The Important Tax Implications of Singapore’s 2016 Budget Announcement

On March 24, Singapore’s Finance Minister Heng Swee Keat announced the Singapore budget for the 2016 financial year. An outline of Heng’s speech to parliament, with links to passages by topic, is available on the government website. Since the full text runs to over 14,000 words — or 72 pages in the downloadable Word document — we’re summarizing the budget’s important tax-related points here. 

At a macro level, the budget announced healthy growth for the Singapore economy, citing the need to transform local industries through innovation and enterprise. Heng placed this strategy in the context of broad economic challenges, which are particularly acute for a small island nation reliant on exports. He noted: “In the coming year, given our economy’s heavy dependence on external demand, the weaknesses in the global economy will pose strong headwinds.”

In order to overcome these headwinds, the budget aims to support small business and entrepreneurs through increased corporate income tax rebates, easier access to business-grant applications and other initiatives. For example, the government will develop an electronic National Trade Platform, primarily to support firms in the trade finance and logistics industries. Heng notes that the platform will replace the country’s existing TradeNet and TradeXchange systems, and “will be especially helpful for SMEs [Small and Medium Enterprises], to cut costs and streamline processes.” Heng also aims to promote mergers and acquisitions by doubling the M&A allowance to up to SGD$40million (about USD$30 million) for qualifying deals. This initiative should help SMEs in particular grow and internationalize through strategic M&A transactions.

For individuals in Singapore, the budget proposes capping personal income tax reliefs at SGD$80,000 (about USD$60,000) per year of assessment (YA) starting in YA2018. This will make the country’s tax system marginally more progressive, though as Heng notes, “At this threshold, 99% of tax-resident individuals will not be affected.” Starting in 2017, the government will enhance its Workfare Income Supplement (WIS) scheme by increasing payouts and raising the qualifying income ceiling, among other improvements. (WIS encourages older citizens to join the workforce by supplementing their income and social security savings and by providing skills training.) Heng also announced support for low-income seniors, low-income workers, new parents, those with disabilities and families with children in rental housing.

For expatriate employees living in Singapore, tax concessions for home leave passages will be removed, making the full amount taxable effective YA2018.

Overall, then, the budget is likely to have a fairly neutral effect for most Singaporeans and most businesses operating in Singapore. However, the budget proposals should benefit smaller businesses operating there, including foreign-owned businesses.

Here is a summary of the 2016 budget’s key points.

Key Points for Businesses

• The corporate income tax rebate will increase to 50% for SMEs, but will be capped at SGD$20,000 (about USD$15,000) per year of assessment for YA2016 and YA2017.
• Safe harbor rules on disposal of equity investment will be extended to May 31, 2022.
• The write-down period for intellectual property rights (IPRs) may be claimed over five, 10 or 15 years.
• The cash payout rate will be reduced from 60% to 40% for qualifying expenditures under the Productivity and Innovation Credit (PIC) Scheme, which expires effective YA2019.
• There will be a gradual implementation of mandatory electronic filing (e-filing) for corporate tax returns starting in YA2018; all companies must comply by YA2020.
• There will be a mandatory e-filing of the PIC scheme cash payout application.
• There will be a 100% investment allowance under the Automation Support Package.
• The mergers and acquisition scheme will be enhanced by increasing tax allowances and stamp duty reliefs.
• The finance, insurance and marine industries will receive tax incentives.
• An innovation district will be built by 2022 to encourage the development of new products and services.

Key Points for Individuals

• Personal income tax relief will be capped at SGD$80,000 per year of assessment, effective YA2018.
• The tax concession on home leave passages for expatriate employees will be eliminated.
• Workfare will be enhanced for low-wage workers and those with disabilities.
• Upfront funding will be extended to new parents, and grants will be extended to families with children in rental housing for the purchase of new flats under the Fresh Start Housing scheme.
• A pilot initiative will be introduced to help parents pay for development programs for children up to age six.
• Supplemental income support will be provided to low-income seniors.

By Wanying Zheng, Advisory Manager, Radius