Singapore 4.0: Paving a decisive way forward 

BUSINESSES and economies are compelled to refresh their playbook as they navigate today’s myriad disruptions.

This ranges from macroeconomic volatility, escalating geopolitical tensions and international tax upheavals, to the climate crisis and the emergence of new technologies. At every turn, this turbulent environment tests the resilience and adaptability of companies and countries alike.

Cutting through the noise of these churns and disruptions to secure growth requires incisive and inclusive actions that not only alleviate immediate pains but also charts the Forward Singapore road map for a competitive and sustainable future.

For businesses, three key thrusts introduced by the fourth-generation leadership of Singapore are noteworthy.

Adapting to a new tax world

A new tax world has dawned upon us with the global minimum tax regulations, also known as Base Erosion Profit Shifting (BEPS) 2.0 Pillar Two.

This is going live this year in major economies such as Australia, Canada, the European Union, Japan and South Korea.

Finance Minister Lawrence Wong has confirmed that Singapore will implement two components of Pillar Two – the Income Inclusion Rule and Domestic Top-up Tax – in 2025. The Undertaxed Profits Rule will, however, be considered at a later stage. With Pillar Two, Singapore’s ability to use tax incentives to attract foreign direct investments is undermined.

To adapt, Budget 2024 refreshes the country’s incentive toolbox with new fiscal schemes such as the new Refundable Investment Credit (RIC) – a scheme of tax credits with a refundable cash feature to attract sizeable investments in key economic sectors and new growth areas.

Under Pillar Two, where the refundable tax credit scheme is designed to be paid as cash or cash equivalents within four years from satisfying the qualifying conditions, they are treated as income like cash grants (instead of reduction of income taxes), thus having less downward pressure on the jurisdictional effective tax rate.

For a multinational enterprise group that is already burdened with top-up tax liability, the new RIC and cash grants might therefore be a more appealing option.

For a nation, extending preferential tax rate (meaning giving up taxing rights) is seen as an opportunity cost, while providing grants and subsidies constitutes a direct cash outlay.

The award of the latter must therefore be measured to effectively manage the country’s fiscal budget. But ultimately, the selected tax policy and incentive framework must affirm Singapore’s steadfast commitment to supporting high-quality high-value investments.

Bolstering business competitiveness

Small and medium-sized enterprises (SMEs) serve as a vital backbone to our business ecosystems. The Partnerships for Capability Transformation programme will be enhanced to support local enterprises in deepening their capabilities to compete on the world stage.

For many SMEs, the escalating costs of doing business in Singapore persist as a central worry for business owners.

To address the immediate cost concerns, businesses will be accorded a 50 per cent corporate tax rebate for year of assessment 2024 (capped at S$40,000), an enhanced enterprise financing scheme, and enhanced co-funding of wage increases.

The above measures are useful but not the panacea for productivity growth. It takes an unwavering commitment to drive productivity growth – one that catalyses sustainable economic growth and leads to improved living standards and societal well-being.

Embracing emerging technologies such as generative artificial intelligence (AI) could be a game-changing solution to enhance productivity and drive technological transformation.

Underlining this potential, Singapore is strategically positioning itself as a global contender in the AI sphere. The government’s pledge to invest over S$1 billion in the next five years to spur AI activities demonstrates this bold ambition.

Furthermore, there are plans for vital moves including securing access to essential AI components such as graphics processing units, and forging partnerships with leading firms to establish AI centres of excellence. These initiatives aim to cultivate a vibrant culture of innovation, attract global expertise and build a resilient AI ecosystem.

Additionally, Budget 2024 provides enhanced support, including a substantial top-up to SkillsFuture Credit and financial support in the form of generous training allowances for full-time courses and subsidised diploma education, for mature mid-career Singaporeans to pursue meaningful reskilling and upskilling throughout their lifetime.

Safety nets will also be put in place to help those made redundant. These continual efforts to invest in our human capital are essential to ensuring Singapore’s competitiveness as a regional business hub.

Now, it leaves Singaporeans and businesses to garner the determination to succeed in seizing the opportunities to innovate, change and transform, or risk inertia and falling behind.

Securing climate resilience

A secure economic future must be a climate-resilient one – and businesses play a crucial role in contributing to the fruition of the Singapore Green Plan.

Given its position as a trade node and hub, Singapore can wield significant influence on the region’s green transition and lead in driving the green economy.

Budgetary measures have been established to bolster the green loan scheme and enhance grant support for businesses to embark on projects aimed at energy efficiency and reducing emissions.

Energy security is addressed by diversifying the sources of cleaner energy, including importation of low-carbon energy, investment in new liquefied natural gas infrastructures, and early-stage feasibility studies into the future use of hydrogen and nuclear energy.

In times of unrelenting uncertainties, the courage to double down on long-term priorities and dexterity in meeting short-term demands is vital. Budget 2024 signals the commitment and conviction of the fourth-generation leadership that Singapore and its people can – and indeed, must and will – sail through the winds of change.

The writers are from Ernst & Young Solutions. Soh Pui Ming is head of tax, and Chester Wee is partner and EY Asean international tax and transaction services leader. The views expressed are the writers’ and do not necessarily reflect those of the global EY organisation or its member firms.