Ernst & Young Solutions LLP (EY) today released its wish list for Singapore Budget 2024.
The proposed measures in EY’s wish list for Budget 2024 aim to help Singaporeans and businesses build capabilities to chart the next lap of growth in 2024 and beyond, by focusing on the following areas:
- Strengthen economic competitiveness
- Encourage sustainability
- Develop enterprises
- Develop workforce
Ms. Soh Pui Ming, Singapore Head of Tax, Ernst & Young Solutions LLP, says:
“With BEPS Pillar 2 implementation just round the corner, an uncertain economic outlook and intensified geopolitical tension, 2024 looks to be a bumpy year. More so than ever, tax measures and policies are critical enablers in supporting Singapore’s economic objectives and charting the nation’s next lap of growth.”
Strengthen economic competitiveness
To enhance Singapore’s attractiveness to companies and investors, the proposals below are targeted at strengthening the nation’s tax incentive toolkit and schemes, and transforming the economy to achieve climate commitments and remain competitive in a low-carbon future.
Keep an open mind and flexibility in reassessing existing tax incentives in Singapore
With BEPS pillar 2 implementation just round the corner, many jurisdictions are undergoing tax incentive reform. For instance, the Board of Investment of Thailand (BOI) introduced a relief measure in May 2023 to mitigate potential impacts from BEPS 2.0 Pillar Two on its existing tax incentive programs. This measure allows affected BOI incentive holders an option to convert their tax holiday into a preferential tax rate regime, along with an extension in the incentive period.
Mr. Chester Wee, EY Asean International Tax and Transaction Services Leader says:
“Such measures offer flexibility to multinational companies, enabling them to smoothly transition into the new international tax environment. We are hopeful that this year’s budget would broaden the scope of existing incentives to ensure that they remain comprehensive and relevant to companies looking to invest and grow in Singapore.”
Introduce BEPS-compliant Qualified Refundable Tax Credits (QRTC)
Traditional cash grants are typically more suited for highly capital-intensive businesses. Businesses that are engaged in value-added activities that are less capital intensive, e.g., service-oriented industries, may not be able to access such cash grants. Hence, QRTC is a versatile tool that can cater to companies with diverse business models.
Mr. Johanes Candra, Partner, Business Incentives Advisory at Ernst & Young Solutions LLP says:
“For QRTC to be effective, it should reflect the specific company’s unique business substance and type of business activities carried out. Hence, the parameters used to assess the quantum of QRTC must extend beyond capital expenditure, local business spending and headcount – and extend to include other quantitative measures, such as cost of goods sold, product or shipping volume. To be BEPS-compliant, these QRTC must be refunded as cash or cash equivalent within the four years from when they were first awarded.”
Refine Section 19B allowance claims post-BEPS
Section 19B grants relief to a taxpayer who incurs capital expenditure to acquire the legal and economic ownership of qualifying intellectual property rights (IPR) in the form of a writing-down allowance following an irrevocable election to claim the relief over 5, 10 or 15 years.
Allow the option to claim Section 19B allowances on a due-claim basis
For IPRs that are not depreciable for accounting purposes, the Section 19B allowance claim may exert a downward pressure on the effective tax rate (ETR) and result in potential top-up taxes.
Mr. James Choo, Partner, International Tax and Transaction Services at Ernst & Young Solutions LLP says:
“We suggest offering optionality to claim tax writing-down allowances, in order to give flexibility to taxpayers in aligning the jurisdictional Pillar Two effective tax rate with accounting principles. In general, flexibility is always better, and this may also help reduce compliance costs, which will be crucial in the battle to stay competitive in this day and age.”
Expand existing tax incentives post-BEPS
(a) Expand the scope of qualifying activities under the Approved Foreign Loan (AFL) incentive
Presently, the AFL incentive gives a withholding tax (WHT) exemption of 0% or a concessionary WHT rate of 5% for interest payments made to non-tax residents. This incentive supports interest payments made on overseas loans for the purchase of productive equipment, with the incentive duration tied to the tenure of loan agreement.
Mr. Johanes Candra, Partner, Business Incentives Advisory at Ernst & Young Solutions LLP says:
“Other than capital-intensive equipment investment, we suggest that the withholding tax concession be extended to support companies in undertaking other economically productive activities in Singapore, such as commodity trading, IPR acquisitions, as well as R&D and M&A activities.”
(b) Expand existing scope of qualifying IPRs under the Intellectual Property Development Incentive (IDI)
Presently, only patents and copyrights subsisting in software are considered qualifying IPRs eligible for election into the IDI.
Mr. Johanes Candra, Partner, Business Incentives Advisory at Ernst & Young Solutions LLP says:
“We suggest broadening the eligible IPRs to include other intangible assets such as plant variety rights, designs, utility models, secret formula, supplementary protection certificates and orphan drugs designations. This will encourage companies to invest in wider innovation and R&D efforts and strengthen Singapore’s position as a hub for intellectual property-driven investments.”
Encourage sustainability
The Singapore Green Plan 2030 sets ambitious targets to advance the nation’s agenda in sustainable development. To further Singapore’s efforts to decarbonise industries and businesses, more support can be provided in these areas.
Incentives and capability development programmes to encourage early adoption of sustainability-related accounting standards
The IFRS S1 and S2 standards have significant potential to unify the fragmented landscape of sustainability-related standards. They aim to enhance transparency, comparability and consistency of sustainability reporting. Investors and stakeholders can then better assess the sustainability practices of different companies.
Since the Singapore Exchange mandated climate-related disclosures on a “comply or explain” basis, Singapore-listed companies have made notable progress in disclosing such information. However, most only provided high level observations and few quantified and disclosed the range of financial impact.
Mr. Praveen Tekchandani, Singapore Climate Change and Sustainability Services Leader at Ernst & Young LLP says:
“We propose targeted support to help companies to early adopt the standards, such as grant incentives and capability development programmes, capped at an expenditure level. Early adoption of the standards would help to greatly increase the robustness and credibility of sustainability disclosures by listed and non-listed Singapore companies.”
Investment allowances for green data centres
With the lifting of the 2019 moratorium placed on data centres in 2022 in Singapore, companies that wish to set up data centres in Singapore face new criteria, including use of sustainable energy and more efficient cooling methods.
Mr. Chai Wai Fook, Partner, Tax Services at Ernst & Young Solutions LLP says:
“There are currently no government-funded tax measures to support companies that are investing in green data centres. We believe that such measures will catalyse investments in green data centres in Singapore and strengthen the nation’s domestic computing capacity. This is also in line with Singapore’s Digital Connectivity Blueprint.”
Liberalisation of GST treatment for carbon credits, renewable energy certificates and similar products
To enhance Singapore’s attractiveness as a carbon credit trading hub, we suggest a further liberalisation of the GST treatment for input tax claims on carbon credit trading-related expenses.
Ms. Chew Boon Choo, Partner, Indirect Tax — Goods and Services Tax at Ernst & Young Solutions LLP says:
“The issuance, sale or transfer of carbon credits is regarded as an excluded transaction and hence out-of-scope for GST. Hence, taxpayers are unable to claim any input taxes incurred on purchased services that are directly attributable to these out-of-scope transactions. As companies continue to increase their activities in relation to carbon credits and procure related services, the current GST treatment of disallowing the input tax claims will inevitably increase their business costs. The impact can be significant, especially for carbon trading companies, and inhibit Singapore’s ambition to be a carbon services and trading hub.”
Enhanced deduction on purchase of carbon credits for sustainability agenda
From 2024, affected companies in Singapore will have the option to tap on eligible international carbon credits to fulfil part of their carbon tax liability.
Ms. Toh Shu Hui, Partner, Tax Services at Ernst & Young Solutions LLP says:
“For businesses that purchase carbon credits to meet their voluntary targets to reduce greenhouse gas emissions, we suggest enhanced tax deductions be granted on the qualifying amount, subject to a cap. Similar deduction should also be granted to renewable energy certificates or similar products.”
Funding support to incentivise businesses to strengthen sustainability capabilities
Many companies in Singapore, including small and medium enterprises (SMEs), play a key role in the global supply chain and can have considerable influence over emissions across their value chains. At the same time, stakeholders expect companies to embrace sustainability agenda as climate action gains momentum worldwide.
Mr. Chai Wai Fook, Partner, Tax Services at Ernst & Young Solutions LLP says:
“We suggest targeted measures to support companies and SMEs to invest in carbon pricing and modelling solutions and projects such as value-chain emissions management and decarbonisation. These measures can include further deduction on the expenditure incurred or co-funding on such projects, capped at an expenditure level of, say S$400,000. To assess the effectiveness of the measure and motivate companies to embark on this journey, we suggest a limited time frame of two years of assessment.”
Inclusion of carbon credits and transition credits as designated investments for funds tax incentive schemes
The current list of designated investments (DI) for the 13D, 13O and 13U schemes includes only emission derivatives.
Mr. Desmond Teo, Asean EY Private Tax Leader says:
“The global demand for voluntary carbon credits is expected to grow fifteenfold to two billion tonnes in 2030. The Monetary Authority of Singapore is studying the use of high-integrity carbon credits to accelerate the early retirement of coal-fired power plants (CFPPs). It is considering ‘transition credits’ that could arise from emission reduction through early retirement and sustainable replacement of a CFPP. To facilitate the trading liquidity of carbon credits, we suggest that carbon credits be included in the list of Designated Investments (DI). In anticipation of the introduction of transition credits, such assets should also be included in the DI list when introduced.”
Liberalisation of tax deduction and grant of withholding tax exemption for green investments
Research has found that Singapore is one of the most active investors in Southeast Asia. However, a challenge for green investments is the minimum rate of return required by investors. A key factor to the rate of return is borrowing costs incurred on finance green investments, which generally have long gestation periods.
Ms. Toh Shu Hui, Partner, Tax Services at Ernst & Young Solutions LLP says:
“To ease the burden, we suggest full tax deduction on all borrowing and financing cost incurred by Singapore tax resident companies to acquire or invest in green investments, and not subject the borrowing and financing cost to interest expense restriction. Further, this borrowing and financing cost should be fully tax deductible against the chargeable income of the companies. To prevent abuse, perimeters can be put in place, for example, these green investments must be connected with the business core strategies.”
Tax exemption on distributions from green investments
The foreign-income exemption regime only covers specific sources of income. Singapore investors enter overseas green investments to meet their sustainability and decarbonisation goals. In some instances, these green investments may declare distributions in the form of carbon credits instead of cash to the Singapore investors.
Mr. Chai Wai Fook, Partner, Tax Services at Ernst & Young Solutions LLP says:
“For qualifying green investments, we suggest that all distributions accruing from qualifying overseas green investments be exempt from Singapore corporate tax, similar to foreign-sourced dividends.”
Encouragement for early adoption of electric vehicles (EVs)
Various incentives were introduced in past Budgets to encourage early adoption of EVs. Malaysia, in its efforts to promote the use of EVs, has extended its deduction scheme on EV rental cost for an additional two years, up to YA2027, in the recently announced Malaysia Budget 2024.
Ms. Chew Boon Choo, Partner, Indirect Tax — Goods and Services Tax at Ernst & Young Solutions LLP says:
“We suggest that input tax be claimable on the GST incurred for expenses in relation to EVs.”
Introduction of social impact bonds
The Government has recently launched sovereign and public sector green bonds to support the development of projects with green outcomes.
Mr. Praveen Tekchandani, Singapore Climate Change and Sustainability Services Leader at Ernst & Young LLP says:
“We suggest the issuance of social impact bonds to fund projects with positive social outcomes that strengthen Singapore’s social compact, a key theme in the Forward Singapore initiative.”
Develop enterprises
To support companies as they undergo their transformation journeys, our proposals focus on supporting enterprises through the different stages of their growth; anchoring high-value activities and capabilities to develop the Singapore local ecosystem; and helping companies develop innovation and sustainability capabilities.
Refine the R&D regime
R&D and innovation continues to be a differentiating factor to propel Singapore’s ambition as a global R&D hub.
a) Enhancing R&D deductions (beyond 100% base deduction) on overseas R&D activity
R&D centres in Singapore and overseas carry out R&D activities collaboratively. Currently, deduction is allowed on 100% of qualifying R&D costs incurred overseas, if related to trade. Enhanced deduction is not available at all.
Mr. Johanes Candra, Partner, Business Incentives Advisory at Ernst & Young Solutions LLP says:
“We believe that enhanced deduction for a portion of qualifying R&D costs incurred overseas, up to a cap of 10% to 15%, can make the existing R&D regime more holistic, recognising the R&D collaboration efforts in Singapore and overseas.”
b) Refine section 13W certainty of non-taxation on gains from disposal of equity investments
The scheme to provide upfront certainty of non-taxation to divesting companies was introduced in Budget 2012 for a five-year period, and has since been extended every five years. The latest extension is due to expire by 2027. This measure provides upfront certainty of non-taxation to companies as they restructure for growth or consolidation.
Mr. Chai Wai Fook, Partner, Tax Services at Ernst & Young Solutions LLP says:
“We suggest that this scheme be made a permanent feature in the Income Tax Act. Further, to qualify for the Section 13W certainty, one of the conditions is that the divesting company must have held at least 20% of the ordinary shares in the investee company. We propose lowering the 20% shareholding threshold to 10%. A lower threshold gives certainty to consortiums formed by like-minded industry players that come together to create industry-wide technology standards or platforms. Each consortium member takes up a small shareholding with a view to exit once the co-development of the technology is completed or if plans are aborted.”
Develop workforce
To help businesses overcome labour constraints, the below proposals focus on continued investments in Singapore’s human capital through upskilling and attracting top talent.
Enhanced measures for workforce transformation
The economic outlook for 2024 looks to be challenging. Hence, Singapore will likely focus on helping companies navigate the difficult economic conditions and develop new capabilities. In tandem, there is a need to focus on workforce transformation to help workers in impacted sectors to upskill or pivot to key growth sectors such as advanced manufacturing, logistics, air transport and aviation, tourism, retail, maritime, professional services and infocomm and technology.
Mr. Samir Bedi, EY Asean Workforce Advisory Leader says:
“In addition to strengthening existing workforce transformation mechanisms, we hope that the government can explore measures to encourage Singaporeans to upgrade their skills and pivot to key growth sectors. We also hope that the government can consider bespoke measures around foreign labour measurement for select sectors that have tried but continue to face challenges in attracting and retaining talent. There can be support for these sectors to bring in more labour for roles that are critical to business operations, but are often shunned by locals due to workplace conditions or lack of career progression pathways.”
Tax relief for personal development
The current course fee relief is capped at S$5,500 since YA 2011, for individuals undertaking courses to upskill or gain an academic, professional or vocational qualification.
Mr. Panneer Selvam, EY Asean People Advisory Services - Integrated Mobile Talent Leader says:
“As costs increase, it may be time to increase the cap to further encourage individuals to invest in their future by upskilling, particularly in in-demand skills such as sustainability and green economy, as well as digital.”
Support for families and individuals
The quantum of Qualifying Child Relief (QCR) is currently at S$4,000 per child. Given the rising cost of living, it is timely to reassess the amount of relief that has been in place since YA 2009.
Ms. Kerrie Chang, Partner, People Advisory Services – Integrated Mobile Talent at Ernst & Young Solutions LLP says:
“We believe that this adjustment will be advantageous for families in the middle-income bracket, and can help to offset the rising expenses relating to education and inflation.”
One condition to claim the QCR is that the child’s annual income should not exceed S$4,000. Similarly, to be eligible for Parent Relief, the dependent parent’s annual income cannot exceed S$4,000.
Ms. Chang adds:
“With rising costs and the possibility of children and elderly individuals from lower-income households taking on part-time work to ease their family's financial burden, we suggest that the government reviews the income criteria for claiming the QCR and Parent Relief. This enables parity for families experiencing economic difficulties and encourages seniors to engage in casual employment, promoting the government's goal of active ageing.”
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Notes to editors:
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