S'pore 2011 budget to benefit midsize businesses

Government's revised tax deductions and one-off support measures will benefit local companies, especially midsize firms, looking to achieve improved productivity and cope with rising labor costs, says consultancy.
Written by Jamie Yap, Contributor

SINGAPORE--The government's 2011 budget, which includes a S$1 billion boost to the national productivity fund, will be welcomed by local organizations looking to drive development work, training and business automation.

Announced on Friday, Singapore's 2011 budget encompassed a slew of revisions to existing funds and schemes as well as one-off support measures that would help companies cope with rising costs and boost productivity--identified as a key driver of economic growth.

Noting that productivity improvements contributed only one-third of Singapore's economic growth over the past decade, Finance Minister Tharman Shanmugaratnam said this should be increased to two-third over the next decade--otherwise "we fall short of the 3 to 5 percent economic growth we are aiming for".

Hence, "significant enhancements" were made to the five-year Productivity and Innovation Credit (PIC) scheme which was introduced just last year. Under the scheme, businesses will get a 400 percent income tax deduction--up from 250 percent--for expenditures in any of the six categories of investment, Shanmugaratnam said. The cap for such claims was also raised for each category of investment from S$300,000 (US$235,400) to S$400,000 (US$313,900) in expenditure.

The PIC benefits were also extended to R&D (research and development) expenses conducted overseas; it was previously limited to initiatives done locally.

In a phone interview with ZDNet Asia, Chiu Wu Hong, tax partner at consultancy KPMG, described the revamped PIC scheme as "so attractive compared to previous years". Companies, whether big brands or small and midsize businesses (SMBs) can now make full use of the scheme in areas where they want to run research and training initiatives, or purchase automation equipment such as computers, Chiu explained.

He added that local IT enterprises undertaking development activities would also welcome the additional funds and tax concessions to alleviate some of their cashflow concerns.

Ultimately, the revised PIC scheme will most benefit "growing, midsize companies", he said, noting that the current cap for tax deduction under this scheme means larger companies with higher expenses may not be able to benefit.

Nonetheless, Chiu noted that bigger organizations can still take advantage of the scheme to defray costs in improving productivity with staff training or purchasing automation equipment.

One-off measures to curb rising labor costs
The Singapore government will also allocate an additional S$1 billion (US$784.8 million) to the National Productivity Fund (NPF), aimed at helping workers upgrade their skills and create better quality jobs.

Lim Kok Hin, South and Southeast Asia vice president of Canon Business Imaging Solutions Group, said in a statement following the budget announcement: "The additional S$1 billion top-up into the NPF emphasizes the need for companies to shift their focus on how efficiently they are operating in competitive global markets such as Singapore."

Shanmugaratnam further unveiled several one-off support measures to help companies manage growing cost pressures including rising rentals, utility and wage bills.

First, companies this year will receive a 20 percent corporate income tax rebate, capped at S$10,000 (US$7,847). In addition, there will be a new one-off SME Cash Grant amounting to 5 percent of a company's revenues in 2011 and capped at S$5,000 (US$3,923), the minister said, which is aimed at allowing small companies that pay little taxes to also benefit from the tax rebate.

Companies will automatically receive the higher of the corporate tax rebate or grant when the Income Revenue Authority assesses their tax returns, he added. Companies must have made CPF contributions in 2011 to be eligible for the rebate.

Funds for overseas expansion, foreign companies
Shanmugaratnam said the government aims to groom enterprises in the SMB sector and help them grow by expanding internationally and attracting managerial talent and skilled workers.

Over the next five years, the Singapore government will commit S$850 million (US$667 million) in grants under the Enterprise Development Fund (EDF). The figure is a "substantial increase" of about 45 percent from the previous five-year tranche and will favor "companies that are more dynamic and innovative", Shanmugaratnam said.

Noting that demand is growing rapidly in Asia for competencies and strengths that Singapore companies possess, he said the government will significantly boost support to help local businesses build their capabilities and defray costs when they venture into new markets abroad.

He added that the government will also pump S$2.5 billion (US$1.9 billion) over the next five years into the Economic Development Assistance Scheme (EDAS) in efforts to cement Singapore's position as a global Asian hub for global companies to set up their regional headquarters here.

Dirk Peter van Leeuwen, vice president of Red Hat Asia-Pacific, said in an e-mail statement that the government's EDAS investment and PIC tax deduction were "encouraging".

"[The initiatives] will allow businesses to adopt technologies such as open source software, bring an end to proprietary vendor lock-in practices, and enable the development of collaborative platforms to encourage co-creation and innovation for greater competitiveness," van Leeuwen said.

The 2011 budget also touched on other issues including green technology, in which Green Vehicle Rebate scheme will be extended for another year till Dec. 31, 2012. The Singapore government will also review measure to promote the adoption of green vehicles as part of the country's sustainable development efforts, Shanmugaratnam said.

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