SBF and KPMG eye new tax incentives to attract businesses in Budget 2024 wish list

SINGAPORE - Initiatives for Budget 2024 should be aimed at helping Singapore maintain its status as a hub for business and investments, while also driving business transformation so that companies increase their productivity and competitiveness.

Recommendations to achieve these aims were unveiled in a joint list by professional services firm KPMG and the Singapore Business Federation (SBF) on Jan 8. The Budget statement is

slated to be delivered on Feb 16.

SBF chief executive Kok Ping Soon said: “We are being confronted with very real challenges to the competitiveness of Singapore, both in terms of cost and our ability to demonstrate that value in order to command that premium.

“So... we’ll see how we can take measures to overcome it, while not losing sight of the fact that we all need to continue to double down on transformation, whether it’s in digitalisation, better use of technology or helping our companies... decarbonise and keep oriented to international operations.”

A main recommendation to maintain Singapore’s competitiveness as a regional hub is to provide new tax incentives to continue to attract investments and businesses, especially with the global Base Erosion and Profit Shifting (BEPS) 2.0 rules kicking in. These global tax rules mean that a minimum effective tax rate of 15 per cent will be implemented for multinational enterprise groups with annual group revenues of at least €750 million (S$1.09 billion) on or after Jan 1, 2025.

In the light of these rules, Singapore has to relook its tax incentive policies, since lower taxes have been a tool used to attract multinationals here, said Mr Ajay Kumar Sanganeria, head of tax at KPMG Singapore. He said other initiatives can be used that still respect the new global rules, such as considering new incentives that can fit into the category of qualified refundable or marketable tax credits.

The Government can also re-examine the current tax incentive schemes for family offices, taking into consideration the investment culture and landscape, KPMG and SBF said in a report.

Part of raising Singapore’s competitiveness also lies in supporting businesses in their transformation, SBF and KPMG said. These include digitalisation, adoption of artificial intelligence (AI) and building their environmental, social and governance (ESG) capabilities.

They recommend that the Government provide tiered support for businesses in their digitalisation road map, starting with a lower tier of 20 per cent grant support for back office and operational digitalisation, to the top tier of 60 per cent for digital ledger and AI technologies.

Both organisations also suggested that grant schemes be expanded to support digital projects where development work is led out of Singapore, and to provide a universal grant to cover employee upskilling and costs involved in adopting technologies and data analysis, for instance.

A recent SBF survey found that 45 per cent of firms were concerned with cyber security, while 35 per cent were concerned with emerging technologies like AI, and 34 per cent with increased ESG expectations. The survey consolidated replies from 1,056 companies across key sectors, and 82 per cent of them were small and medium-sized enterprises.

Business transformation and increased productivity will eventually help firms with managing manpower costs, which is one of the top concerns cited in the SBF survey. When enterprises digitalise, it helps them to address challenges, so they can operate more efficiently with a leaner workforce, said SBF chief policy officer Musa Fazal.

Mr Kok added that SBF is not asking for direct government support to help firms lower salary costs as this is “not tenable”, but that wages should be in step with productivity. This is why bolstering the talent pool is also important.

In the short term, the Government can also relax the diversity quota criterion in the Complementarity Assessment Framework for Employment Pass hires as firms find it hard to meet the requirement in a tight labour market, KPMG and SBF said. The criterion looks at whether a candidate improves the diversity of nationalities in a firm.

There can also be flexibility in quota adjustment under the Manpower for Strategic Economic Priorities Scheme, which allows eligible firms to hire S Pass and work permit holders beyond their existing ceiling for two years.

“The Government could also review the current foreign worker quota to allow them to be pegged to job roles, instead of the current classification, which includes white- and blue-collar roles,” the organisations said.

To support small businesses in overseas forays, they also suggested an export-import bank to aid firms in international trade and investment amid economic uncertainty.

Finally, Singapore can also build itself as a regional leader in sustainability issues like climate financing. The Government can establish a special fund to finance green energy initiatives, while drawing additional funds from the private sector and philanthropic organisations to create a blended finance hub, KPMG and SBF said.

For businesses, Singapore can establish a comprehensive ESG talent development road map and the Government can work with sectoral agencies to chart decarbonisation industry road maps to guide firms in their green transition efforts.

Mr Kok noted that while sustainability reporting still applies only to listed firms, small and medium-sized enterprises also need to take stock of their carbon emissions and do some reporting, especially as legislation in other countries can require firms all along the supply chain to comply with sustainable standards.

“We really hope our businesses don’t see ESG as a compliance requirement, but as a source of competitive advantage,” he said.