Suite of incentives to boost local hotel sector

Singapore tourism has grown by leaps and bounds since the nation was formed 50 years ago. The number of visitors has swelled, from 90,000 in 1964 to 15.6 million in 2013, said the Singapore Tourism Board (STB).

The hotel industry, which is a key supporting pillar of tourism, has also seen significant growth. Gazetted hotel-room revenue in the first half of last year was estimated to be S$1.6 billion, a rise of 9.1 per cent from the same period the previous year.

Recognising the hotel industry’s contribution to tourism in Singapore, the STB offers assistance to the industry through various grants, tax incentives and resources.

Its grants include the Business Improvement Fund (BIF), the Tourism Technology Fund (TTF) and the Training Industry Professional in Tourism (TIP-iT).

These grants can help fund up to 50 per cent of projects that are aimed at helping companies enhance their business models and processes, encourage technology innovation and adoption, upgrade employee skills, and develop talent and leadership.

Hotels enjoy several tax incentive schemes as well. These include the double tax deduction on expenses incurred for participating in certain local and overseas trade fairs, as well as the enhanced tax deduction under the Productivity and Innovation Credit (PIC) scheme for leasing or acquisition of information technology and automation equipment, and training of employees.

However, the hotel industry continues to face challenges. In this highly labour-intensive industry, the slowing growth rate of the workforce in Singapore could mean a worsening of the current labour crunch that many hotels face.

Further, with more technologically savvy and discerning “millennial travellers”, hotels have to cater to new and distinctive travel preferences, such as a need for speed, efficiency, convenience and connectivity, as well as a penchant for unique experiences.

The changing profiles of their manpower and customers mean hotels will have to innovate and reposition themselves to retain the former and appeal to the latter.

Meeting this challenge will require a multi-pronged approach. Hotel redesign, advocated by the STB and industry associations, is one of the ways to innovate. Hoteliers throughout the world are revisiting their business concepts and models, and rediscovering the benefits of “select-service” versus full-service hotels to enhance customer experience and deliver more efficient services. This strategy may involve overhauling the physical layout of hotels and rolling out more technological innovations such as digital check-ins or smartphone-activated room keys.

Another strategy is to attract and develop “millennial talent” who will be able to understand the desires of fellow millennial travellers and develop products and services that will resonate with them.

POSSIBLE TAX PERKS

While Singapore has existing grants and incentive schemes to support these initiatives, perhaps more can be done in this year’s Budget announcement to specifically encourage our hotels to embrace innovation and further develop talent.

The reintroduction of the Hotel Refurbishment Incentive for hotels, which was discontinued in 2003, could be of help. Currently, Singapore hoteliers face huge challenges when they carry out major renovation or refurbishment projects, as a significant portion of the costs incurred may not enjoy any tax-deduction or -depreciation benefit.

If a revamp of the hotel layout is needed to introduce innovative concepts or make better use of technology, the Hotel Refurbishment Incentive, with some fine-tuning, would help to defray the costs of such a makeover. Here, allowing an enhanced tax depreciation claim of up to 150 per cent of the renovation costs for approved projects would be welcomed.

The Government can also consider introducing a modified version of the Land Intensification Allowance (LIA) scheme, which is currently administered by the Economic Development Board, where tax depreciations are granted on qualifying industrial buildings or structures.

The current LIA scheme is aimed at promoting the intensification of industrial land use towards more land-efficient and higher-value-added activities. Perhaps a modified LIA scheme for the hotel industry in land-scarce Singapore, aimed at encouraging hotels to locate themselves in outlying areas (instead of prime locations) could be introduced.

This could also spur hotels to come up with innovative products or unique service experiences to attract clientele to stay at such locations.

There is also an opportunity to further develop local hotel brands to inject greater vibrancy to the sector and enable local brands to go abroad. The Government can support this through co-investment in ventures, grant funding or tax breaks to encourage the conceptualisation and development of local brands, with the condition that the intellectual property (IP) of such local brands must be registered in Singapore. This will also strengthen Singapore as an IP hub.

Expanding on existing schemes and incentives, the Government could perhaps consider allowing double tax deductions or PIC-enhanced tax deductions on the remaining project costs, which are not supported by the grants approved under the BIF, TTF and TIP-iT. From a manpower perspective, other than training and development support, the grant or tax incentive schemes could also be expanded to include recruitment assistance for hoteliers to attract millennial talent and enable the development of local talent.

Singapore’s tourism industry has enjoyed phenomenal growth in the past five decades. Taking it to the next level of sustainable growth will require a vibrant and thriving hotel sector.

To that end, incentives by the STB and Government are important enablers. Their continued support through various tax and non-tax initiatives, greater collaboration among the hotel industry and other tourism players, and innovation by all will be key to unlocking greater economic potential.

ABOUT THE AUTHORS:

Tan Lee Khoon and Helen Bok are partners, tax services at Ernst & Young in Singapore. The views reflected in this commentary are theirs and do not necessarily reflect the views of the global EY organisation or its member firms.