Budget 2023: new Enterprise Innovation Scheme a ‘bold and sharp’ move needed in these times

• New scheme a “potential game-changer” that will boost competitiveness, observers say
• Will work well with S$4-billion top-up to National Productivity Fund to support investment promotion
• Together, they are expected to build a more vibrant economy and better jobs

SINGAPORE’S new Enterprise Innovation Scheme (EIS) has been lauded as a bold and sharp move that will help local businesses continue to invest in innovation, at a time when many may be tempted to reel in their spending instead; this will give companies the drive they need to stay competitive in this challenging global environment, observers said in reaction to Budget 2023.

“Our companies need to focus more on innovation and in making use of technology to become more efficient – and this is a clear and sharp signal for them to push ahead on this front,” said Kurt Wee, president of the Association of Small & Medium Enterprises (ASME). “This will make them more productive, turn them into sharper enterprises and make them more competitive in the long run.”

It is an encouraging move, given that the current economic environment may prompt some organisations to delay their investments in innovation, said Pannie Sia, general manager, Asean, of Workday. “Technology continues to be a key enabler for growth, and businesses must put in place a strong digital framework that can bring about greater business agility in a fast-evolving world.”

Yvaine Gan, global investment and innovation incentives leader at Deloitte Singapore, called the new EIS a “potential game-changer for encouraging businesses to continue investing in R&D (research and development) locally and for multinational companies considering Singapore as a potential location for R&D activities”.

Lee Bo Han, partner, R&D & Grants Consulting, at KPMG in Singapore, said that it reinforces Singapore’s commitment to be one of the most attractive countries for R&D. “With tax benefits of nearly 70 per cent, the highest in the world, (this) presents a good opportunity for companies to mitigate their investment risks by investing more in R&D with financial support from the government.”

Observers were also gratified that Singapore took into account less-profitable businesses in this new initiative.

Finance Minister Lawrence Wong said, during Tuesday’s (Feb 14) Budget speech, that the new EIS will raise tax deductions to 400 per cent of qualifying expenditure for businesses working on these activities:

• R&D conducted in Singapore
• Registration of intellectual property (IP), including patents, trademarks and designs
• Acquisition and licensing of IP rights
• Innovation carried out with polytechnics and Institutes of Technical Education (ITEs)
• Training via courses approved by SkillsFuture Singapore and aligned to Skills Framework

Qualifying expenditure will be capped at S$400,000 for each activity, except for innovation carried out with polytechnics and ITEs that will have a cap of S$50,000.

Businesses are currently allowed tax deductions of up to 250 per cent of qualifying expenditure on some activities.

Businesses that have yet to turn profitable, or have insufficient profits to maximise the benefits, will have the option of converting 20 per cent of their total qualifying expenditure per Year of Assessment into a cash payout of up to S$20,000.

Albert Tsui, executive director, Advocacy and Policy Division, at the Singapore Business Federation (SBF), said: “The flexibility of permitting smaller companies to convert a part of their qualified expenditure into cash payouts will also encourage them to sharpen their R&D edge even if their current capacity is relatively smaller.”

Nithin Chandra, managing partner, South-east Asia, at Kearney, pointed out that, in addition to funding, SMEs that lack the resources and know-how to effectively implement innovative technologies might need more support – such as education and access to ecosystem partnerships – that can help them get the best out of digitalisation. 

Bolstering the new scheme, observers noted, would be the S$4-billion top-up of the National Productivity Fund (NPF), also part of Budget 2023 – with investment promotion being included as a supportable activity. It will be used to anchor more quality investments in Singapore, including supporting businesses here to build new capabilities, adding greater value to the domestic ecosystem, and upskilling workers – ultimately leading to better-paying jobs for Singaporeans.

Victor Mills, chief executive of the Singapore International Chamber of Commerce (SICC), said that the NPF top-up makes “perfect sense”, as it will be harder for Singapore to attract foreign direct investment (FDI), amid global efforts to avoid base erosion and profit shifting (BEPS). “(And the EIS) is the other side of the coin to enhancing FDI. We need innovation to be ramped up to achieve the same goal as more FDI: a more vibrant economy and better jobs for Singaporeans.”

KPMG’s Lee called this a “more sustainable” long-term strategy that would give Singapore a significant competitive edge, compared to the approach of providing tax breaks and/or subsidies to attract and anchor strategic industries.