Budget 2015: Reaching out to every Singaporean and SME

Budget 2015 sets itself up as one that charts Singapore’s future for years to come. Emphasis on deepening skills and encouraging innovation relevant for the future, investment in economic and social infrastructure and assurance in retirement due to our aging population formed the core theme of this year’s Budget.

The slew of measures announced in this year’s Budget underpins a call for small and medium enterprises (SMEs) to restructure and transform themselves from value addition to value creation through an innovative and collaborative culture. It is imperative for SMEs to embark on innovation and R&D with assistance extended from this year’s Budget.

SMEs choosing to carry on traditional business models by relying on foreign labour will face more and more challenges ahead as their competitiveness will continue to be eroded in the global marketplace.

A significant feature of this year’s Budget is SkillsFuture. It is an initiative that empowers every Singaporean to take ownership of his or her career path. While the impact of SkillsFuture may not be immediately felt, the initiative should result in SMEs having access to a local talent pool that possesses deep skills and expertise relevant for the future.

One of the common issues SMEs face is that they are not able to attract and retain talent due to the lack of structured training programmes and career paths compared to multinational companies (MNCs). The SkillsFuture Earn and Learn Programme matches Polytechnic and ITE graduates with employers for structured on-the-job training and mentorship leading to industry qualification. This provides an avenue for SMEs to access, train and retain these skilled graduates.

Broad-based productivity measures such as the Productivity and Innovation Credit (PIC) will remain in place till 2018. The PIC has helped to support basic levels of innovation and automation generally aimed at replacing labour due to a tight labour market.

For SMEs looking at innovative ways in doing business, they can consider tapping on SPRING’s Capability Development Grants (CDG) that provide up to 70 per cent cost subsidy. The Finance Minister has indicated that the application process will be simplified for projects costing below $30,000. It is a more targeted approach to achieve productivity growth that has stagnated for the last few years.

HELP FOR SMEs

A bold measure was announced in the Budget to encourage high-growth high-risk SMEs to benefit from the venture debt risk-sharing programme. The programme aims to allow SMEs in high risk sectors such as medical technology or cleantech to secure financing which may not be possible under traditional bank financing arrangements.

To encourage internationalisation and growth of promising SMEs through mergers and acquisitions (M&A), SMEs can benefit from the new International Growth Scheme. This Scheme grants a 10 per cent concessionary tax rate on incremental income from qualifying activities, as well as an increase in the M&A tax allowance from 5 per cent to 25 per cent of the value of acquisition from acquisitions of at least 20 per cent (previous threshold was 50 per cent) shareholding in the target company. This recognises that SMEs may not be able to acquire large stakes in their expansion strategies.

Government has also heeded SMEs’ cries for help to cope with rising business costs and a tight labour market, by extending the Wage Credit Scheme to 2017 and the 30 per cent Corporate Income Tax Rebate for Years of Assessment (YA) 2016 and 2017, both of which form part of the Transition Support Package first introduced in Budget 2013.

In addition, SMEs that employ foreign workers will get a reprieve from higher foreign worker levies as the previously announced hikes will be deferred. The current levy rates for work permit holders in manufacturing sector will remain unchanged up to 2016 as well. These are welcomed measures as they provide breathing space for SMEs to continue to restructure their businesses.

This Jubilee Budget will be remembered as one that took bold measures to shape the future of all Singaporeans (including the middle income group or the “sandwiched class”), as well as all Singapore businesses especially the SMEs. The Government has created a platform in building our future. It is now up to each SME to take ownership of its own destiny.

ABOUT THE AUTHOR

Lennon Lee is Entrepreneurial & Private Clients Tax Partner at PwC Singapore.