Budget 2025 may give firms support for long-term goals, but not short-term costs

SINGAPORE’S companies can expect help in Budget 2025 – but not necessarily short-term goodies such as those that individuals might get in an election Budget, said observers.

Rather, companies may get support to boost their competitiveness in a challenging environment. Apart from workforce-related help, there could be new or enhanced schemes for digitalisation and artificial intelligence (AI) adoption, sustainability and internationalisation.

These are some “evergreen thrusts” that OCBC chief economist Selena Ling expects Budget 2025 to maintain.

Similarly, Maybank economist Brian Lee noted: “Longer-term measures to strengthen businesses’ competitiveness and invest in future-ready areas have been a perennial feature of Singapore’s Budgets.”

Though perennial, these efforts are especially important in an uncertain world, with US President Donald Trump possibly introducing growth-hurting tariffs.

Ling sees room for Budget 2025 to be generous, given the likely bumper fiscal surplus in 2024.

Continued tech push

In adopting technology, firms face the barriers of high costs, the need to upskill staff and a shortage of management expertise, said Dr Faizal Bin Yahya, senior research fellow at the Institute of Policy Studies.

To counter this, Singapore Management University associate professor of law Eugene Tan expects incentives and schemes for innovation and technology, including hand-holding for small and medium-sized enterprises (SMEs).

The SMEs Go Digital programme – which offers subsidies and consultancy services – was recently refreshed for the built environment, security, retail, tourism and legal sectors, noted Ling. “A refresh may be also extended to more deserving industries.”

Yvaine Gan, global investment and innovation incentives leader at Deloitte Singapore, said that refundable research and development (R&D) tax credits could help with cash flow and boost innovation.

Other schemes, such as the Productivity Solutions Grant (PSG) and Enterprise Development Grant (EDG), could be broadened to include more technologies and solutions, suggested Deloitte Singapore business tax leader Rohan Solapurkar.

The PSG co-funds solutions or equipment that raise productivity, and the EDG co-funds projects that help businesses “upgrade, innovate, grow and transform”. Both could be extended to cover AI-related solutions and training, said Solapurkar.

More broadly, watchers expect Budget 2025 to increase support for AI adoption.

In Budget 2024, Finance Minister Lawrence Wong announced that Singapore would invest more than S$1 billion in AI development over the next five years. OCBC’s Ling believes that this figure may be topped up.

Solapurkar added that new tax incentives or enhanced deductions may be introduced for businesses investing in AI tools and training.

Maybank’s Lee anticipates “more specific support schemes” for companies to adopt AI and for workers to upskill in this area.

Going green, going abroad

Sustainability and internationalisation are other themes expected in this year’s Budget.

For sustainability, new initiatives could help companies in areas such as reporting, and the adoption or financing of green solutions, said Ling.

Solapurkar suggested expanding the Energy Efficiency Grant – which co-funds investments in energy-efficient equipment – to more industries or smaller businesses.

As for internationalisation, this long-running push has gained renewed urgency for SMEs due to “severe limitations” domestically, said Prof Tan.

Here, two schemes may be extended beyond their 2025 expiry dates, suggested Deloitte’s Gan.

One is the Double Tax Deduction for Internationalisation scheme. Extending it, and expanding the range of qualifying expenses, would provide continued tax relief for companies that go abroad and encourage more to do so.

The second, the Market Readiness Assistance (MRA) grant, has been “pivotal” in SMEs’ internationalisation and could be extended to 2030, she said.

Budget 2025 could also encourage one specific move – into the Johor-Singapore Special Economic Zone (JS-SEZ). The agreement for the bilateral project was inked on Jan 6.

Given that Prime Minister Wong has urged Singaporean firms to tap government incentives for entering Johor, Budget 2025 could bring details of such incentives, said Maybank’s Lee.

He sees scope to expand the existing Southeast Asia Manufacturing Alliance, which supports manufacturers intending to invest in both Singapore and Nusajaya Tech Park in Iskandar Malaysia.

Dr Faizal noted that, with Chinese companies reportedly keen on the zone, “some additional support could be announced”. These could be “tailor-made incentives to deal with the specific sectors of focus of the JS-SEZ”.

OCBC’s Ling similarly expects “specific sweeteners or incentives” for companies in the zone’s 11 targeted sectors.

Malaysia has announced a tax incentive package for investments in the zone, with special tax rates for qualifying companies and workers. The country’s Economy Minister Rafizi Ramli said that Malaysia will design an infrastructure fund for the zone, and Singapore a facilitation fund.

But Singapore has been tight-lipped, and some watchers doubt that specifics will come in Budget 2025.

Prof Tan does not expect “anything substantial”. Any related moves may be extensions of existing schemes, such as the MRA or the Overseas Markets Immersion Programme, he said.

“I suspect both countries are still working out the brass tacks and it might be premature to make a big splash of it in the Budget.”

Still, the Budget speech could mention that government agencies are “keen to expedite applications for JS-SEZ”, he added, “to demonstrate that we are serious” about the collaboration.

Johanes Candra, partner, business incentives advisory at EY Solutions, also anticipates enhancements rather than new incentives, “to recognise the spillover benefits and strategic value of Singapore companies expanding into the JS-SEZ”.

For instance, companies present in both Singapore and the zone could get greater support for qualifying costs under existing schemes such as the EDG, Research and Innovation Scheme for Companies and the Partnerships for Capability Transformation scheme.

Companies that “grow core activities” such as R&D or headquarter functions in Singapore, or help other local SMEs expand into the JS-SEZ could also be rewarded, he said.

For instance, they could enjoy higher reimbursement rates on qualifying expenses or a more attractive incentive quantum.

“By integrating these considerations, the current schemes can be refined without adding new incentives.”

Problems for now

Even as companies prepare for the future, many are struggling with elevated costs in the short term. Observers differ on whether Budget 2025 will address this.

Dr Faizal highlighted that operational costs are high, with rising rents and logistics costs, as well as fluctuating utilities prices.

But Prof Tan said: “An unspoken principle is that budgetary measures are not meant for businesses that would otherwise go under without those support.

“That would be akin to throwing good money at a lost cause.”

Budget 2024 did provide support for business costs, including a corporate income tax rebate of 50 per cent for Year of Assessment (YA) 2024, capped at S$40,000.

While Ling believes that “that may be the end of it”, Deloitte’s Solapurkar believes Budget 2025 could bring another such rebate, to provide some relief.

Maybank’s Lee noted that Budget 2024’s personal income tax rebate – applicable to sole proprietors and partnerships – had a lower cap than previous Budgets, at S$200. In Budget 2015, the cap was S$1,000.

He hopes for another personal income tax rebate, with a higher cap, for YA2025, given higher-than-expected tax collections in the first eight months of the 2024 financial year.

Separately, Budget 2025 might include measures to enhance access to financing and working capital, “given the backdrop of rising corporate and individual bankruptcies”, he added.

Besides helping with costs, Budget 2025 could drive demand with more CDC vouchers for households, said Lee. This could boost spending at local food and beverage as well as retail businesses, which “have been grappling with reduced resident spending owing to outbound travel and a strong Singdollar”.

Prof Tan thinks the Budget speech could also provide an update on the inter-ministerial review committee for reducing business regulations and red tape.

“The Budget will seek to underline that it is pro-business and that the government is a reliable partner in helping businesses grow,” he summed up.