More can be done to spur innovation-led growth | KPMG | SG

Budget 2018: More can be done to spur innovation-led growth

More can be done to spur innovation-led growth

The Budget has paved the way for enterprises to grow, some broad-based new measures can be introduced to encourage digitalisation initiatives.

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Head of Enterprise Market and Head of Internal Audit, Risk & Compliance

KPMG in Singapore

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The shift in global economic weight and emergence of new technologies are a double-edged sword of opportunities and challenges for Singapore enterprises.

Underlying Budget 2018’s theme of a better future together is an emphasis on fostering pervasive innovation, building deep capabilities and internationalisation.

A clear direction has therefore been set to change the course of the economy from value-adding to value-creation, through a slew of measures to support more firms to innovate.

With the merger of SPRING and IE Singapore, one of KPMG’s recommendations for the Budget was for the government to provide more streamlined support across the lifecycle of an enterprise.

This helps to improve how enterprises access government grants while considering the needs of the business community holistically. It is therefore heartening to see that the government has responded to this call in this year’s Budget.

Among the announcements was a streamlined grant to help companies adopt off-the-shelf solutions called the Productivity Solutions Grant (PSG).

This and the new Enterprise Development Grant and Partnerships for Capability Transformation Scheme offer up to 70 per cent grant support for qualifying costs in implementing productivity solutions, developing capabilities, or in partnering with other companies and industry partners.

And to those who focus on creating innovation, a 250 per cent deduction was proposed for Research & Development activities and 200 per cent deduction for Intellectual Property (IP) registration to protect any IP created.

Together with other existing measures such as the Industry Transformation Maps and the S$19b Research, Innovation and Enterprise2020 Plan, these measures will enhance Singapore’s position as a global innovation hub.

To help companies tap into the global economy, the Double Tax Deduction for Internationalisation scheme has an increased expenditure cap for automatic approval for claims in qualifying categories, from S$100,000 to S$150,000.

However, it remains to be seen if the increment will realise significant results, given the limitations of the scheme. For example, only up to two employees are allowed to participate in business development or investment study trips.

The changes to the Start-Up Tax Exemption (SUTE) and Partial Tax Exemption schemes also reflect the emphasis on targeted support to companies. Partial tax exemptions under both schemes would now be restricted to the first S$200,000 of normal chargeable income, and there is no longer a full tax exemption for the first S$100,000 of income under the SUTE.

While these longer term changes are welcome, local enterprises, especially smaller ones, are still adjusting to the new realities and cost issues continue to pose challenges. We therefore welcome the government announced schemes such as the Corporate Income Tax (CIT) and Wage Credit Scheme (WCS) to serve as interim mitigation measures.

The CIT rebate has been extended and enhanced, and is now raised to 40 percent for YA2018, capped at $15,000, and to 20 percent for YA2019, capped at $10,000. The WCS has also been extended for three more years, albeit on a tiered co-funding basis.

Driving Innovation

While the Budget has paved the way for enterprises to grow, I was hoping to see some broad-based new measures being introduced to encourage digitalisation initiatives, such as enhanced tax deductions and allowances for digital adoption and training.

So far, the government’s approach is geared toward a pre-approval framework where people and businesses need to apply to the relevant authorities in order to seek support under certain schemes, such as the Tech Skills Accelerator, PSG and the SMEs Go Digital Programme.

I also hope that greater funding support can be introduced in the future. This is especially so as companies face issues on limited access to capital which can impact their ability to invest in innovation, automation or adoption of digital solutions.

One way is to fine tune the incentives regime. For example, with the expiry of the Productivity and Innovation Credit scheme, the support for R&D can also be given in the form of a partial cash grant.

This is especially so as many R&D-intensive businesses may take a while before they turn profitable.

Many countries around the world such as Australia, Ireland and United Kingdom support their businesses offer refundable tax credits which can be paid out in cash.

In addition, the ability to claim tax amortisation on acquisition costs for the economic ownership rights of IP without the need for the Economic Development Board’s pre-approval, or other incentives to support the building of local brands were also not addressed. These measures could have given Singapore an advantage and strengthen Singapore’s position as an IP management hub.

With an eye on the long run, this Budget takes a significant step forward by setting a targeted strategy for the next decade, especially on the need for local enterprises to move away from cost competition and differentiate through innovation.

 

This commentary is contributed by Jonathan Ho is Head of Enterprise , KPMG in Singapore. Views expressed are his own.

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