Singapore Budget 2018: PwC calls for threshold for personal tax to be raised to S$40,000

Singapore

PROFESSIONAL services firm PwC unveiled on Wednesday its wish list for next year's budget.

Among the recommendations it said it has submitted to the Ministry of Finance and the Monetary Authority of Singapore to consider for inclusion in Singapore Budget 2018 is its request that the government help the middle class in Singapore by raising the income threshold for personal income tax from the current S$20,000 to S$40,000.

Under the current progressive tax regime, taxable income beyond the first S$20,000 is taxed at graduated rates ranging from 2 per cent to 22 per cent. PwC would like to see the lowest two bands removed, with personal tax to kick in only from the first S$40,000 of taxable income.

The firm is also suggesting that the S$80,000 cap on working mother's child relief be lifted to encourage married women to continue working. The unpopular cap was introduced in last year's budget. Tax experts said then that working mothers earning above S$150,000 with at least two children would likely end up paying more tax.

PwC also proposed introducing reliefs, such as for medical insurance to encourage taxpayers to take up medical insurance policies to supplement their Medishield coverage, and for the foreign maid levy to taxpayers who employ helpers to care for their elderly parents or parents-in-law.

The firm also suggested that reimbursement of medical and dental care to an employee's parents and parents-in-law not be treated as taxable benefits. This now applies only to the employee, his or her spouse and children.

But most of PwC's proposals have to do with helping Singapore businesses embrace digital disruption and encouraging innovation and enterprise.

Key among them was a call to enhance the writing down of allowance for acquisition of intellectual property, and enhancements on the research and development (R&D) front to promote the creation of a more conducive environment for high value-added activities and intellectual property ownership (IP) in Singapore.

There were also proposals to encourage local businesses to reinvent themselves by expanding their footprint locally and overseas, including enhancing the double deduction for internationalisation and tax concessions for training and to help companies "go digital".

Chris Woo, PwC Singapore's tax leader, said: "These changes will help secure Singapore's future as a hub for businesses globally and achieve a truly high-value digital economy."

On IP reliefs, PwC said multinational companies may not be able to transfer full ownership of their IP to Singapore in the light of legal or commercial constraints. Nonetheless, they should be encouraged to locate activities relating to the management and control of their IP in Singapore and exploit it from here, as this will create economic spin-offs for the economy.

PwC thus suggests that the writing down of allowances for IP be extended to its "economic owner" in Singapore, without the need for prior approval from the Economic Development Board. This would bring Singapore in line with countries like Australia and Britain, where no distinction is made between the economic and legal owner of IP.

It also called for qualifying R&D expenditure to enjoy a 200 per cent tax deduction, up from the 150 per cent; this will apply with the expiry of the Productivity and Innovation Credit (PIC) scheme after the year of assessment 2018, in order to keep Singapore competitively attractive.

This incentive should also extend to R&D activities conducted overseas, so long as the activities have a nexus to the Singapore business, such as when the majority of the IP developmental activities are carried out here or when the IP developed out of the R&D is owned by a Singapore-based enterprise.

PwC also proposed a lower qualifying threshold for a tax incentive meant to attract venture capital (VC) funds to Singapore. It said that the S$50 million fund size requirement for the 13X fund tax incentive is too high, given that VC funds tend to invest in smaller investees and are usually unable to meet this threshold. PwC is calling for it to be lowered to S$10 million.

It also recommends that the government expand the list of designated investments to include trade receivables and major crypto-currencies in circulation, arguing that as Singapore wants to be Asia's asset management hub, it should attract funds with different strategies to be based here.

To help investors and companies in vulnerable sectors - in light of several high-profile cases of bond defaults - PwC is also proposing that premiums for insuring against such defaults be added to the list of prescribed deductible borrowing costs. This will encourage issuers of such debts to buy insurance against defaults, which will also protect investors.

PwC did not weigh in on the hot-button issue of a hike in the Goods and Services Tax (GST). Economists and tax experts are expecting this tax to go up within the next few years, with an announcement expected as soon as Budget 2018. This follows comments last month by Prime Minister Lee Hsien Loong, who said that, with growing government expenditure, "raising taxes is not a matter of whether, but when".

Instead, the firm proposed tweaking the rules for GST registration, simplifying GST tax invoices and extending GST concession to non-share trades on overseas exchanges.

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