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Deloitte's Budget ideas: sugar tax, green incentives, startup-friendly tax regime

A SUGAR tax, incentives for green investment, and a tax regime that is friendlier to startups are among Deloitte Singapore's Budget 2019 recommendations, released on Thursday.

With the Ministry of Health mulling possible measures to tackle sweetened beverages and combat diabetes, a sugar tax on drinks manufacturers is one possibility, said Deloitte, adding that revenue collected could be channelled to subsidising healthier food options.

On the environmental front, alongside the carbon tax regime to be implemented in 2019, Deloitte suggests measures to incentivise green investment. For instance, enhanced capital allowances of 200 per cent could be granted for the cost of energy-efficient and energy-saving equipment, including electric-vehicle charging infrastructure, up from 100 per cent currently. Enhanced capital allowances of 200 per cent could also be granted on the acquisition of electric buses, to encourage their adoption in the private bus market.

Priority could also be given to research and development (R&D) projects that tackle environmental issues, by lowering or removing the S$15 million minimum threshold for the existing R&D pre-claim evaluation scheme.

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To encourage R&D more broadly and attract quality researchers, the government could consider exempting a portion of the income earned by qualified R&D personnel, said Deloitte.

Other suggestions aim to encourage startups and small and medium enterprises (SMEs). In Budget 2018, benefits under the partial tax exemption and startup tax exemption schemes were reduced, "perhaps in recognition that the intended recipients of the schemes – startup companies and SMEs – may not have sufficient taxable profits to fully enjoy the tax exemption", noted Deloitte.

Startups in particular tend to suffer losses in their first few years. Though the current tax regime allows such losses to be carried forward indefinitely, this is done at the nominal value, which erodes over time. As an alternative to the aforementioned schemes, Deloitte thus recommends preserving the real value of tax losses by indexing them, perhaps to the consumer price index or an appropriate yield based on Singapore government bonds.

"A key benefit of this recommendation to businesses would be an increase in the projected after-tax returns on their investment. This is an important metric for startups looking to attract investors since investing in such businesses is typically a long-term, multi-stage affair," said Deloitte.

On personal income tax, recommendations include childcare or infant-care relief for both working parents, recalibrating earned income relief to be in line with current income levels and cost of living, and providing tax relief for individuals who pay MediShield Life premiums for elderly parents and dependent children.