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A Singapore Budget for the future
BUDGET 2018 has carefully laid out the plans to prepare Singapore for the next decade. This multifaceted Budget addresses the long-term challenges of the country and lays the foundation for a sustainable future for Singapore.
While there was a lot of pre-Budget hype on raising tax revenues, the upward tax adjustments such as GST rate increase and reduction of partial tax exemption are slated for 2020 onwards. Ample advance notice has been given to businesses and individuals to plan their finances, sending a clear signal that the Budget is forward-looking rather than reactive.
The delivery of the Budget speech was striking. The Finance Minister took pains to explain the "whats", "hows" and "whys". What are the challenges faced by our country? How do we respond? Why do we need to increase our taxes?
PREPARING FOR THE NEXT DECADE
Technology, globalisation and demographic shifts are the primary forces driving this current wave of disruption. They are fundamentally changing the way the world operates at an unprecedented speed.
Singapore's businesses, individuals and the government are not spared and cannot sidestep this march of disruption. It is however important to recognise that disruption brings not only challenges but also opportunities. Uschi Schreiber, Ernst & Young global vice-chair (Markets), said: "The era of being afraid to make mistakes and take risks is over. Over the next five to 10 years, those who are bold and able to embrace disruption - and transform the way we all operate - will be the winners."
The next waves of technology revolution - the Internet of Things, virtual reality, artificial intelligence, robotics - have and will continue to disrupt traditional industries and displace existing jobs. Various non-tax initiatives such as Open Innovation Platform, Aviation Transformation Programme and Maritime Transformation Programme will help support companies' innovation and transformation. While not all jobs will be affected and not all affected jobs will be eliminated, Singaporeans need to invest in continuous learning and deepen their skillsets to stay relevant. The Tech Skills Accelerator and Capability Transfer Programme serve these objectives.
Globalisation fuelled by technology advancement will disrupt existing businesses by creating new competitors, remodelling supply chains and lowering price points. The relatively high cost of doing business in Singapore is not to the advantage of businesses here. Singapore businesses have to increase productivity, create added value in their product and service offerings, and collaborate by entering into partnerships to compete effectively.
The Asean Leadership Programme, Enterprise Development Grant and double tax deduction for internationalisation aim to support companies in enhancing their capabilities for internationalisation. At the same time, to foster pervasive innovation, the enhanced tax deductions announced for in-licencing, registration and research and development activities for intellectual properties (IP) will incentivise enterprises to buy and use new solutions as well as build their own or co-create solutions.
An unfulfilled tax wish is the ability to automatically claim writing down allowances for costs incurred in acquiring the economic ownership (and not legal ownership) of an IP. It will indeed be a boost to further promote innovative activity if this legal ownership condition is removed.
Like other developed economies, Singapore is facing an ageing population. By 2030, 28 per cent of its population will be above 65 years old, according to the United Nations' 2017 World Population Ageing report. This Budget addresses this challenge by enhancing the ElderShield insurance scheme, expanding the community network support, integrating health and social support, and strengthening the role and capabilities of social service offices.
The government's sharpened focus on companies investing in more efficient and smart solutions, including the funding support under the Productivity Solutions Grant, will also serve to improve productivity when human resources become more constrained with Singapore's ageing population.
The extension of the 250 per cent tax deduction scheme to donations made on or before Dec 31, 2021 to qualifying charities will continue to help build a giving society. It will be even more welcomed if this scheme becomes a permanent feature of our tax legislation.
Singapore has been adopting a prudent fiscal policy by managing government expenditure growth carefully and getting good value for spending. For FY2017, Singapore expects an overall Budget surplus of S$9.6 billion, or 2.1 per cent of GDP, as announced during Budget 2018.
Over the next decade, it is expected that recurring government expenditure will continue to increase, especially in the areas of social development (for example, education and healthcare) and security. The government plans to strengthen its operating revenue in the immediate term by increasing the top marginal buyer's stamp duty rate from 3 per cent to 4 per cent on the value of residential property in excess of S$1million. In the near-term from 2020 onwards, adjustments will be made to the Startup Tax Exemption scheme and Partial Tax Exemption scheme, and the GST rate will increase from 7 per cent to 9 per cent and carbon taxes will be adjusted from S$5 per tonne to between S$10 and S$15 per tonne of carbon emission.
GST will also be extended to cover imported services such as consultancy, marketing, digital apps and music purchased from overseas suppliers, with effect from Jan 1, 2020. This is consistent with recommendations provided by the Organisation of Economic Cooperation and Development and aims to level the playing field for local suppliers. Budget 2018 is built on the themes laid out in past Budgets - Building Our Future, Strengthening Social Security (2015), Partnering For Our Future (2016), Moving Forward Together (2017) - and Together, A Better Future (2018).
This Budget reminds Singapore businesses and individuals that disruption will bring challenges - and also new opportunities, but Singapore is ready to embrace these challenges and seize these opportunities.
Let us - the people, business and government - come together, work together and make our aspirations a reality.
- The writer is head of tax services at Ernst & Young Solutions LLP.
The views here are hers and do not necessarily reflect the views of the global EY organisation or its member firms.
For more Budget 2018 stories visit bt.sg/budget18