Budget 2020: Deloitte urges tax changes in R&D, training

Flagging its proposals, firm says moves could help firms plan ahead amid slowing economy

Professional services firm Deloitte says tax schemes to complement existing capability grants could encourage firms to invest in human capital.
Professional services firm Deloitte says tax schemes to complement existing capability grants could encourage firms to invest in human capital. ST FILE PHOTO

Changes to Singapore's tax regime, in areas such as research and development (R&D) and human capital investments, could help businesses plan ahead amid the slowing economy, said professional services firm Deloitte.

Flagging its recommendations for Budget 2020 on Monday, Deloitte said the moves could also help Singapore remain well positioned in the global community.

It suggested tax schemes to complement existing capability grants to encourage firms to invest in human capital.

"Human capital is an important driver of economic growth. With limited natural resources to depend on, the availability of quality human capital remains a key competitive edge for organisations to consider Singapore as regional or global headquarters for strategic and support activities," said Ms Liew Li Mei, international tax leader at Deloitte Singapore.

For example, businesses could be given a tax credit or allowance for "unrealised investment" in their employees should the staff decide to leave for another employer after undergoing training.

Doing so might encourage companies, especially small and medium-sized enterprises (SMEs), to invest in their staff, even if they are unable to impose a service bond or other steps to retain the employees.

CIMB Private Banking economist Song Seng Wun said that while the idea of tax credits for companies whose employees have left after undergoing training is innovative, it could potentially be abused.

"One concern would be how to keep track of (employee) movement if they move to an affiliate or come back within a year or two years. It could create more work in terms of monitoring," he said.

DBS senior economist Irvin Seah said the suggestions to encourage investment in employees is important, especially among SMEs.

"It is important for training to be driven by companies because they know what is relevant to their businesses and their future growth," he said. But the schemes must be thoroughly examined to prevent overlaps with existing grants and support initiatives, he added.

Deloitte also suggested a hike in tax deductions on certain R&D activities - from 250 per cent to 300 per cent of the investment sum - to match the incentives offered by the likes of Hong Kong and Thailand.

It also suggested incentivising R&D activities outsourced overseas. These are not currently entitled to enhanced tax deduction.

However, Maybank Kim Eng senior economist Chua Hak Bin said this may not be in line with the Government's drive to make Singapore an R&D hub.

"If (the incentives) are expanded for overseas R&D, it wouldn't be consistent with the idea of generating jobs here. The Government could possibly look more at incentivising countries to move their innovation to Singapore," he added.

The scope of write-down allowance claims that Singapore companies can make when they acquire intellectual property (IP) rights should also be enhanced - a 100 per cent claim when economic ownership is transferred and a 150 per cent claim for both legal and economic ownerships, Deloitte said. Currently, both legal and economic ownerships are required to make the claims on capital expenditure incurred in acquiring the IP rights.

Some incentives set to expire soon should also be extended, Deloitte said. These include tax breaks for venture capital funds' income or divestment gains and the automatic double tax deduction for local businesses expanding overseas.

DBS' Mr Seah said this would promote start-up growth and encourage companies to internationalise.

Looking forward, he feels that Budget 2020 is likely to be a fine-tuning of existing policies rather than an introduction of new ones.

"The focus should be on enhancing the effectiveness of existing policies and making them better, instead of complicating things with more policies, which could make things confusing and harder for companies to navigate," he added.

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A version of this article appeared in the print edition of The Straits Times on November 20, 2019, with the headline Budget 2020: Deloitte urges tax changes in R&D, training. Subscribe