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Supporting the recovery

$11 billion COVID-19 Resilience Package to support Singapore workforce and the worst hit sectors

With sharper focus and more targeted support for the worst hit businesses and individuals, the Government’s $11 billion COVID-19 Resilience Package aims to help them re-position and prime themselves for the eventual upturn, through strategic future investments in technology and training.

The package, although quite modest when compared with almost $100 billion committed in the five budgets in 2020, is calibrated and factors in the signs of positive, yet uncertain, economic growth being predicted for Singapore for this year.

The extension of wage subsidies under the Jobs Support Scheme (JSS) for businesses in the Tier 1 and 2 sectors, but not to the Tier 3A sector, underlines the uneven impact of COVID-19 on people and businesses.

This is the fourth JSS extension since it was announced in Budget 2020 and will cost an additional $700 million on top of the $25 billion committed so far. Support for Tier 1 businesses (aviation, aerospace and tourism) will be extended by another six months at 30% for wages paid from April to June 2021, and at 10% for July to September 2021. Tier 2 businesses will get 10% support for three months up to June 2021. For Tier 3A businesses, which are generally recovering, there will be no further extension of the JSS beyond March 2021.

According to An Interim Assessment of the Impact of Key COVID-19 Budget Measures published by the Ministry of Finance, a total of $22.6 billion of JSS payouts were disbursed from April to December 2020 with Tier 3 businesses forming the largest segment of recipients. Giving its effectiveness in saving jobs last year, it is unsurprising that the focus for this year is to emulate the success in a more targeted manner for sectors where the projected recovery remains uncertain.

In 2020, it was clarified that businesses would not be taxed on these JSS payouts. But those received under the Jobs Growth Incentive would be taxable.

From a personal tax perspective, we would expect the COVID-19 Recovery Grant, which is also funded by the Resilience Package, to be non-taxable, as it is similar to the COVID-19 Support Grant, which was intended to support workers who lost their jobs or experienced significant income loss.

Extension of tax measures to ease cash flow for businesses

This year’s Budget also announced the extension of the following tax measures first introduced in Budget 2020 to provide support to affected businesses:

  • Enhanced carry-back relief scheme allowing unabsorbed capital allowance (CA) and trade losses (collectively referred to as “qualifying deductions”) in Year of Assessment (YA) 2021 to be carried back for up to three immediate preceding YAs, capped at $100,000 of qualifying deductions.
  • An option to claim CAs for plant and machinery acquired in the basis period for YA 2022 over two years instead of three years under section 19A of the Income Tax Act or scheduled rates under section 19 of the Income Tax Act. The two-year claim will involve a 75% write-off of the cost of the plant or machinery in the first year and 25% in the second.
  • An option to claim deduction on renovation and refurbishment (R&R) expenditure incurred in the basis period for YA 2022 over one year instead of three years. The cap on the amount of claim (an aggregate of $300,000 over three years) remains unchanged.

Businesses that remain profitable can take advantage of the acceleration of the CA and R&R expenditure claims which provide immediate cash tax savings. Loss-making businesses can gain in the form of cash refunds by utilising qualifying deductions for YA 2021 against the prior three YAs’ assessable income.

The extension of the above schemes will be welcomed from a cash flow perspective by both profitable as well as loss-making companies. Given the limits under the enhanced carry-back relief and accelerated R&R deduction schemes, the main beneficiaries are expected to be small businesses.

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