This article was first published on Jan 22, 2015
A popular scheme offering incentives to firms to invest in technology and training - to boost productivity - should become a permanent fixture, but it needs to be more targeted.
Audit firm KPMG put forward the proposal on the Productivity and Innovation Credit (PIC) scheme among a number of suggestions it made in a pre-Budget wish list released yesterday.
The PIC scheme was introduced in 2010 and offers tax deductions or cash payouts to companies that invest in areas such as staff training, information technology or automation equipment to boost their productivity.
The scheme was enhanced and extended for another three years in last year's Budget, as part of the Government's raft of economic restructuring measures.
Productivity is still languishing, however, even as businesses keep grappling with the tight labour market and escalating costs.
Productivity shrank 0.5 per cent in the first three quarters of last year.
Many business figures have called for the Feb 23 Budget to further extend the PIC scheme and other well-known programmes like the Wage Credit Scheme, set to expire after this year.
The PIC scheme is "relevant to businesses, and not just for the next five to 10 years", said Mr Tay Hong Beng, head of tax at KPMG in Singapore, at a media briefing.
For the scheme to be sustainable, however, it should shift away from its broad-based, one-size- fits-all approach. Instead, it should be made more flexible and calibrated to different stages of a company's development, he said.
Companies should receive support in boosting productivity during their first three years on the programme.
Firms can then graduate on to the next stage of the scheme, which will last five years and provide help for innovation-driven activities and internationalisation.
A pre-Budget poll of 203 companies conducted by KPMG showed that 40 per cent of small and medium-sized enterprises (SMEs) have used the PIC scheme to defray operating expenses.
"PIC claims have gone up over the years but there has been no correlation with productivity growth," said Mr Tay.
"Many of these claims could have been used to defray expenses without any direct impact on productivity."
Singapore International Chamber of Commerce (SICC) chief executive Victor Mills, who was at yesterday's briefing, said productivity-boosting efforts have to be more sector-specific.
"We cannot fritter away financial resources in a scatter-gun approach," he added.
KPMG also called on the Government to make innovation-related incentives more accessible, and provide more support for companies' research and development (R&D) efforts.
The audit firm's pre-Budget survey showed that 63 per cent of respondents want more access to existing R&D tax incentives, and a broader definition of R&D to include non-science and non-technology-based innovations.
Mr Ang Yuit, vice-president of the Association of Small and Medium Enterprises, said "the bar is set too high" for SMEs to take advantage of many existing R&D programmes.
"We need to shift the focus towards fine-tuning business processes for productivity... When it comes to activities which fall somewhere between purchasing iPads and carrying out R&D, SMEs' claims are often turned down," he said.
KPMG's suggestions also call for tax allowances for home- grown brands, in line with the nation's 50th anniversary.
Existing rules grant tax benefits to a company which buys an established brand. However, these tax benefits do not apply to brands developed internally.
"The schemes have largely been centred around expenditure - companies have to incur costs before they can benefit. We've been focusing on how much companies spend, rather than the outcomes," said Mr Tay.