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CPF hikes a 'blunt tool that may hit small firms harder'

Published on Feb 24, 2014 3:00 PM
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SMALLER companies may face a bigger hit from the higher Central Provident Fund (CPF) contribution rates as they tend to have fewer resources and a larger proportion of older employees, said Singapore Business Federation (SBF) chief executive Ho Meng Kit.

Companies have been struggling with rising costs for the past few years so the latest increases will be difficult, he added. The rises include a 1 percentage point increase in employers' CPF contribution rates for all workers from January next year. This will go into their Medisave accounts.

Employers get some relief: Half of the cost increase for one year, up to the CPF salary ceiling of $5,000, will be met by a Temporary Employment Credit (TEC).

Though firms recognise the need to help their staff with rising health-care costs, this measure is a "blunt tool" that will hit small firms with fewer resources harder, Mr Ho said.

And they will also be affected more significantly by the hike in CPF contributions for older workers, he added.

Employer contribution rates for staff aged above 50 to age 55 will rise by 1 percentage point, and half a percentage point for those aged above 55 to age 65, also from January next year.

The Special Employment Credit (SEC), which subsidises pay for Singaporeans over 50 and earning up to $4,000 a month, will be increased for a year to help with these rises.

Employers who hire such workers next year will get an SEC of up to 8.5 per cent of pay compared with up to 8 per cent now.

Still, the CPF contribution increases will have a bigger impact on smaller firms because, as an SBF survey has shown, they tend to have a higher share of older workers than larger firms, Mr Ho said.

"So, their medical expenses for their employees tend to be proportionately higher. But on the other hand, the relief doesn't differentiate between small companies and big companies."

One way to increase help for smaller companies could be for the reliefs to be tax exempt for small and medium-sized firms, suggested KPMG tax partner Gan Kwee Lian. That way, they would not have to pay tax on the employment credits when they get them.

Mr Jimmy Koh, UOB's head of economic-treasury research and investor relations, suggested offering the TEC for more than a year as many firms have been struggling to transform themselves amid a restructuring economy.

"So if we load onto them this extra cost, I think some of them may not be able to pull through. If we do have resources (to offer) tax deductions or differentiate between the big companies and small companies, this could help tide them through."

yasminey@sph.com.sg