THIS year's Budget announcement is done and dusted and clearly, the small and medium enterprises (SMEs) are one segment of the economy that the government had targeted to support through the budget proposals. Government fiscal incentives are only useful if the intended beneficiaries are fully aware - and make best use - of them.
1. Visit the Business Grants Portal
One of the common issues that SMEs face is not knowing the myriad of government assistance available, let alone meaningfully assessing whether the schemes are fit-for-purpose. The new Business Grants Portal, which seeks to house all government schemes in a single platform will make it easier for businesses to access the schemes. SMEs should be proactive in using this new portal to leverage schemes that can support the upgrading of their capabilities and expansion plans.
2. Get started with better funding access
Small startups that face difficulties in obtaining loans from financial institutions can now avail of the new SME Working Capital Loan scheme to obtain loans of up to S$300,000 to support their growth plans, knowing that the government will co-share 50 per cent of the default risk of such loans with participating financial institutions (PFIs).
3. Automate and innovate
SMEs with plans to improve productivity, scale up and internationalise should take advantage of the new Automation Support Package (ASP) to grow through innovation. The ASP combines several enhanced versions of existing standalone incentives into one package: grant funding of up to 50 per cent of qualifying automation project costs; a new investment allowance of 100 per ent of approved capital expenditure (net of grants); and improved access to equipment loans where the government will bear 70 per cent of the risk associated with such loans offered by PFIs.
4. Review expenditure plans
With the lowering of the Productivity and Innovation Credit cash payout rate from 60 per cent to 40 per cent, SMEs and low- or non-tax-paying companies that need fiscal assistance for productivity efforts will "lose" part of the benefit. As the lower conversion rate is only applicable to qualifying expenditure incurred from Aug 1, 2016, SMEs may consider bringing forward their spending on qualifying PIC expenditure and should fully understand the policy rules when determining the dates that the qualifying expenditure is incurred.
5. Leverage double tax deductions
Under the existing Double Tax Deduction (DTD) for Internationalisation scheme, businesses may claim a 200 per cent tax deduction on qualifying expenses, including airfare and hotel accommodation, as well as salaries of Singaporeans posted to new overseas entities. This scheme has been extended to March 31, 2020 and is an opportunity for SMEs to consider mapping, executing or accelerating their overseas growth plans to reap the benefits.
Further, the existing automatic DTD on qualifying expenses up to S$100,000 will be extended to qualifying expenditure incurred from April 1, 2016 to March 31, 2020. SMEs should keep track of their qualifying internationalisation expenses to avoid missing out on this automatic DTD claims.
6. Consider inorganic expansion
M&As make for a viable growth strategy for SMEs that wish to acquire market share, customer base and capabilities fast. The existing cap for qualifying deals under the M&A scheme, which was first introduced in 2010 and subsequently extended to March 31, 2020, will now be doubled to S$40 million.
SMEs can now enjoy an M&A allowance of up to S$10 million instead of S$5 million per year of assessment (YA) and a stamp duty relief of up to S$80,000 instead of the current S$40,000. Larger SMEs can potentially partake in more ambitious deals with this boost.
7. Utilise corporate income tax (CIT) rebate
To better utilise the higher CIT rebate of 50 per cent introduced for YAs 2016 and 2017, subject to a cap of S$20,000 per YA, a tax-paying SME may wish to look at ways to optimise the amount of CIT rebate claimable in these two years. This may be achieved through the deferral of capital allowances claim, or proper planning of transferring of losses of group companies.
8. Enjoy additional tax deduction through volunteerism
From July 1, 2016 to Dec 31, 2018, the pilot Business and Institution of Public Character (IPC) Partnership Scheme will allow businesses to enjoy an additional 150 per cent tax deduction on qualifying expenses with a yearly cap of S$250,000 per business and S$50,000 per IPC, when they send employees to volunteer and provide services to IPCs, including secondments.
Perhaps, tax-paying SMEs with cyclical businesses may consider seconding employees to IPCs during off-peak periods and benefit from this scheme, while at the same time, incorporate this in their talent strategy.
Time to take charge
Budget 2016 pushes on the economic restructuring journey while offering interim reliefs to ease business costs. It presents several key fiscal assistance and SMEs that have the ambition and are prepared to take charge of their future should look to fully capitalise on these opportunities sooner than later.
- The writers, Chai Wai Fook and Louise Phua, are Tax Partner and Tax Senior Manager at Ernst & Young Solutions LLP. The views reflected in this article are the views of the authors and do not necessarily reflect the views of the global EY organisation or its member firms.
- For all our coverage of Budget 2016: bt.sg/budget_16