:
"The increase of the PIC cash payout rate from 30% to 60% means that any taxpayer enjoying a tax incentive rate, such as those enjoying a 10% or 12% tax rate in the financial services sector, is better off taking the cash option for the first $100,000 of its qualifying expenditure."

Yip Yoke Har, Tax Partner at PwC Services LLP (Singapore) comments:
"For an insurance company that uses an agency distribution model, the costs of training its agents is likely to far exceed its costs of training employees. The extension of the PIC scheme from the training of employees to include the training of agents is likely to result in insurance companies being able to fully utilise their qualifying expenditure on training."

Mergers & Acquisitions

David Sandison, Tax Partner at PwC Services LLP (Singapore) comments:
"The proposal for a 20% tax deduction for professional and other costs incurred in M&A activities is welcome. However, it does not address the basic difficulty with the M&A allowance already in place which is that you must have some income to deduct the costs against. Typical acquisition strategies, particularly by multi-nationals, involve an acquisition vehicle that has no other business activities in it. Until this is fixed, the benefit of this new proposal remains limited. "

Developing new competitive strengths

Marine and Offshore

Ho Mui Peng, Tax Partner at PwC Services LLP (Singapore) comments:
"The $150 million from the National Research Fund to A*STAR and EDB to find R&D initiatives to develop solutions for deep water oil production will benefit our local shipyards specialising in building oil rigs and top side modules for these rigs. Singapore is the leading builder of oil rigs in the world and hence it is important for us to maintain this lead.

"In addition to this, it would be helpful if the government could negotiate and extend our tax treaty network to countries such as Brazil where our local shipyards are branching to."

Exemption of GST on Gold trading

Yip Yoke Har, Tax Partner at PwC Services LLP (Singapore) comments:
"The exemptions of investment grade gold from GST will effectively make physical gold 7% cheaper overnight. In one stroke, it has made the price of gold in Singapore comparable with other locations such as Hong Kong and Malaysia, which do not have a GST regime."

Tan Tay Lek, Tax Partner at PwC Services LLP (Singapore) comments:
"This is a welcomed move by the Government to recognise the importance of non-traditional asset classes, such as gold, in investment portfolios. It should add greater incentive for asset managers, especially those in the alternative investments space, to seriously consider Singapore as a location for their operations. Apart from gold, other non-traditional asset classes the government could look at include antiques, vintage wine, art."

Certainty of non-taxation of companies' gains on disposal of equity investments

Lennon Lee, Tax Partner at PwC Services LLP (Singapore) comments:
"Gains derived from the disposal of equity investments by companies will now not be taxed, but only if the divesting company holds a minimum shareholding of 20%. There continues to be uncertainty for companies that hold less than 20% and what happens if there is, for example, a dilution in the shareholding. If there is a rights issue, the divesting company might be forced to subscribe for the rights issue to prevent it falling below the 20% shareholding."

Paul Cornelius, Tax Partner at PwC Services LLP (Singapore) comments:
"The possibility of being taxed on gains on the disposal of their subsidiaries was a severe impediment to businesses using Singapore as a location for their holding companies. The changes announced in the budget will help to remove this risk and will boost Singapore’s attractiveness as a location for holding companies and headquarters."

Sunil Agarwal, Tax Partner at PwC Services LLP (Singapore) comments: 
"Businesses need certainty. Providing clear guidelines on the capital gains treatment will provide this certainty. These guidelines should also apply in respect of divestment of Intellectual Property (“IP”). If so, it will tremendously enhance Singapore’s ambition to become an IP Hub as MNCs will now be more open to shifting their IP to Singapore."

Inclusive Society

Schemes for the elderly

Lennon Lee, Tax Partner at PwC Services LLP (Singapore) comments:
"This “silver” budget, while geared towards providing more support to elderly Singaporeans in recognition of their contributions to the country, indirectly also reduces the expensive medical costs and alleviates care burden of the children. This is certainly better than just giving credit or cash across the board."

Abhijit Ghosh, Tax Partner at PwC Services LLP (Singapore) comments:
"The GST voucher and special employment credit schemes, together with other measures to support older, disabled, as well as low income Singaporeans, show the Government’s eagerness in building an inclusive society. The special employment credit scheme application over next 5 years, in particular, will encourage companies to manage costs and engage older Singaporean workers. For older workers, this will provide them an opportunity to build their retirement nest. This is obviously a post-election, pragmatic budget."


Abhijit Ghosh, Tax Partner at PwC Services LLP (Singapore) comments:
"The Finance Minister is cognizant of the impending "silver tsunami" impact of Singapore’s ageing population. For patients requiring long-term care support, he introduced several interesting measures, such as waiving GST and increasing subsidies for community hospitals, nursing homes, day care and rehabilitation facilities. In addition, he set aside funds to increase the capacity of hospital beds. Perhaps, he should have also considered measures to support and incentivise innovation in providing health support services using technology. For example, media and telecom companies could collaborate with service providers to support elderly living at home in e-ordering medicines, e-visiting GPs, managing dietary needs and personal health records."


Gautam Banerjee, Executive Chairman, PwC LLP (Singapore) comments:
"The budget avoided broad brush rebates and reliefs this year. The Minister is obviously trying to make more effective use of resources on targeted areas. This year's budget reaches out three key groups - older workers, those with disabilities and lower income workers who require special help as the economy restructures. Achieving growth is as much about ensuring the overall well-being of our society as it is about helping businesses grow.


Tourist Refund Scheme

Koh Soo How, Tax Partner at PwC Services LLP (Singapore) comments:
"The GST Tourist Refund Scheme (TRS) was previously restricted to international departures at Changi and Seletar airport but not the cruise centres due to the concern of insufficient manpower and resources to process the tourist refund forms. The extension of the TRS to the Singapore Cruise Centre and the upcoming International Cruise Terminal is in line with the new electronic TRS that was introduced last year to enhance the tourist experience in Singapore and the growth in international cruise tourism. What it also means is that more customs officers are expected to be deployed to the cruise terminals to deal with tourists seeking GST refunds on their purchases in Singapore."


Koh Soo How, Tax Partner at PwC Services LLP (Singapore) comments:

“The GST will remain an essential part of our tax system as it enables the government to provide the transfers and offsets to help the lower income group. Rather than respond to populist calls to cut the GST rate or exempt healthcare costs from GST, the measure to absorb the GST for long term care is consistent with the government's resolve to keep public healthcare affordable to the 70 -80% of the population who use the public healthcare system.”

GST Vouchers

Koh Soo How, Tax Partner at PwC Services LLP (Singapore) comments:
“The government faces the challenge of having to balance the need to have the GST provide the revenues to finance future social spending and investments in infrastructure and capabilities. At the same time, it has to address the negative impact the GST has on rising prices particularly for the lower income group. The introduction of the GST vouchers as a permanent measure addresses the regressive nature of the GST especially where it impacts the lower and middle income group. It further confirms that the GST is very much a critical part of our taxation system and is here to stay.”



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