KPMG proposes S$1b green energy investment fund in Budget 2022 wishlist

WITH sustainability now a top priority for many governments and corporates around the world, professional services firm KPMG is calling for the government to advance Singapore's "green" agenda by setting up a S$1 billion fund to drive green innovation while getting tough against greenwashing.

In its Budget 2022 wishlist, KPMG proposed a green energy investment fund to drive low carbon technology adoption through 2030 amid the recent global energy crisis as part of a list of suggestions to help the Republic become a leading global player in environmental, social and corporate governance (ESG).

The proposed fund would be a step up from the S$10 million that Singapore has already pumped into low carbon research and the S$55 million for projects in hydrogen and carbon capture, utilisation and storage, KPMG said.

It could also come in the form of a partnership between the government and the private sector, with involvement from academic institutions and research agencies, it added.

KPMG also suggested Singapore set up a green financing bank to fund sustainable infrastructure projects in the region, as they could drive more ESG investments by facilitating capability building and knoweldge sharing across industry verticals.

"Even though most banks and multilateral agencies have started lending with an ESG lens, it will still take a few years before their portfolios decarbonise, given the nature of their lending to various sectors of the old economy," said Ajay Kumar Sanganeria, partner and head of tax at KPMG in Singapore.

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At the same time, the government should take a tougher stance against greenwashing and implement legislation requiring independent assurance of ESG data that are material to investors, KPMG said.

To push for more green buildings, tax deductions of as much as 200 per cent and loans to spur both supply and demand of green buildings could be given, KPMG said, noting that many landlords have been hesitant to retrofit older buildings amid cash flow concerns during the pandemic.

Separately, new international tax rules could have a significant impact on Singapore, since the Republic offers a range of tax incentives, KPMG said.

"There are, however, opportunities to attract MNCs to relocate operations from other foreign jurisdictions with high-taxed profits into Singapore so as to blend in with any pre-existing low-taxed profit pools. This might result in simplified group structures or transaction flows, while preserving the benefits of pre-existing Singapore tax incentives," Sanganeria said.

For example, replacing the existing research and development (R&D) enhanced tax deductions with a refundable R&D tax credits scheme would cushion the impact of the global tax rules, while ensuring that such efforts continue.

KPMG is also proposing an enhanced regional headquarters (HQ) incentive which includes concessionary tax rates of 10 per cent for income from regional HQ functions for businesses that still benefit from tax incentives.

In addition, a "High-Growth Incentive package" for promising companies that show clear scalability for the international market could include concessionary tax rates of 10 per cent for qualifying income and grants to anchor R&D activities in Singapore, among other initiatives.

A "Factory of the Future" package could offer a 100 per cent investment allowance for businesses in industries that tend to be capital expenditure-heavy.

Meanwhile, Singapore should focus on building supply chains for the future through resilience and agility, KPMG said.

This could include setting up a "Cognitive Decision Centre" that taps predictive toolsets, allowing Singapore to boost its visibility of supply chains, identify potential shortfalls and react quickly.

It added that more support through tax incentives and dedicated programmes will be needed to nudge companies towards accelerating supply chain digital transformation, alongside a need to recruit talent that can drive such technological changes.

KPMG is also suggesting giving tax incentives to hard-hit sectors such as travel, trade and tourism to spur business recovery.

The government can also alleviate the cash tax burden of businesses stepping up digitalisation efforts by enhancing the capital allowance and tax deduction claims on such initiatives.