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Singapore Budget 2018: PwC proposes government raise threshold for personal income tax to S$40,000 in its Budget 2018 wishlist

PROFESSIONAL services firm PwC is asking the government to help the middle class in Singapore by raising the income threshold for personal income tax to S$40,000 from S$20,000 currently, in its wishlist for next year's budget.

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 start applying only to the first S$40,000 of taxable income.

The firm is also suggesting 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 other reliefs - such as for medical insurance to encourage taxpayers to take up medical insurance policies to supplement their Medishield coverage, and for 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 only applies to the employee, his or her spouse and children.

These were among the recommendations PwC said on Wednesday it has submitted to the Ministry of Finance and the Monetary Authority of Singapore for consideration for the upcoming Singapore Budget 2018.

But most of the firm'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 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 to anchor high value added activities and intellectual property ownership (IP) in Singapore.

There were also proposals to encourage local businesses to reinvent themselves to expand 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-off for the Singapore economy.

The firm thus suggests that the writing down 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 that will apply with the expiry of the Productivity and Innovation Credit (PIC) scheme after 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 the majority of the IP developmental activities to be carried out here or the IP developed out of the R&D towhat is be 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. The S$50 million fund size requirement for the 13X fund tax incentive is too high as VC funds tend to invest in smaller investees and are usually not able to meet this threshold, said PwC, calling for it to be lowered to S$10 million.

It also recommends the Government expand the list of designated investments to include trade receivables and major cryptocurrencies 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 - given several high profile cases of bond defaults - PwC is also proposing that premiums for insuring against such default be added to the list of prescribed deductible borrowing costs. Thsi will encourage issuers of such debt to buy insurance against default, which will also protect investors.

On the topic of the goods and services tax, or GST, PwC did not weigh in on the hot-button issue of a GST hike. Economists and tax experts are expecting the GST to go up within the next few years, with an announcement expected as soon as Budget 2018, after comments by Prime Minister Lee Hsien Loong last month given growing government expenditure, "raising taxes is not a matter of whether, but when".

Instead, PwC made proposals on tweaking the rules for GST registration, simplifying GST tax invoices and extending GST concession to nonshare trades on overseas exchanges.

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