Strengthening the leadership and steering innovation
In response to a future marked by uncertainty and global shifts, Singapore is strategically reinforcing its regional leadership. The nation has proactively shifted its focus towards leveraging data, advancing artificial intelligence and fostering intellectual property creation.
Furthermore, by diversifying its export markets, Singapore aims to safeguard its economy from single-market volatility, thereby enhancing overall economic resilience. These objectives can be achieved through the implementation of the following tactical initiatives.
Singapore could explore the creation of a data innovation hub, aiming to enhance effortless data sharing and connectivity among businesses and governmental entities across various sectors.
This can help improve efficiency and competency at both local and international levels. For instance, the hub could be leveraged as a platform to collaborate with counterparts in other regions, thereby maintaining regional leadership and encouraging competitiveness.
Singapore should assume a leadership role in enhancing connections with other nations to enhance the regional technology talent, including the creation of shared services centres. This approach facilitates the rotation of talent across different regions, fostering exchange of skills, perspectives and capabilities.
The country also needs to go beyond the Digital Economy Agreements and include other stakeholders such as academic institutions and non-governmental organisations. This will aid in building trust in a future driven by AI.
Expanding the scope of eligible intellectual property (IP) for corporate tax benefits in Singapore, particularly by considering additional assets such as customer lists and other market products, might prove to be advantageous.
Improving the IP Development Tax Incentive to include patentable IP, while addressing diverse forms of unwanted IP, could position Singapore as a leading hub for IP-driven enterprises and research and development.
To enhance Singapore’s position as a hub for innovation by promoting the global mobility of skilled individuals, it is advisable for the government to contemplate harmonising the sourcing of income derived from equity-based compensation.
This approach, aligned with the OECD standards, would prevent dual taxation for foreign employees and contribute to Singapore’s leadership in fostering innovation.
Presently, Singapore does not permit tax deductions when employee equity-based compensation includes the issuance of new shares. It is recommended that the nation adopts a stance enabling tax deductions for both newly issued shares and shares procured from the market.
Furthermore, a modification to Section 15(1)(q) of the Income Tax Act 1947 is proposed, allowing deductions for actual expenses incurred by some companies. These suggestions could help modify the current rules and put Singapore on par with other countries performing well in this sector.
Preserving competitive advantage and global appeal
Capitalising on its strong fiscal strategies, Singapore has positioned itself as a leading business destination and a competitive regional hub amidst the changing tax landscape. Given this evolving environment, businesses must remain vigilant. According to the SBF’s NBS 2023–24 report, key objectives for businesses in the upcoming year encompass revenue growth, cost reduction and market expansion.
As we navigate the post-NEBS era, Singapore’s ongoing initiatives to enhance its tax incentives and regulations will play a crucial role in maintaining its competitive edge and attractiveness to global players. The following suggestions can contribute to achieving these goals.
Given the imminent international tax changes such as BEPS 2.0, Singapore might enhance its tax incentives framework. One viable adjustment could involve introducing a 15% tax rate for these incentives.
Additionally, to counteract the effects of Pillar 2 an uphold Singapore’s competitiveness on a global scale, the introduction of new incentives aligning with QRTCs or MTTCs could serve as a preferable alternative to grant schemes.
The current tax exemption schemes for fund vehicles are set for renewal post December 2024, and numerous funds are anticipated to remain outside the BEPS 2.0 framework. We suggest renewing these schemes without augmenting associated economic conditions, e.g. minimum requirements for S$200,000 business spending, fund size and professional headcount.
This approach aims to allure fund managers and global investors, promoting a consistent influx of foreign investments into Singapore.
Family offices are emerging as a significant investor group in fund management, yet certain conditions linked to tax incentives for individual family offices have tightened in the last year.
A reassessment of these incentives, taking into account the investment culture and landscape, is essential to uphold the standards of Singaporean family offices without entanglement in regulatory complexities.
Presently, the Safe Harbour Rule, as outlined in Section 13W of the Income Tax Act, pertains to ordinary shares, excluding insurance and reinsurance. It is suggested to broaden the scope of this rule to encompass insurance/reinsurance firms.
Moreover, the stipulated 20% minimum shareholding could be decreased to 5%, aligning with participation exemption regulations observed in other nations.
Mobilising actions and striving towards climate goals
Presenting itself as a sustainability frontrunner in the region, Singapore is ambitiously navigating towards environmental responsibility through its Green Plan 2030 and steadfast commitment to achieving net-zero emissions by 2050. The nation also actively engages in pivotal roles, particularly in the ASEAN region, to address the climate-related issues.
While notable progress has been made, there remains a pressing need to propel Singapore towards a green transition. Implementing the following recommendations can boost the country’s standing as a competitive regional centre in the global fight against climate change.
We suggest initiating a dedicated fund within a comprehensive framework to facilitate the finding of green energy projects throughout the economy. This approach involves collaborative initiatives to establish blended and impact funds, focusing on low- and zero-carbon technologies to expedite the transition to green energy.
The envisioned plan seeks to raise S$100 billion over the next seven years via a three-way collaboration involving the government, the private sector and philanthropic organisations.
The introduction of a tiered credit line necessitates a strong partnership with governmental bodies and financial institutions to efficiently meet overall demand. Through diverse credit tiers tailored to various stakeholders, ranging from large corporations to small enterprises and individuals, this strategy would enable companies to undertake environmentally friendly initiatives on a smaller scale with excessive financial burden.
In this section, we propose two key suggestions. Singapore can accelerate project origination and conceptualisation and promote the development of green projects by establishing an innovative ecosystem and offering expert guidance, e.g. providing a 200% tax deduction on financing costs for companies involved in green project initiation.
Additionally, the nation can foster private capital inflow from regional banks, insurance entities and financial markets, complementing the existing blended finance initiatives.
The government has an opportunity to further promote green financing in Singapore by encouraging relevant initiatives. This may include implementing a 10% concessional tax rate under the Financial Sector Incentive-Standard Tier (FSI-ST), currently set at 13.5%, and providing tax exemptions for income generated from investments in green bonds or loans.
Singapore has the capability to secure funding and institute financial incentives, tax advantages or subsidies to stimulate private sector engagement in projects related to transmission and distribution infrastructure. This strategy would aid in alleviating the financial uncertainties linked with these initiatives.
Furthermore, adopting a blended finance strategy centred on sustainability could further attract the essential capital required to bolster private sector ventures.
Singapore has the potential to establish groundbreaking benchmarks in energy efficiency and sustainability. Exploring advancements in energy storage solutions ensures a reliable power supply, enhancing grid stability and resilience. Implementing financial incentives and grants to encourage research and development, along with supporting storage technology pilot projects, can further solidify Singapore’s standing as a regional frontrunner in energy solutions.
Download our full Budget 2023 Proposal for more insights and recommendations