Transforming to seize opportunities

Key Budget 2021 measures to accelerate digital transformation

Driving digitalisation and responsible adoption of technologies like 5G, artificial intelligence (AI) and data trust for mature enterprises is a valuable investment to enhance productivity and support new business models. The timely roll-out of 5G will also provide the much needed capacity for the rapid expansion of digital adoption.

1. Emerging Technology Programme co-funding trials and adoption of technology such as AI, 5G, trust technology

This initiative is a forward-looking one preparing Singapore for the future development and adoption of new and enhanced technologies. COVID-19 has permanently changed the face of remote working. The success in using collaboration and remote working technologies is already encouraging greater investment by companies in cloud-based infrastructure, 5G and AI applications to enhance productivity and support new business models. This will also increase the importance of developing more comprehensive regulations and standards for safe use of new technologies and, in particular, the ethical use of AI.

The timely rollout of 5G networks is providing the much-needed capacity for the rapid expansion of digital adoption, although more needs to be done to develop the business-use cases to maximise the benefits of these fast speed networks.

Enhanced use of data and analytics, new cloud-based technology and driving greater productivity through automation are already essential for many organisations to compete effectively. Further development of AI, 5G and trust technology will position leading organisations in Singapore for the next phase of technology evolution.

2. CTO-as-a-Service initiative providing access to IT consultancies

This opens up new doors to professional consultancies, and provides a fresh perspective for SMEs to identify and adopt enhanced digital solutions for their businesses. The focus on helping SMEs evolve and embrace leading practices and tap on deeper digital capabilities will enable key industry sectors to transform more effectively for the future. It will also enable the management teams of SMEs to embrace new business models and in many cases, elevate the potential of their organisation. The big challenge for many SMEs in going digital is in knowing where to start and this initiative provides easier and direct access to the knowledge, insights and capabilities they need through a central coordination point.

3. New Digital Leaders Programme supporting businesses in hiring digital teams and implementing future roadmaps

This is a great initiative by the Government to help high potential businesses to accelerate their digital transformation journey through supporting them in hiring key members of their core digital team and providing access to or support from leading edge consultancies. This initiative is targeted at companies that are already progressing well with their digital programmes but need that extra boost to accelerate their plans as they aspire towards new horizons. This helps to build the new digital leaders of the future and is very timely for many organisations looking to take bolder steps to transform and grow their businesses.

4. Extension of enhanced support levels for: Scale-up SG programme, Productivity Solutions Grant, Market Readiness Assistance, Enterprise Development Grant

The extension of these valuable Government support schemes to March 2022 will be very well received and give many organisations the boost they need to continue to emerge stronger from the challenges of the pandemic. The Scale-up SG programme is especially relevant in today’s landscape - while most SMEs are driven to digitalise, many have had to address competing investment priorities due to the impact of COVID-19 and this provides valuable support through the current economic uncertainties faced by many SMEs.

5. Raising of the Government’s co-funding ratio for the Productivity Solutions Grant – Job Redesign

This scheme can support business transformation, help make jobs more productive and attractive for workers, and benefit enterprises by allowing them to hire and retain good workers to support the business. As more organisations look to redesign their workforce for the future and upskill their teams, increasing the level of support from 70% to 80% will encourage organisations to take the necessary bold steps for the future.

A stronger push to become Asia’s Silicon Valley

To increase the scale and speed of digital innovation in Singapore and further drive global collaboration on digital innovations, both the Open Innovation Platform (OIP) and Global Innovation Alliance (GIA) will be enhanced with new features.

The OIP will be enhanced to include:

A Discovery Engine to facilitate search and matching of technology solutions through automated recommendations, and
A Digital Bench to provide a virtual cloud-based Proof-of-Concept (POC) sandbox and testing environment.

The GIA will be enhanced to:

Expand from 15 to 25 cities over the next five years, and
Support up to 70% of qualifying costs for cross-border innovation and partnership projects under the Co-Innovation Programme.

The enhancements to the OIP and GIA will further accelerate ‘made-in-Singapore’ and ‘made-with-Singapore’ digital innovations and lead to greater degree of intellectual property (IP) creation in Singapore.

GIA’s enhanced funding support and expansion beyond the original four Southeast Asian cities (Bangkok, Ho Chi Minh City, Jakarta and Manila) should generate more collaboration opportunities for Singapore start-ups and SMEs, as they partner global enterprises to extend the reach of digital innovations from Singapore.

Over the years, Singapore has achieved success through its Government policies in attracting tech titans into the country. The Government’s focus on cultivating a thriving start-up ecosystem and the rise of Singapore-based technology unicorns in recent years also demonstrate that Singapore can compete for the title of Asia’s Silicon Valley, serving as a springboard for digital innovations into Asia and the global marketplace.

As innovations ramp up, IP creations take place. Protecting, valuing and commercialising IP follow, plugging in nicely with Singapore’s IP Hub Master Plan. We look forward to further Government support and initiatives in these areas such as the Singapore Intellectual Property Strategy 2030 which aims to equip businesses with tools to value IP and intangible assets, and training skilled professionals in these fields.

Capital boost to catalyse growth

The Finance Minister announced measures to assist businesses at different stages of growth, by stepping up risk-sharing arrangements with capital providers and opening access to the expertise of fund managers in growing the enterprises. Of particular interest are:

Venture debt for high-growth enterprises: As part of the Enterprise Financing Scheme - Venture Debt programme, the Government aims to share up to 70% of the risk on eligible loans with Participating Financial Institutions. The Finance Minister announced an increase in the cap on loan quantum for the programme from $5 million to $8 million. This should make it more attractive for investors like private equity and venture funds to consider taking a stake in the growth of budding entrepreneurs and venture funds in Singapore.
Equity investments in Large Local Enterprises (LLEs): The Finance Minister acknowledged that LLEs (companies with annual revenue of more than $100 million) have lacked attention from the private equity players. Moreover, in the current economic landscape, it is harder for LLEs to raise capital despite strong fundamentals. The Government will set aside $500 million to be co-invested with Temasek Holdings in a Local Enterprises Funding Platform. Temasek Holdings will also match the funding on a one-for-one basis, bringing the total funding to $1 billion. The fund will invest in non-control equity and mezzanine debt. Further details will be announced by the Ministry of Trade and Industry.

Corporate Venture Launchpad piloted to drive new innovative ventures

The Government will pilot the Corporate Venture Launchpad this year to encourage Singapore companies, and large businesses in particular, to go for innovative and collaborative ventures on a global scale.

It aims to spur local businesses to work through pre-qualified venture studios and foster a start-up mindset. The intention is also to incubate innovative ideas that eventually create successful new ventures.

The Government will co-fund companies that are able to build businesses by working with these venture studios that bring on to the table a broad range of skills and expertise. This will in turn enhance the entire corporate venture ecosystem in Singapore.

We expect the Economic Development Board and/or Enterprise Singapore to administer the Corporate Venture Launchpad, given these agencies are the driving forces behind Singapore companies, enabling them to accelerate growth and stay relevant and competitive.

The Government has yet to announce details on the extent of the co-funding and whether the co-funding is dependent on certain outcomes such as having a successful venture.

Investment allowance for automation support

The Automation Support Package (ASP) was first introduced in 2016 to encourage companies to implement large-scale automation projects as part of Singapore’s drive towards building a Smart Nation. The ASP offers the following grants, loans and tax support:

Grant support through the Enterprise Development Grant scheme for up to 50% of qualifying automation project costs, capped at $1 million.
Loan financing of up to $15 million for the automation equipment.
100% Investment allowance (IA) for approved capital expenditure of automation equipment (net of grants), capped at $10 million per project.

The ASP will not be renewed after it expires on 31 March 2021. In its place, the 100% IA scheme will be extended for two years for automation projects approved by Enterprise Singapore from 1 April 2021 to 31 March 2023.

Other benefits of the ASP can be applied for under existing schemes such as Enterprise Development Grant and the Enterprise Financing scheme so this change should be seen as a rationalisation of the incentives.

Scope of double tax deductions for overseas expansion activities broadened

The Double Tax Deduction for Internationalisation (DTDi) allows companies expanding abroad to claim a 200% tax deduction for eligible market development expenses. Budget 2021 includes a number of enhancements to this incentive to boost the overseas expansion plans of Singapore companies.

DTDi deductions are generally subject to approval by Enterprise Singapore or the Singapore Tourism Board. However, under the current rules, no prior approval is required on the first $150,000 of eligible expenses in each year of assessment for specific activities. These pre-approved activities currently include participation in overseas market development trips/missions, overseas investment study trips/missions and trade fairs (overseas and local).

Budget 2021 expands the list of qualifying activities not requiring prior approval to include approved product/service certification, overseas advertising and promotional campaigns, packaging design for overseas markets, advertising in approved local trade publications, and participation in approved virtual trade fairs.

The list of qualifying expenses for overseas investment study trips will also be expanded to include logistics costs to transport materials or samples used during these trips.

The scope of deductible expenses qualifying for enhanced deduction is also broadened to include certain expenses incurred while participating in approved virtual trade fairs, such as fees charged by events organisers, costs for digital collateral and promotion materials, and logistics costs to send materials or samples to overseas clients after the fairs.

It is an acknowledgement of the new ways of working in the post-pandemic world, and that local businesses can sell their products and services into foreign markets even in light of current global travel restrictions. The idea is to encourage Singapore businesses to continue seeking new market opportunities even as they cannot physically travel to make business deals.

Continued tightening of foreign workforce policies

The Government is focused on striking a balance between growing local employment and bringing in foreign expertise where necessary. To this end, there will be a reduction in S Pass Sub-Dependency Ratio Ceiling (DRC) for the manufacturing sector, from the current 20% to 18% from 1 January 2022, and to 15% from 1 January 2023. This phased reduction is intended to give the affected firms adequate time to make the adjustments. The Foreign Worker Levy rates will however remain unchanged for all sectors.

Last month, the Ministry of Trade and Industry announced a 10-year plan to grow the manufacturing sector by 50% to create more jobs and training opportunities for Singaporeans. The reduction in sub-DRC reflects continued Government policy focus on encouraging local workers to participate in this industry and ensure that they have access to highly-skilled jobs.

To mitigate the impact of the sub-DRC reduction, employers can leverage on existing Government initiatives, resources and platforms to seek qualified Singaporeans to fulfill these roles. Firms in the manufacturing sector will need to focus on workforce planning to ensure they can meet their manpower needs when the quota reductions take effect.

The tightening of reliance on foreign technical expertise has been underway for a number of years now. Businesses need to adjust their workforce strategy in such a way that local and foreign manpower serve as complementary resources.

At the same time, the Government also recognises that in new growth areas, where there is a shortage of skills, expatriates with the right expertise should be welcomed to complement the Singaporean core and build up skills transfer. One of the programmes to facilitate this endeavour is the extension of the Capability Transfer Programme up to end-September 2024.