EY calls for loss carry-back relief cap to be raised tenfold to S$1m in Budget 2022 wishlist

PROFESSIONAL services firm Ernst & Young Solutions (EY) is calling for a temporary liberalisation of loss carry-back rules and for the cap to be raised tenfold to S$1 million which would increase the cash flow relief to companies in its Budget 2022 wishlist released on Tuesday (Jan 4).

"We suggest an extension of the enhancement for carry-back to cover 4 immediately preceding years... and increase the cap on qualifying deductions to S$1 million or at a maximum tax revenue forgone of S$170,000 as a 1-time amnesty," EY Asean private tax leader Desmond Teo said.

The loss carry-back relief was enhanced for Year of Assessment (YA) 2020 and 2021 during the last 2 Budgets.

For YA 2021, businesses may carry back unused capital allowances and trade losses up to 3 immediately preceding YAs.

However, with carry-back losses capped at S$100,000, the cash flow relief comes up to S$17,000, EY noted, adding that cash is the "lifeblood" of businesses, particularly small and medium enterprises (SME).

The suggestion is 1 of several on its wishlist for Budget 2022, which has called for measures to cushion the economic impact of the Covid-19 pandemic, enhance productivity and innovation as well as building a sustainable Singapore.

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The firm is also calling for a 1-time pandemic relief to transfer cumulative absorbed capital allowances and tax losses of dormant or inactive companies to group companies.

Another suggestion is the creation of a research and development (R&D) tax credit, rather than a tax reduction, since the latter does not always result in additional funds for R&D activities, EY said.

Said EY business incentives advisory partner Johanes Candra: "Effectively, the benefit goes back to a company's R&D team to supplement their R&D budget regardless of whether the company is in a tax-paying or tax-loss position."

He added that existing mechanism reduces the effective tax rate (ETR) of the company and may not be a helpful tool due to the territorial ETR computation proposal under the Base Erosion and Profit Shifting Project (BEPS) 2.0 minimum tax rate.

Companies should also be allowed to cash out the benefit, Candra said, as is the case in Australia, Canada, Ireland, New Zealand and the United Kingdom.

EY is also suggesting expanding the qualifying activities within the Financial Sector Incentive - Standard Tier (FSI-ST) - which typically applies to licensed financial institutions such as large banks and fund managers - to businesses offering services related to digital tokens, including cryptocurrencies.

"With cryptocurrency emerging as a class of financial asset and to reinforce Singapore's position as a regional financial hub, it is timely to review and cover activities pertaining to such financial assets under the ambit of FSI-ST," said EY Asia-Pacific financial services office tax leader Amy Ang.

Ang noted that customers increasingly have higher demands for comprehensive banking and financial advice, services, products and instruments, and banks in Singapore have more tie-ups with other entities to provide such services.

"For greater certainty, we suggest adding as a separate qualifying activity the provision of services, including as an intermediary, in connection with transactions relating to financial products or instruments," she said.

Meanwhile, it is suggesting a "1-time age relief" be given to older individuals who may not qualify for other reliefs such as the child relief.

Noting that the older generation also has lower CPF reliefs as the contribution rates decrease, EY noted that they get fewer reliefs while more of their income is taxed.

"With a relief quantum of S$2,000 to S$3,000, the lower-income group in the older generation should have little or no tax to pay," said Panneer Selvam, partner for people advisory services (mobility) at EY.

The firm also suggested a slew of other reliefs, including for spouses of working mothers and caregivers as well as medical-related insurance policies and health screening.

In the area of sustainability, Simon Yeo, EY Asean climate change and sustainability services leader, said the government can consider setting aside an amount to co-fund pilot programmes around packaging waste reduction, targeting the food and beverage (F&B) and e-commerce sectors.

This is especially since more Singaporeans have opted for food delivery and online shopping, while F&B outlets are using more disposable utensils during the pandemic.

Yeo also suggested a government co-funding of S$10 million to S$20 million over 3 years for research into a complementary set of policy and market-based instruments to support Singapore's net-zero ambitions.

He added that the research should focus on searching for an incremental pathway to stricter environmental regulations aimed at deterring intensive carbon-producing behaviours while encouraging new norms.