On 21 February 2014, DPM and Minster of Finance, Mr. Tharman Shanmugaratnam, presented his Budget Speech to the Parliament.
The theme in Budget 2014 is consistent with that between Budget 2010 and Budget 2013 – focusing on improving productivity and encouraging innovation of the SMEs. We summarise our comments on the various proposed tax changes for your easy reference:
1. Productivity and Innovation Credit (“PIC”) Scheme to be extended for another 3 Years of Assessment
As anticipated, the PIC Scheme will be extended for another three years of assessment – i.e. Years of Assessment 2016 to 2018. The number of qualifying activities remains the same. The expenditure cap of $400,000 per qualifying activity per YA will be maintained unless taxpayer falls within the new PIC+ Scheme which is designed for SMEs (see below).
In addition, with effect from YA 2014, taxpayer will be allowed to claim PIC benefits on training expenses incurred in respect of individuals hired under centralised hiring arrangements. Further details will be announced by IRAS by end March 2014.
With effect from YA 2016, businesses who apply for PIC cash payout will have to meet the 3 local employees condition for a consecutive period of at least 3 months before claiming the cash payout. However, tax deferral option will lapse with effect from YA 2015.
Our view: We are glad that the Government has decided to extend the PIC scheme despite for only 3 YAs. Having said that, we are a little bit disappointed that the scheme is not extended to provide PIC benefits for business owners who have to undergo training to upgrade themselves. We hope that the Government will make further relaxation of this rule in next year’s Budget.
2. PIC+ Scheme for SMEs (Effective from YA 2015 to 2018)
A new PIC+ Scheme will be introduced to provide further support to SMEs. Under this schemed, the expenditure cap will be increased to $600,000 per qualifying activity per YA. The combined expenditure will be increased to $1.4 million for YA 2015 and up to $1.8 million for YA 2016 to 2018. However, the expenditure cap for PIC cash payout will remain at $100,000 of qualifying expenditure per YA. IRAS will release further details by end March 2014.
Our view: We believe that the Government ‘s intention is clearly to support SMEs. The medium-sized enterprises should take advantage of this increased cap to improve their productivity. It is uncertain how the small enterprises would benefit from this new scheme.
3. Extending R&D Tax Measures
The current R&D scheme whereby an additional 50% tax deduction will be allowed under Section 14DA(1) will be extended for 10 years till YA 2025. In addition, to encourage businesses to conduct R&D projects in Singapore, further tax deduction granted under Section 14E will be extended for 5 years until 31 March 2020.
In view of the above, businesses can continue to claim tax deduction and enhanced PIC benefits on R&D expenditure incurred not relating to their existing trades as long as the R&D is conducted in Singapore.
4. Extension of Writing Down Allowance under Section 19B till YA 2020
As anticipated, the writing down allowance (“WDA“) under Section 19B will be extended for another 5 years till YA 2020. The accelerated WDA for Media and Digital Entertainment companies will also be extended for another 3 years till YA 2018.
However, what is disappointing is that intellectual property rights (“IPR“) in relation to customer-based intangibles and documentation of work processes will be expressly excluded from the definition of IPR. A list of non-qualifying IPR will also be legislated by December 2014.
Our view: We are disappointed by the proposed expressed exclusion of customer-based intangibles as we believe that in the modern M&A transactions, buyers have been willing to pay a reasonable price for acquiring certain kinds of customers-related intangibles. It would be inappropriate for IRAS to eliminate this category completely. We would suggest IRAS to reconsider this proposed exclusion.
5. Extension of Section 14A Tax Deduction Scheme for Registration Costs of Intellectual Property till YA 2020
The current tax deduction on registration costs of Intellectual Property will be extended till YA 2020 and PIC allowances can be claimed till YA 2018.
6. Extending the Land Intensification Allowance (“LIA”) Scheme till 30 June 2020
The LIA Scheme will be extended till 30 June 2020.
With effective from 22 February 2014, the scheme will be extended to logistics sector and businesses carrying out qualifying activities on airport and port land. However, a new condition requiring existing buildings that have already met or exceeded GPR criterion of 10% will be introduced in order to encourage business to continue intensifying their land use. The EDB will release the implementation details by end May 2014.
7. Recovery of GST for Qualifying Funds extended till 31 March 2019
The concession whereby input tax will be allowed to be claimed on expenses at a fixed rate on funds managed by prescribed fund manager in Singapore will be extended to 31 March 2019. The MAS will release further details by end May 2014.
8. Minor Tax Changes
Investment Allowance scheme for aircraft rotables will be allowed to lapse after 31 March 2015.
Sections 13CA, 13R and 13X schemes on qualifying funds will be extended for 5 years till 31 March 2019 whereas Section 13C scheme will be allowed to lapse after 31 March 2014. MAS will release the details of the changes by end May 2014.
Foreign-sourced income exemption for listed infrastructure RBTs will be enhanced to cover dividend income originating from foreign-sourced interest income subject to certain conditions, and interest income derived from a qualifying offshore infrastructure project/ asset. IRAS will release the details and the effective date of these enhancements by end May 2014.
The Designated Unit Trust (“DUT“) Scheme will be limited to only unit trusts offered to retail investors with effect from 21 February 2014. From 1 September 2014, unit trusts do not have to apply for the DUT scheme to enjoy the benefits of the scheme. IRAS. will released the details of the change by end May 2014.
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