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Tax benefits to boost productivity and innovation extended to 2018
THE government will extend the Productivity and Innovation Credit (PIC) scheme for three years, and will introduce a separate version of the programme for small and medium-sized enterprises (SMEs) which raises the expenditure cap for tax deduction claims.
Responding to calls from businesses, in particular SMEs, for the PIC to be extended beyond 2015, Finance Minister Tharman Shanmugaratnam said yesterday that the government will continue with the scheme until 2018.
In addition, it will introduce the PIC+ scheme targeted at SMEs to "help firms that are making more substantial investments to transform their businesses", said Mr Tharman.
The PIC+ will be introduced in 2015, and will allow SMEs to make tax deduction claims for $600,000 of qualifying activities per year up till 2018, compared with the current $400,000 cap.
This raises the combined expenditure cap to $1.8 million from 2016 to 2018, compared with the original limit of $1.2 million across three years.
SMEs that opt for a PIC cash payout will continue to face a $100,000 expenditure cap per year that cannot be combined across the three years.
The government also responded to calls from businesses for longer-term support of innovation efforts. It extended by 10 years the additional tax deductions of 50 per cent that firms currently enjoy on qualifying research and development spending, until 2025. Further deductions administered by the Economic and Development Board currently will also go on for an additional five years, until 2020.
A five-year extension was also made on the writing down allowance for cost incurred to acquire qualifying intellectual property rights, until 2020.
Said Mr Tharman: "We will aggressively support every form of upgrading by firms - whether through R&D, automating business processes, creating new design and brands, or enriching the skills of their employees."
SMEs and market watchers welcomed the extensions to the government's tax incentives, saying that it will help firms in their restructuring efforts.
In particular, many welcomed the SME-focused PIC+ scheme and the extension of the PIC.
Ong Jun Quan, executive director at Soon Li Heng Civil Engineering, said that the subcontractor will "definitely benefit" from it. "We have been using the PIC and usually, we opt for the tax claims. The higher expenditure cap is good for us because our machines to raise productivity can each cost $300,000 or more."
The higher cap, therefore, means that Soon Li Heng can enjoy more tax deductions, he added.
Eng Soon Dry Bean Curd Manufacturing's production manager, Tan Jun Long, said that the extension of the PIC, and the introduction of the PIC+, gives SMEs the time needed to automate their processes and raise efficiency levels.
The small firm, which made $4.43 million in sales last year, had used the PIC previously to purchase a package machine, and has intentions to further automate its processes.
"As an SME, we might take a while to automate so this extension of the PIC, and the new PIC+, gives us the time needed to do that," said Mr Tan.
Start-up T-Ware also lauded the PIC extension and the PIC+. Said CEO James Teh: "In general, we have benefited from the PIC. The extensions to the additional tax deductions on R&D are also great for companies like ours that are very R&D based."
T-Ware produces a coat called the T.Jacket which simulates the feeling of a cuddle, and has a practical application in helping children with autism.
Lennon Lee, corporate tax partner at PwC Singapore, said: "It is heartening to know that the Singapore government introduced a PIC+ targeted only at Singapore SMEs, who are the ones that need help to transform and to increase productivity."
The move to extend the PIC by three years is also welcomed, but the government needs to look at how to better administer the scheme, said Tay Hong Beng, head of tax at KPMG in Singapore.
"With the extension and enhancement of the PIC scheme, it is now time to look at the administration of the incentive. We ought to adopt a principle-based approach and move away from prescriptive rules so that more businesses spending on genuine productivity initiatives can access the benefits easily," he said.
Kurt Wee, president of the Association of Small and Medium Enterprises (ASME), noted that numerous pro-SME initiatives like the PIC+ were announced, but added that they are all targeted at helping profitable SMEs.
"This Budget is geared towards performing SMEs. Those that are struggling and barely profitable would not benefit very much. In fact, there were no measures to help struggling SMEs.
"That said, this is a very SME-centric Budget. The focus was on SMEs, and not on MNCs (multinational corporations)."