Singapore's budget to aid SMBs, silver generation

Government enhances Productivity and Innovation Credit scheme and increases training grants to help small and midsize businesses become more competitive, while employers also receive more incentives to hire older workers.
Written by Kevin Kwang, Contributor

SINGAPORE--Small and midsize businesses (SMBs) and older workers are main beneficiaries of the country's 2012 budget, which was formulated to restructure and upgrade the local economy while building an "inclusive society".

Revealed by Deputy Prime Minister and Minister of Finance Tharman Shanmugaratnam on Friday, this year's budget showed that Singapore's economy expanded by 4.9 percent in 2011. This figure was within the 4 percent to 6 percent range projected last year, he noted.

As for 2012, Tharman said Singapore's GDP (gross domestic product) growth was expected to be between 1 percent and 3 percent due to the global slowdown. He noted that the local manufacturing sector was already experiencing weaker demand, reflecting sluggishness in the developed market, although "prospects remain positive" for companies operating in Asia.

"Our economy will slow down this year, but we should look at this in perspective. We enjoyed an exceptional rebound in 2010... [and] growth in 2011 was healthy, too, at about 5 percent," said Tharman. "Against this backdrop, a slowdown to 1 percent 3 percent growth in 2012 is still consistent with our medium-term growth potential of 3 percent to 5 percent."

Improving productivity through productivity, innovation
The finance minister said one of the main priorities for this year's budget was to restructure the country's economy and grow it based on "skills, innovation and productivity".

To do so, the government unveiled several measures to help local SMBs to restructure, attract local workers and grow, both here and internationally, he said. One of these measures includes enhancing the Productivity and Innovation Credit (PIC) scheme, which was first introduced two years ago.

Tharman noted that 2011 was the first year in which businesses benefited from the scheme, which provides for a 400 percent tax deduction on up to S$400,000 spent on a range of productivity-related expenses such as training or investment in equipment. To date, 1 in 3 small companies, with annual turnover of S$10 million or less, have used the scheme, he added.

Building on this, the minister said the PIC scheme would be enhanced to provide a 60 percent cash payout for up to S$100,000 of companies' PIC expenditures, up from 30 percent previously. "This is a substantial subsidy for any SME investing in its workers or its operations. It is especially useful to companies with limited taxable income, which would not be able to benefit fully from the PIC tax deduction," Tharman stated.

Companies can also claim their payouts faster to help their cashflow, he added. From Jul. 1, companies can apply and obtain payouts on a quarterly basis instead of waiting until the end of their financial year.

This enhancement was in line with what Ernst & Young Solution's director of business incentives advisory, Tan Bin Eng, predicted. He stated that by raising the 30 percent conversion rate, this would plough more cash back to SMBs and ensure they continue investing in productivity.

More training aid
In terms of training employees, SMBs can now claim PIC benefits on their in-house training costs of up to S$10,000 per year, even if these courses are not certified by the Workforce Development Agency (WDA) or Institute of Technical Education (ITE), the minister pointed out.

Additionally, the government will also provide more help for SMBs that upgrade their workers through WDA-certified courses or CET (continuing education and training) programs at local polytechnics and ITEs, by giving a 90 percent course subsidy to each employee, Tharman said. For instance, a training course that costs S$1,000 will now cost the SMB only S$40 after deducting the subsidy and other tax rebates, he explained.

Grants for capability development, under schemes managed by the Standards, Productivity and Innovation Board (Spring) and IE Singapore, will also be raised from the current 50 percent to 70 percent for the next three years, the minister added. "This will provide a S$200 million boost over the next three years, which will help SMBs attract local talent and automate or upgrade."

Boost for hiring of older workers
The Singapore government is also keen to promote the employment of older workers, who are an increasingly important resource for companies, Tharman said.

All employers will receive a Special Employment Credit (SEC) for Singaporean workers who are above 50 years old and earn up to S$3,000 per month, he stated, adding that the SEC will be 8 percent of the employee's wages. A lower SEC will be given for workers who earn between S$3,000 and S$4,000, and the scheme will cover almost 350,000 workers or four-fifths of older Singaporean workers.

Unlike the Jobs Credit scheme, which was a one-off, counter-recessionary measure, the SEC will be in place for the next five years up to 2016, to allow companies to map out their employment strategies, the minister said.

"I therefore strongly encourage companies to make full use of the SEC to hire older Singaporean workers and reward them well," he said.

To alleviate higher business costs, there will also be a one-off cash grant. Companies will receive a cash grant pegged at 5 percent of their revenues in fiscal year 2012 and capped at S$5,000, as long as they have made CPF contributions to at least one employee who is not a company shareholder, the minister elaborated.

Chiu Wu Hong, tax partner at KPMG Advisory, said SMBs can certainly be pleased with this year's budget as there are specific measures to assist them, particularly the SEC scheme. "The SEC scheme for employers will incentivize SMBs to hire older workers to ease their labor crunch. The one-off SMB cash grant will also offset some of their business costs," Chiu commented.

Joshua Soh, managing director for Singapore and Brunei at Cisco System, added that the budget showed "strong commitment" from the government to increase productivity within the SMB market.

"The government support and initiatives will empower SMBs to invest in technologies that automate tasks and reduce dependency on skills-based foreign labor. This is a big step toward the realization of increasing efficiency and achieving higher performance and collaboration in a heavily SMB-based Singapore market," Soh told ZDNet Asia.

Chiu, however, said more could have been done to help these companies cope with the escalating rental costs.

Tay Hong Beng, head of tax at KPMG Singapore, also said in a statement that besides the "attractive" tax incentives, what was more important was to communicate with these smaller companies so that they would be able to fully understand how they might benefit from these enhancements.

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