Budget 2025: National Productivity Fund top-up should help draw MNCs to Singapore, say observers
But some had hoped for more specific incentives, such as for the JS-SEZ
BUDGET 2025’s investments for innovation and technology – particularly a S$3 billion top-up to the National Productivity Fund (NPF) – should improve Singapore’s attractiveness to multinational corporations (MNCs), industry watchers said.
The NPF supports productivity improvements and training, though the government has not given details of its use. In 2023, its scope was expanded to cover grants to companies investing or carrying out economic activities in Singapore, noted PwC Singapore tax partner Tan Tay Lek.
KPMG in Singapore partners Ajay Kumar Sanganeria and Harvey Koenig said: “This year’s substantial commitment underscores Singapore’s continued focus on supporting investment promotion and elevating business productivity through non-tax incentives, which are increasingly critical in the evolving global tax environment.”
Deloitte Singapore international tax leader Liew Li Mei believes NPF funding could go to research partnerships, talent development, and enhancing productivity through technology.
James Choo, partner, international tax and transactions services at EY, noted that details of the use of past top-ups – such as a S$2 billion one in Budget 2024 – were not revealed either.
But the Economic Development Board did have “a lot more discretion and firepower” to provide cash grants or refundable investment credits that were “more sizeable in quantum”, he said. He believes the new top-up could be used similarly.
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American Chamber of Commerce chief executive officer Lei Hsien-Hsien said that US companies dealing in artificial intelligence are interested not just in having offices here, but also in using Singapore as a research and development (R&D) hub and establishing centres of excellence.
“No doubt, initiatives like NPF would make it even more attractive, because R&D is not cheap,” she added.
Separately, Budget 2025 included about S$1 billion in investments in biotech and semiconductor R&D infrastructure, and a tax deduction for payments under approved cost-sharing agreements for innovation.
Observers welcomed the sectoral focus.
Biotech is one of the sectors “at the heart of the Fourth Industrial Revolution, where MNCs are actively expanding and looking for environments conducive to innovation”, said Deloitte’s Liew.
Dr Lei noted that while the semiconductor industry is in flux due to supply chain issues, demand remains huge. The biotech emphasis, meanwhile, aligns with the growing medical needs of Singapore’s ageing population.
The investment also signals Singapore’s willingness and ability to put resources into R&D – which is important to MNCs now that global support for such activities is very volatile, she added.
What’s missing
Yet, some watchers felt that certain measures were missing.
For example, Malaysia has announced incentives to develop the Johor-Singapore Special Economic Zone (JS-SEZ), but Singapore has yet to do so, said the KPMG team.
The government could have broadened the existing Market Readiness Assistance grant – which defrays certain internationalisation-related costs – to MNCs setting up in the JS-SEZ, said Sanganeria and Koenig.
Other possibilities include property-tax exemptions or a broader scope for building-tax allowances for the JS-SEZ.
Another area “that could have done with more attention” is banking, pointed out David Sandison, head of tax at Grant Thornton Singapore.
When MNCs consider Singapore, they are “looking for more than just tax benefits”, he said. They also consider proximity to markets, financing and logistics capabilities, as well as the general ease of doing business and a strong legal and regulatory environment.
Support for the banking sector could help here, he noted. “If the banks are not to be disintermediated by the rising tide of digital currencies and payments services, then they may need some support to help them ‘pivot’.”
However, one noticeable absence – incentives related to global minimum tax rule changes under the Base Erosion and Profit Shifting (BEPS 2.0) initiative – is easy to explain.
The rules, to which major economies have agreed, include a global minimum effective corporate tax of 15 per cent. In what is seen as a response to this change, Budget 2024 introduced the Refundable Investment Credit, a tax credit with a refundable cash feature to support high-value economic activities.
But now, uncertainty shrouds the global tax landscape after US President Donald Trump took the United States out of the tax deal last month.
This uncertainty could cause governments to “wait and see what kind of incentives would be acceptable, and how the incentives are to be designed”, said Choo.
This explains Budget 2025’s lack of moves related to BEPS 2.0, noted watchers.
“Singapore is likely to take a pragmatic approach to such developments and wait to see the response of other jurisdictions, before making policy decisions,” said Deloitte’s Liew.
Indeed, the lack of such moves is “not necessarily a bad thing”, said Paul Lau, Asia-Pacific tax policy leader at PwC Singapore.
“Without reaching any consensus, it will be premature to make yet more major changes to our tax system at this time.”
In any case, observers agreed that Singapore’s appeal for MNCs goes beyond individual incentives and extends to the entire ecosystem.
MNCs continue to look at fundamentals such as political stability, a pro-business environment, robust infrastructure, as well as the availability of skilled talent and costs.
And these requirements are addressed in the more general measures in Budget 2025, Dr Lei said.
For instance, corporate income tax rebates help tackle cost pressures, while enhanced training allowances will improve talent quality without causing manpower crunches.
Overall, Budget 2025 has created a “vibe” for a positive year ahead despite global uncertainty, she added. “Stability, a plan so you have some idea of what to expect, some consistency.”
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