In this episode of KPMG’s SG Budget 2024 Insights, Rebecca Lee, Director, Transfer Pricing Consulting, KPMG in Singapore spoke with Chiu Wu Hong, Partner and Head of Private Enterprise, KPMG in Singapore and Lee Bo Han, Partner, R&D and Incentive Advisory, KPMG in Singapore, discussing how Singapore can enhance its competitiveness and build a prosperous future for enterprises while navigating economic challenges with an emphasis on innovation and productivity.
Read video transcript below.
With inflation soaring and costs of running business accelerating, should enterprises be worried and what advice will you give them on staying competitive and agile?
Chiu Wu Hong: In our KPMG Global Survey of CEOs, it reveals concern about the ongoing economic uncertainty. 68 percent of CEOs noted that the rising interest rates and the tightening of monetary policies could prolong any potential recession.
Furthermore, from our interaction with industry players, we see a noticeable dip in Singapore’s business confidence, with fewer businesses expressing satisfaction with the current business climate.
About four out of ten enterprises have experienced negative impacts due to the rising business costs over the past 6 months.
To stay competitive and relevant, Singapore enterprise need to do three things.
First, to enhance its own internal capabilities. Second, to step up digitalisation and technological innovation. Third, to embark on an internationalisation journey.
How can enterprises cope with escalating business costs, yet pursue productivity and innovation for growth? Please share with us examples on how enterprises can strategically leverage on grants and other incentives to capitalise on R&D.
Lee Bo Han: In the same survey mentioned by Wu Hong earlier, Singapore CEOs has identified operational risks and emerging technologies as primary threats to growth.
In the same vein, they have already recognised that productivity and innovation will be the counter threats per se. Innovation is an interesting yet tricky topic. The word “innovation” by definition will give the impression that a company would need to develop something new or groundbreaking. And that would be a daunting task for many enterprises.
Pursuing innovation could be just an adoption of innovation. In our view, keep an open mind to technologies available in the market as they become more accessible as in the case of Artificial Intelligence and Machine Learning. That would help companies to stay competitive.
Research & development (R&D) on the other hand is a different agenda. R&D can potentially create a competitive edge, but R&D can involve financial risk because projects can fail.
The Singapore government, with the RIE 2025 plan, has committed S$25 billion to the research landscape so we see a wide range of grants and incentives to encourage R&D in enterprises.
We have an industry-wide scheme, such as the R&D tax incentives that offer (additional) 300 percent tax deduction. We have grants to promote product development. Even the sector-specific schemes have their specific grant schemes to support the companies in that sector to undertake R&D.
In terms of strategically leveraging on grants and incentives, the important thing is to plan ahead. To plan ahead of projects that need to be done in the next few years, the resources that's required, then scout for grants and incentives that can support these.
Singapore can play a pivotal role in fortifying the resilience and capabilities of enterprises and the country amid headwinds. What do enterprises want for Singapore Budget 2024?
Chiu Wu Hong: Generally, enterprises seek measures that support growth, such as tax incentives, funding for innovation, streamlined regulations, and initiatives to enhance digital capabilities.
For small and medium enterprises (SMEs) pursuing growth, there is also the urgent need to embrace ESG initiatives to stay relevant and enhance future growth in revenue.
But integrating ESG practices is not so easy, especially for SMEs with fewer resources. These businesses often lack the expertise, resources, and the financial incentive to invest in ESG initiatives.
While a lot has been done, enterprises that we have talked to have given us a lot of feedback that they need more help to be extended on how to automate the reporting requirements, and to provide more opportunities for them to engage in workshops and collaborative discussions with all organisations.
Hence, if all these things and feedback can be taken into consideration, and the government continues to support the ESG initiatives, that will go a long way to help enterprises to embark on a successful ESG journey.
For Budget 2024, how can Singapore enhance its grants and incentives landscape to support companies?
Lee Bo Han: The three topics that will be pertinent in the next few years, like what Wu Hong has mentioned, is ESG as well as artificial intelligence and machine learning. Lastly, we need to continue to focus on R&D.
For sustainability, we are considering introducing a Sustainability Credit Scheme that offers enhanced tax deduction to companies adopting sustainable technologies or solutions.
With the Sustainability Credit Scheme, we can ensure that companies obtain verifiable impacts from the individuals adopted through measures that are introduced in the scheme.
As for artificial intelligence and machine learning, we should make it pervasive, just like how some of the software tools are being used widely by all companies now. We should have grants and schemes to uplift all employees to learn about machine learning and artificial intelligence, data management, data analytics and so forth.
For R&D, we already have the R&D tax incentive that offers one of the highest tax deductions available to R&D activities in Singapore. But that only covers the expense side of the equation. We should look at the other side of the equation, which is the income.
As for the Intellectual Property (IP) development incentive, we can expand it to include patentable IP, not just registered IP. We can also expand the income that is incentivised to sales and products or services that is attributable to IP.
In that way, we are not only encouraging companies to invest in R&D, but we are letting them reap the benefits of recurring income that they derive from the IP developed in Singapore.
