EY calls for innovation advancement support, tax system tweaks in its Budget 2025 wish list
The firm also proposes measures to transform and strengthen the workforce
PROFESSIONAL services firm EY called for more support for the whole-of-nation advancement in research, innovation and digital economy, as well as the maintenance of a relevant tax system in its Budget 2025 wish list. It also sought continued assurance for workers, families and individuals amid an evolving employment landscape.
The measures proposed by EY focus on supporting Singapore and its citizens in navigating present and upcoming challenges, the firm said on Thursday (Jan 2).
To further the Republic’s research, innovation and digital capabilities, EY suggested enhancing the nation’s intellectual property (IP) commercialisation strategy as one approach.
An active marketplace for fundraising against intangible assets (IA) and IP “can create a vibrant ecosystem” that will support Singapore’s goal of being a leader in these areas, said Andre Toh, Asean and Asia-Pacific valuation, modelling and economics leader at EY.
He proposed a relaunch of the IP financing scheme, which was introduced in 2014 to help companies raise funds by using IP as loan collateral. The scheme ended in 2018.
A study should be conducted together with the relaunch to understand the challenges faced in the earlier iteration, he added.
Flagging the inadequate capabilities and resources of many companies, EY Asean government and public sector leader Benjamin Chiang called for more government support to boost cybersecurity as a core component of businesses’ digital strategies.
On the artificial intelligence (AI) front, EY’s experts called for more adoption assistance for businesses and individuals.
While small and medium-sized enterprises (SMEs) can access generative AI adoption support through Microsoft Copilot, EY said enhanced subsidies and a wider suite of generative AI tools will lower barriers to entry.
The firm also proposed SkillsFuture Credit top-ups and programmes, AI literacy schemes, and workplace AI integration training to help individuals upskill.
Keeping the tax system relevant
Under Singapore’s current research and development (R&D) regime, there is an additional 300 per cent tax deduction – up to S$400,000 – on qualifying R&D expenditure, and an additional 150 per cent R&D deduction on the balance of qualifying expenditure in excess of that, for certain taxpayers.
Noting that companies currently cannot convert the tax deduction into refundable credit or cash, Johanes Candra, business incentives advisory partner at EY, suggested an enhancement to the regime to allow this option.
This would help companies – especially SMEs – with cash flow, and could also help larger organisations better manage the effective tax rate. It comes as Singapore implemented a 15 per cent domestic top-up tax on Jan 1.
Tracy Tham, EY business incentives advisory partner, also proposed extending the enhanced R&D deduction – currently limited to Singapore-incurred expenditure – to overseas R&D expenditure, to an extent.
She believes this can make the existing regime more holistic, by recognising R&D collaboration. To ensure that the enhancements enrich the local R&D ecosystem, it can be limited to R&D that is associated with IP residing with Singapore taxpayers, she said.
Beyond tax deductions, EY proposed tax system-related changes in the form of increased flexibility in the group relief system (GRS).
The GRS treats companies in the same group as if they are a single entity, allowing firms to deduct the unutilised capital allowances, trade losses, and donations of one company from the assessable income of another within the group.
Chai Wai Fook, EY tax services partner, suggested upgrading this system to look beyond intermediate holding entities, in view of more complex company structures.
“If the transferor and transferee are Singapore tax resident companies and are both ultimately held by a Singapore tax resident holding company, group relief should be available,” he said.
“Anti-avoidance provisions can be put in place to ensure that the holding structures are not artificial and temporary arrangements.”
EY also proposed making merger and acquisition (M&A) allowances transferable under the GRS.
“Given that strategic acquisitions are integral to a group’s growth strategy, tax benefits arising from such acquisitions, such as the M&A allowance on qualifying transaction costs, should be shared at the Singapore group level,” said Sandie Wun, international tax and transaction services partner at EY.
She added that the transfer could be limited to fully owned group companies, or those conducting the same business, to prevent abuse.
Assurance for all
EY also pitched a series of measures to transform the workforce. These include expanding initiatives to support older workers, such as wage subsidies for employers who hire and train them, as well as enhancing the SkillsFuture Jobseeker Support Scheme to cover higher-wage groups.
The firm also highlighted the importance of adopting fair employment practices. It suggested establishing a fund that companies can tap for training, policy development and implementation costs, to reduce the financial burden of compliance.
And to encourage the exchange of skills, EY urged the government to revisit work pass-exempt activities to include acts such as attending and participating in board meetings as a foreign director appointed by a Singapore company.
The firm also suggested postponing an S Pass levy increase – planned for September – by a year, and introducing more flexibility to the one-month Employment Pass or S Pass.
EY Asean regional managing partner Liew Nam Soon said that this year’s Budget – in Singapore’s 60th year of independence – is an opportunity to reflect on the shared responsibility of “positioning for the next lap of sustainable, inclusive growth”.
Liew, who is also Singapore managing partner, added: “Initiatives that support and enable individuals, families and enterprises across different stages of growth and development will be welcome; importantly, active participation of individuals and collaboration among enterprises will be vital to not just achieve but amplify the impact of these initiatives.”
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