Budget 2026: Companies to receive tax deductions on AI spending, more support to employ tools
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Prime Minister Lawrence Wong said on Feb 12 that companies must adopt AI comprehensively to transform the economy.
ST PHOTO: JASON QUAH
SINGAPORE - Businesses will soon receive tax deductions on spending on artificial intelligence (AI) tools, as part of a concerted push by the Government to encourage adoption of the technology.
Under an expanded Enterprise Innovation Scheme, businesses can claim annual tax deductions of 400 per cent on qualifying AI expenses – capped at $50,000 per year – for the year of assessment 2027 and 2028.
Announcing this, Prime Minister Lawrence Wong said on Feb 12 that companies must adopt AI comprehensively to transform the economy.
“End-to-end transformation with AI is very demanding. It requires organising data, rebuilding systems, redesigning processes and jobs, and retraining workers,” he said. “Even major global companies are grappling with this. Those that succeed will gain a decisive competitive advantage.”
The Enterprise Innovation Scheme was introduced in 2023, and has allowed companies to claim 400 per cent tax deductions on expenses incurred in research and development, innovation and capability development activities. These include registration of intellectual property (IP), acquisition of IP rights, and training courses that are eligible for funding from SkillsFuture Singapore.
Under the expanded scheme, companies will also be able to claim tax deductions when they spend on AI innovation projects carried out in collaboration with the Sectoral AI Centre of Excellence for Manufacturing.
The Sectoral AI Centre of Excellence for Manufacturing was launched in 2024 by the Ministry of Trade and Industry (MTI) and A*STAR to help manufacturing companies adopt AI.
More information will be provided by the Inland Revenue Authority of Singapore by mid-2026.
A few local companies such as DBS Bank and Grab are already moving decisively on AI transformation, said PM Wong, adding that the Government wants to encourage more to do the same.
As such, a new programme dubbed Champions of AI will be launched to support firms with the ambition to use AI to comprehensively transform their businesses.
“Support will be tailored to each company, and will include enterprise transformation and workforce training,” said PM Wong. “As these companies succeed, they will set benchmarks for their industries and inspire others to follow.”
South-east Asia’s largest bank DBS, for one, is using over 2,000 AI models for more than 430 different kinds of applications throughout the organisation to reduce manual tasks and allow employees to focus on higher-value work.
These include a customer service assistant that has reduced call handling time by up to 20 per cent, and achieved over 95 per cent accuracy in handling other tasks such as transcribing calls.
The existing Productivity Solutions Grant will also be expanded to support a wider range of digital and AI-enabled solutions for companies to tap, said PM Wong, citing local food and beverage firm HarriAnns as one of its beneficiaries.
The home-grown family business got its start in the 1940s, before setting up a stall at Tiong Bahru Food Centre. Today, it spans eight cafes across Singapore and supplies products to several hotels in Singapore.
“With support from the grant, it adopted an AI-enabled restaurant management system to automate ordering and billing, and streamline operations – serving customers faster and growing its revenues,” said PM Wong.
The Ministry of Digital Development and Information will share more details in the coming weeks.
Rounding up the slate of AI-related announcements for businesses, PM Wong said an AI park will be established at one-north to bring together AI founders, practitioners, researchers and innovators.
“This will be a new cluster to catalyse ideas, forge collaborations, and translate AI initiatives into practical solutions for businesses and public services.”
The park will build on the Lorong AI pilot initiative, a space set up in 2025 within Telok Ayer that serves as a space for the AI community to convene and learn from one another.
Leading companies and start-ups have set up operations at one-north, which is often referred to as Singapore’s very own Silicon Valley. These include the likes of Grab, Razer, Sea Group and Apple.
More details will be shared by MTI in the coming weeks.
Read next: 11 highlights from PM Wong’s speech
