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SINGAPORE BUDGET 2020

Singapore as Asia's transformation capital

Transformation would be a space in which Singapore can claim leadership, evolving beyond its traditional economic roles.

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For Budget 2020, a Digital Transformation Package of broad-based tax incentives, for example, would help catalyse business transformation by supporting significant capital outlay and resources.

IN an increasingly multipolar world facing disruption, economic nationalisation and natural adversities, enterprises must seek new ways to thrive in a shifting business, trade and investment landscape. They have to adapt to maximise the benefits of new technologies such as artificial intelligence and the Internet of Things. At the same time, they need to be concerned about how to become more sustainable as an organisation.

To stay relevant in this dynamic market environment, embarking on a digital transformation journey will be a critical first step. Marshalling technology and managing data will enable companies to maximise their resources, adapt to change, and succeed.

Just as how the Republic has been a conducive home for enterprises to innovate and reinvent themselves, amid these challenges, Singapore can continue to be a launchpad for enterprises which are ready to embark on the digital transformation journey.

Indeed, with its track record, Singapore can even reach for a new vision - it has the opportunity to emerge as the Transformation Capital of Asia. Transformation would be a space - or even an entirely new industry - in which Singapore can claim leadership, evolving beyond its traditional roles as a trading hub, manufacturing economy and financial centre.

Facing increasing pressure on fiscal expenditure given an ageing population and an uncertain global economic outlook, Singapore needs to find more sustainable sources of operating revenue to balance the budget. Developing Singapore into the Transformation Capital of Asia is an example of a long-term source of operating revenue that can help build and expand the tax revenue base. The key is to encourage business enterprises to embrace digitalisation and internationalisation to improve profitability and export the expertise of transformation to businesses in the region. This would also in turn lift the income of workers.

Singapore is the best-placed to seize this opportunity by equipping itself with the necessary technology enablers and resources as well as leveraging on its unique advantages - that of financial and political stability, a well-established infrastructure, competitive tax system, availability of skilled labour and an international mindset.

Budget 2020 could lay the groundwork to build a transformation ecosystem - one that offers end-to-end solutions from procurement to fintech, from the most fundamental data protection to advanced cybersecurity, and from foundational infrastructure to long-term sustainability.

Driving transformation in a digital age

Digital disruption is already forcing companies to re-examine their business models. Whether it is more demanding customer expectations, data-enhanced products or more digital operating models, these trends are changing the way businesses operate. Companies can use this digital transformation itself as a platform for business development, creating new smart products and services which can be exported beyond Singapore.

Another key opportunity for digital transformation is in the offshoring of operating activities by enterprises in Singapore, to lower-cost markets in a bid to reduce costs. By so doing, Singapore loses potential tax revenue as profits are used to offset outsourcing costs. To help enterprises become fully digitally enabled, the next step in digital transformation can be to resume such activities in Singapore, using technology-backed solutions and "digital labour". Revenue can then be preserved, as the costs of these activities are made cheaper with technology and lower labour costs.

To make these shifts, Singapore should deploy wide-scale transformation initiatives in the public and private sectors. Organisations can start by deploying more intelligent automation capabilities in areas such as finance, human resources and procurement. For example, new digital solutions can help track consumer behaviour and emerging market trends.

For a start, short-term government spending may be necessary to incentivise this digital transformation. But this will eventually lead to a rise in tax revenues, as sustainable business profitability improves in the medium to long term.

For Budget 2020, a Digital Transformation Package of broad-based tax incentives, for example, would help catalyse business transformation by supporting significant capital outlay and resources. Other tax incentives could include an enhanced capital allowance for digital adoption and support for digital skills training.

Transforming with adoption and development of 5G

Another key aspect of digital transformation is the progressive rollout of the 5G network by telcos here within the next two years.

This will transform Singapore's digital space, especially as Singapore consolidates its position as a major data centre for the region.

Estimated to be 20 times faster than 4G, 5G networks will increase capacity, quality and speed of connectivity and connected devices, enhancing the ability to leverage cloud computing, allowing for smart cities and autonomous machinery.

This will create demand for innovations and new revenue sources across the supply chain, as data analytics and software intelligence enables more efficient use of material flows to cut costs.

A KPMG study on 5G showed that 5G can be deployed by enterprises as a private network providing benefits including reliability, bandwidth and efficiency, such as in manufacturing plants, hospitals and university campuses.

To fully realise the potential of 5G, a key enabler of this will be highly skilled employees with learning agility in this field.

Enterprises will need to recruit and retain the requisite human capital to thrive in a 5G environment.

More government support is needed at this formative stage, to enable faster 5G development and adoption on a larger scale.

One way is to lower the costs for telcos by providing tax incentives such as writing down allowances for spectrum rights payments, so that they can pass the savings down to consumers.

This would also encourage more companies to invest in developing 5G technology. To spur innovation, enterprises could be given grants of up to 50 per cent for prototyping and innovation from a 5G technology and innovation fund. Other incentives could include the Market Readiness Assistance grant and refundable tax credits.

With these and other measures through Budget 2020, Singapore would be even better positioned to take the lead as the Transformation Capital of Asia.

  • The writers are from KPMG in Singapore. Tay Hong Beng is head of tax, and Ajay Kumar Sanganeria, deputy head of tax.