31 January 2012
|The global economic outlook remains uncertain. In the short term, high business costs and labour costs would be the key challenges facing Singapore enterprises, especially the small and medium-sized enterprises (SMEs).
In spite of this, local enterprises should not forsake their expansion plans. The government should similarly continue to encourage and help homegrown enterprises to look for viable investments and market made-in-Singapore brands globally. It is in times of economic uncertainty that we need to keep the business momentum going, turning adversity into opportunity for our local enterprises to surge forward and create new business openings.
Though smaller in size, SMEs are still very much the backbone of the Singapore economy. More importantly, these SMEs could become Singapore's large multinationals of tomorrow, if we are able to provide the right level of motivation and fiscal incentives to drive them towards innovation and business excellence.
In Budget 2012, we hope to see more measures focused on encouraging innovation and productivity as well as defraying costs related to business restructuring. The latter can help them achieve a higher level of operational efficiency.
Proposed measures to help enterprises grow:
- Introduce a Growing Enterprise Incentive targeted at SMEs for export sales in new or emerging markets
- Offer tax deductions for capital-raising expenditures
- Enhance stamp duty relief scheme to individuals
- Extend the corporate amalgamation scheme to individuals
- Grow Singapore brands by introducing deductions or writing-down allowances for internally generated intellectual property (IP).
With feedback from local enterprises, one measure we would like to propose is the introduction of a Growing Enterprise Incentive. This incentive would provide tax breaks targeted at SMEs for the export of made-in-Singapore goods and services to new or emerging markets. Current incentives such as the Development and Expansion Incentive provide concessionary tax rates on income derived from some activities in the manufacturing and services sector. The business investments expected by a company utilising such an incentive are generally beyond the reach of many promising local SMEs.
The Growing Enterprise Incentive would encourage SMEs to expand their business operations and promote their products and services overseas. This incentive would offer a tax holiday or a concessionary tax rate on income derived from export sales in new or emerging markets.
Such an incentive would alleviate the tax burden on local enterprises intending to venture abroad. It could also help them to cope with their operating costs, and encourage them to grow their brands overseas. It could also facilitate in levelling the playing field for our local enterprises as they compete with foreign multinational corporations based in Singapore.
Businesses sometimes grow through an initial public offering (IPO) by raising capital through a stock exchange listing, or through mergers and acquisitions. IPO expenses, including restructuring costs related to listings, are not currently tax-deductible.
As IPO costs can be substantial, a concession could be introduced to allow listing expenses to qualify for tax deduction. This would support the growth of SMEs as they seek a stock exchange listing by reducing their tax liability at this critical stage.
In the pursuit of growth opportunities, local enterprises held or run by individuals may be faced with considerable costs in the course of internal restructuring, or during the transition of a business into an incorporated entity. If a transfer of assets is involved, there may also be substantial stamp duty costs involved. This is especially so when it involves real properties and unlisted shares.
Extending stamp duty relief from applying only to the transfer of assets between associated companies, to include individuals undertaking a restructuring and transferring their shares in various companies to a single holding company, would ease the tax burden on such local enterprises.
Likewise, the tax framework for corporate amalgamation is currently only applicable to companies. This framework is an attractive tax feature to minimise any tax consequences for the amalgamating and amalgamated entities.
As local businesses may not only be operated by incorporated entities, extending the amalgamation scheme to non-incorporated business structures would allow individual proprietors to minimise tax consequences from doing so. Some of them may transfer assets and businesses to an incorporated company in the hope of growing their business.
Government incentives are traditionally given based on expenditure incurred. For instance, the writing-down allowance for IP rights is granted on capital expenditure incurred in acquiring the IP.
To encourage innovation and value creation in local businesses, a tax incentive could be introduced. This incentive would provide tax deductions or writing-down allowances for IP that is internally generated by the enterprise. In this instance, for the purpose of determining the value of the deduction or writing-down allowance, the value of the IP may be based on an external IP valuation report.
Due to the relative size of enterprises and their limited resources, SMEs are often especially vulnerable during a downturn.
However, as homegrown enterprises often contribute significantly to job creation and are at the heart of the local business community, with economic uncertainty becoming more prevalent, local SMEs may be more prone to business volatility in the subsequent months to come.
We hope the above suggestions can alleviate some of the potential burden local enterprises may face, and encourage them to venture forth and expand in order to grow the Singapore brand in the region and beyond.
Tay Hong Beng is head of tax and Chiu Wu Hong is a tax partner in KPMG in Singapore.