Singapore businesses this year will have to tackle various challenges amid an uneven economic growth environment. 

Softer demand, higher imported inflation, Goods and Services Tax (GST) changes and high labour costs are some of the issues businesses will manage. With the Singapore Budget around the corner (Feb 14), business chambers and auditing firms have submitted their wishlists for the Budget this year with the hope that they will be implemented to tackle the business challenges.

The Budget recommendations are provided by business association Singapore International Chamber of Commerce (SICC) and auditing companies Ernst and Young (EY) and KPMG.

• The SICC is a business association founded in 1837. 50% of member companies are Singaporean-owned businesses and 50% are foreign-owned. Companies with SICC include Surbana Jurong, Shell, and Marina Bay Sands.
• Tax auditors like EY and KPMG provide audit, tax, and advisory services. They work closely with clients to help them to mitigate risks and grasp opportunities. Their views are a representation of their clients and their advisory knowledge.

Here is the list of suggestions from businesses for Singapore Budget 2023:

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1) Support To Help Firms Cope With Higher Business And Manpower Costs

SICC said that companies with manufacturing facilities face a challenging year due to the increased fuel/utilities costs, logistics and transportation costs (as logistic providers had labor crunch due to the tightening of foreign labour quota and difficulty to find local labour).

These have translated to higher costs and constraints to the manufacturing facilities to produce and supply.

Higher business costs include utilities costs (especially companies with manufacturing facilities), supply chain, manpower costs and logistic costs. 

SICC’s Recommendations:

> Provide grants/ subsidies to companies with manufacturing facilities who are affected by the steep increase in fuels/ utilities costs.  > Propose to help the logistics industry by providing concession to the foreign labor quota. > The logistics industry is critical to maintain the competitive edge and reliability of Singapore as a transport hub and this will pave the way in building resiliency to support Tuas port’s expansion.

The business association noted that there are still companies that are still making losses in 2021 and 2022 despite Covid-related support measures due to slow growth and weak demand.

Small-and-medium enterprises (SMEs) play an important role to the growth of Singapore economy and they help hold up Singapore’s employment rate. It is important to support our SME and ensure that they can tide through the challenges caused by Covid-19. 

	SICC’s Recommendations:
	> To permit Covid-impacted companies, especially SMEs, to surrender their losses for an immediate cash rebate. Such rebates can be at a certain percentage of loss surrendered for example, 15% and subject to a cap similar to that of the income tax rebate.  > This will provide immediate cash-flow relief and help such businesses survive.

2) Targeted Grants For Some GST Registered Businesses Amid Inflation

KPMG noted that SMEs are addressing their concerns over higher costs from complying with the 2-step GST rate hike.

Some businesses are likely to be impacted by the staggered GST-hike over the next 2 years, with top concerns on compliance costs.

	KPMG’s Recommendations:
	> The government can offer grants to specific businesses, such as SMEs, which are more concerned about the cost of complying with the 2-step GST rate hike.

SICC added that currently, non-GST registered entities should apply both “retrospective basis” and “prospective basis” to determine GST reverse charge liability. i.e., to determine whether the value of imported services which falls within the scope of reverse charge exceeds S$1 million).

There is a need to simplify the GST reverse charge process for non-GST registered entities. (These are for items that do not make taxable supplies and which, have practical difficulty forecasting the future value of imported services.)

If it is triggered on both basis, the earlier of the two dates would apply. For certain entities that do not make taxable supplies and purchase services from overseas suppliers, they may be engaged in certain types of businesses such as investment holding for which it is not practicable to forecast expenditure. Thus, they are unable to prospectively determine if they will exceed S$1 million for imported services.

SICC’s Recommendations:

> Consider simplifying the process for non-GST registered entities that do not make taxable supplies and have practical difficulty forecasting volume of imported services to comply with reverse charge by: a. giving such taxpayers the option to choosing either “retrospective basis” and “prospective basis” or b. removing the prospective requirement i.e., only require such companies to register and account for GST if imported services received for a given financial year (based on accounting recognition or receipt of invoice) exceeds S$1 million.

3) Clarity On GST Treatment For Carbon Emission Credits And Crypto

There is currently a lack of clarity on the GST treatment on trading of carbon credits available, commented SICC.

It noted that the Inland Revenue Authority Of Singapore (IRAS) had previously responded to specific request from a few Energy, Oil & Gas companies on transaction of carbon credits under the Cap-and-Trade Scheme, but there is no information available to the general taxpayers.

To-date, carbon credit has been regarded as a supply of services, which could qualify for zero-rating under Section 21(3)(j) of the GST Act, while the issue of carbon credits by National Environment Agency (NEA) has been treated as an excluded transaction for which GST is not chargeable. 

With the emergent of various new carbon products, such as those issued by voluntary bodies, and Singapore scaling up its efforts to develop an international carbon trading marketplace and a services ecosystem to support decarbonisation, it is timely for IRAS to provide clarity on the GST treatment on the different types of carbon credits currently being traded or supplied by businesses.

	SICC’s Recommendations:
	> We propose that the trading of all carbon credits continue to be regarded as taxable supply of services, which shall be subject to GST unless it qualifies for zero-rating under the GST Act.

The business association added that there is at present no guidance on the GST treatment of staking which leads to uncertainty and potentially expensive case-by-case engagement of advisors and application for rulings.

There is no service to constitute a GST taxable remuneration; and (ii) transaction fees, which may be paid by the sender of the token to the validator for a specific transaction. In this case, there may be a service relationship between the sender and the validator. A participant in a staking pool may receive fixed or variable returns comprising of a share of block reward and transaction fees.

SICC’s Recommendations:

> Propose that IRAS/Ministry of Finance (MOF) provide guidance that staking activities are exempt or zero-rated for GST purposes. This will preserve the tax character of the reward and align the GST treatment of block rewards for both the direct (validators) and indirect (via staking pools or delegation) participants of the consensus mechanism. This will also be in line with the treatment of financial services in the Fourth Schedule of the GST Act and provide certainty to encourage the growth of the crypto industry.

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4) Tax Incentive For Energy Transition Initiatives

The hike in carbon tax rates coupled with the exponential increase in energy costs will have an adverse impact on manufacturing and energy intensive industries operating in Singapore, commented SICC.

This has come at a time when the global economy is dealing with inflation and economic uncertainty.

“If not properly managed in Singapore, this will adversely impact Singapore’s attractiveness as a location for energy intensive manufacturing operations and could lead to capital flight and a diversion of future investments away from Singapore,” it added.

SICC’s Recommendations:

> Propose that carbon tax rate hikes be delayed, to ameliorate the challenges faced by companies arising from higher energy costs in Singapore. The higher energy costs will have the effect of forcing companies to adopt more energy efficient production processes. (Note: Singapore’s energy price is already one of the highest in ASEAN and twice to thrice higher than the rates in Indonesia, Malaysia, Thailand and Vietnam).  > Propose that more incentives be provided to encourage companies to adopt energy saving production processes and procure more energy efficient equipment. We recommend: a. Increasing the amount of funding for the Energy Efficient Fund; b. Increasing the quantum of grant support for each project; and  c. Considering deductions for capital expenses incurred to acquire energy efficient equipment and processes.  > To prevent local manufacturers from being adversely impacted by competing imported products that are not subject to the same stringent emissions standards or amount of carbon taxes, propose that MOF consider implementing a carbon border adjustment tax for certain critical/strategic industries.

The business association also called for support to companies who are increasingly pressured to decarbonise their operations.

Such energy transition initiatives involve significant upfront investments, for example, feasibility/market studies, purchase of new plant and equipment, installation costs, run and maintain costs, etc.

In a period of rising costs/high inflation, such outlays can be overwhelming for businesses. Companies which fail to decarbonise early are then caught in a “vicious cycle” where they are required to pay increasing amounts of carbon taxes. 

SICC’s Recommendations:

> To support businesses in their decarbonisation efforts, we propose that energy transition related projects should be accorded some form of tax incentive or enhanced allowance/deduction to help defray a portion of the costs. The relief mechanism would need to be carefully considered to provide certainty to companies which are undertaking sizeable upfront investments/payments and to ensure that benefits are not eroded with the potential introduction of a global minimum effective tax rate.  > Separately, the carbon tax transitionary framework that is being developed should be robust, to ensure that companies are not caught in a “vicious cycle” of increasing carbon taxes and insufficient resources to decarbonise.

5) Policy Support For Sustainability Efforts

At present, there are limited policies/regulations to help enable the growth and adoption of green technology and products.

As such, SICC noted that first-mover companies which have made significant investments in green technology are at a competitive disadvantage as their production costs, and correspondingly product prices, are higher than their “non-green” counterparts.

	SICC’s Recommendations:
	> Propose to consider the use of government policies and regulations to increase market demand for green technologies and products. > This could include rebates on solar panel installations for households, policies to increase the demand for sustainable fuels. This would require careful balance so as not to overburden the average consumer, considering rising costs/high inflation.

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6) Support On Economic Transformation

EY commented that R&D and innovation continue to be a differentiator to propel Singapore’s ambition as a global R&D hub.

The existing enhanced R&D deduction of 150% will expire after Year of Assessment (YA) 2025. More critically, with the impending introduction of BEPS 2.0 Pillar 2, which will significantly reduce any value to the R&D tax incentives, ensuring that Singapore continues to remain competitive in attracting global R&D activities is vital.

EY Recommendations:

> Extending the enhanced reduction regime, and consider the following refinements: – Refining the existing R&D tax incentive into a qualified refundable tax credit. – Allow companies to cash out benefit up to a cap if they are in a tax-loss position. (This has been done in Australia, Canada, Ireland, New Zealand, and the UK. The qualified refundable R&D tax credit could also benefit SMEs in terms of allowing a cash-out option.) – Enhance R&D deductions (beyond 100% base deduction) on overseas R&D activity. Currently, the enhanced R&D deduction of 150% is available only if the R&D activity is performed in Singapore. We believe that allowing a portion of the R&D activity to be performed overseas can make the existing R&D regime more comprehensive and recognises the collaboration efforts in Singapore and overseas.

SICC suggested reviewing and re-evaluating Singapore’s R&D incentives as the complexity in claims and unattractiveness of Singapore R&D incentive discourages taxpayers to invest in R&D in Singapore.

SICC’s Recommendations:

> We propose that the MOF considers reviewing and re-evaluating the continued relevance and effectiveness of Singapore’s enhancing the current R&D incentive scheme to remain competitive globally, especially after the implementation of BEPS 2.0 Pillar 2. The United Kingdom (UK), for example, offers refundable tax credits to the taxpayer that strongly demonstrates the country’s willingness to invest in R&D. Similar measures could be considered by the MOF to encourage R&D activities by companies, including those companies that may be impacted by the Global Anti-Base Erosion (GloBE) rules.

Workforce transformation is a journey and requires a comprehensive approach, noted EY. The government can consider enhancing training and reskilling support.

EY’s Recommendations:

> Enhance enterprise reskilling support: This can include higher levels of training subsidies and support for unemployed individuals, including stay-at-home mothers who are returning to work. Other initiatives can include higher levels of absentee payroll support to encourage more employers to send employees for upskilling efforts, as well as a top-up of SkillsFuture for Enterprises Credits (SFEC) to provide more resources for enterprise workforce transformation and upskilling efforts.

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