Budget 2023: Enhanced tax deductions, cash payout to support innovation by firms

Smaller firms will also have an option to get a non-taxable cash payout under the Enterprise Innovation Scheme. PHOTO: ST FILE
Mooreast, a homegrown company that provides anchoring and mooring solutions in the oil and gas industry. photo: MCI

SINGAPORE - Companies here that invest in innovation, such as research and development (R&D), will be able to enjoy more tax deductions, as part of a new scheme to encourage businesses to press on with such efforts.

Businesses, even those which may pay little or no taxes, will also have an option to get a non-taxable cash payout under the Enterprise Innovation Scheme announced by Deputy Prime Minister Lawrence Wong in his Budget speech on Tuesday.

Mr Wong, who is also Finance Minister, said that there is a need to nurture and sustain innovation across the economy. “But innovation is not without risk, which businesses may find more difficult to take amidst slower growth and higher costs,” he said.

Currently, businesses enjoy tax deductions of up to 250 per cent on four types of innovation-related activities. These tax deductions will be raised to 400 per cent on each of these activities, with a new activity added to the list. The five activities are:

  1. R&D conducted in Singapore;
  2. Registration of intellectual property (IP) including patents, trademarks and designs; 
  3. Acquisition and licensing of IP rights; 
  4. Innovation carried out with polytechnics and the Institute of Technical Education (ITE); and
  5. Training via courses approved by SkillsFuture Singapore which are aligned to the Skills Framework. 

The expenditure on each activity will be capped at $400,000, except for innovation carried out with polytechnics and ITE, which has an expenditure cap of $50,000.

This means that for a business which spent $1,000 on R&D and another $1,000 on registration of IP, it will be able to offset a total of $8,000 from its taxable income. 

With these enhancements, businesses that make full use of the scheme could enjoy tax savings of nearly 70 per cent of their investment, Mr Wong said. 

Start-ups, small and medium-sized enterprises (SMEs) and other smaller businesses that have yet to turn profitable, and hence pay little to no tax, will stand to benefit from a new cash conversion scheme, given that they are unable to maximise the benefits from tax deductions.

These businesses can opt to convert 20 per cent of their total qualifying expenditure across all five categories per year of assessment into a cash payout of up to $20,000. This means that up to $100,000 of qualifying expenditure will be defrayed. 

Applications for these cash payouts are to be submitted together with the filing of businesses’ income tax returns. 

Separately, efforts continue to help local enterprises scale up and be globally competitive.

The Government has, for instance, been mobilising investments into SMEs through Heliconia Capital.

Heliconia Capital is a subsidiary of Singapore’s investment company Temasek Holdings. It focuses on supporting and investing in growth-oriented small and medium-sized Singapore companies.

To date, the Government has committed $1 billion to this effort and invested in about 60 Singapore-based companies. This has, in turn, catalysed about $2 billion of additional investments into these companies.

The total revenue of these companies has more than doubled after this investment, and over half of them have developed new capabilities or expanded beyond Singapore, Mr Wong said.

Given these positive outcomes, an additional $150 million will be set aside via the SME Co-Investment Fund. “We will use this to invest in promising SMEs, and we will also aim to catalyse an additional $300 million of private investments to support our SMEs,” he said. 

Another $1 billion will be earmarked for the Singapore Global Enterprises initiative. Introduced in 2022, the scheme offers promising companies specialised capability building programmes tailored to their needs.

Enterprise Singapore will also support these firms to secure resources to execute their growth plans, and to build R&D capabilities.

One example is Mooreast, which provides specialised anchor and mooring solutions for the offshore and marine sector.

Good design, engineering and manufacturing capabilities are needed to customise mooring solutions for very different seabed and offshore conditions. 

Mooreast is now one of the top three global players in this niche area, and is also diversifying and applying its capabilities in the offshore renewable energy market. It has already secured contracts in Japan and Europe, with more opportunities to come, Mr Wong added.

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