By Ajay Kumar Sanganeria and Pauline Koh
SINGAPORE — It has been almost two months since the outbreak of COVID-19, and two days since Budget 2020 in Singapore. Finance Minister Heng Swee Keat announced a $$5.6 billion COVID-19 package as part of the government’s comprehensive Budget to help the enterprises, people and hardest hit sectors tide over this challenging period.
The government has an extremely difficult task of striking the perfect balance to address the immediate and most pressing needs, while not losing sight of the larger, macro and long-term view.
In comparison to the S$230 million package provided during SARS in 2003, this year’s package is many times more significant, holistic and well-rounded.
The quantum of the Stabilisation and Support Package, with additional support for the five specific sectors – aviation, tourism, point-to-point transport services, retail and food and beverage – is generous. There are also other measures such as property tax rebates of up to 30 per cent for the tourism sector and initiatives like the job credit scheme to help employees stay employed.
These immediate and medium-term measures will go a long way towards addressing the current crisis caused by COVID-19, to stabilise the economy, help enterprises with cashflow and also to preserve jobs that may be otherwise displaced.
Yet there is no one-size-fits-all solution ever possible.
It is true that some of the measures announced, such as the corporate income tax rebate and the Wage Credit scheme, will have limited impact for enterprises that are in a loss-making position and are not looking at increasing the wages of the employees. These enterprises would be more focused on minimising losses and might not tap on these measures.
Transformation and Growth
That being said, there are many schemes introduced or enhanced under the Transformation and Growth package, which are still applicable and accessible to these enterprises that could empower them to move out of a loss-making position and into a position of growth.
For example, the Enhanced Market Readiness Assistance scheme and the boost to the SMEs Go Digital programme provide even greater support for enterprises in their bid to internationalise and access overseas markets, creating growth opportunities and building profitability.
By tapping on these schemes, enterprises can become more profitable, and in turn, be in a position to increase employees’ wages, or invest in reskilling or upskilling of their staff.
Targeted measures aside, one keyword in Minister Heng’s Budget 2020 speech was “transformation”. It’s a vital feature that will propel Singapore to become the Transformation Capital of Asia.
And this is only possible when enterprises adopt a growth mindset, and believing that new methods of operations can be developed and attained. In doing so, transformation naturally follows as enterprises access and take-up measures introduced by the government, which will in turn ensure that the entire business eco-system benefits.
To this end, KPMG proposes that the government consider a “3+5 protect and grow scheme”, which can cater better to businesses by factoring in their different stages of development, ensuring that businesses are well-equipped in their journey of transformation. This measure will be more targeted than the previous Productivity and Innovation Credit Scheme, which expired in 2018.
Proposed to be structured in two phases, the initial phase promotes productivity in the first three years. The second phase then focuses on growth and value creation over five years.
To begin with, Phase 1 (the first three years) can help boost productivity with measures such as 300 per cent capital allowances (subject to caps) for investments in automation, focusing on business operations such as human resource predictive analytics, intelligent finance automation and smart procurement.
Following this, Phase 2 (spanning five years) can enhance growth and value creation through innovation and internationalisation. Measures could include 300 per cent tax deductions for R&D (including overseas), spending related to internationalisation (such as on branding), and for registration, purchases and licensing of intellectual property.
The uniqueness of this scheme is in its flexibility and autonomy – businesses decide when they are ready to embark on each phase. This will hopefully encourage businesses to also take ownership of their own transformation, sparking more active participation and take-up of the respective schemes introduced by the Government and complementing ongoing efforts to support enterprises.
The writers are from KPMG Singapore. Ajay Kumar Sanganeria is Deputy Head of Tax and Pauline Koh is Partner, Tax.