Source: Budget in Brief document on Singapore Budget website.
Singapore’s Finance Minister, Heng Swee Keat, introduced a new program to bolster businesses and industries while stimulating growth through innovation. Building on the Quality Growth Programme from Budget 2013, this initiative, called the Industry Transformation Programme (ITP), seeks to foster innovation and productivity. The goal is to empower Singaporean companies to become more resilient and capitalize on the anticipated global economic upswing.
The ITP consolidates various restructuring initiatives, adopting a more focused approach targeting specific sectors. It will strengthen collaboration between the government and industries, as well as within industries themselves, with a strong emphasis on integrating technology and promoting innovation. The ITP encompasses initiatives for individual companies and entire industries, including a Business Grants Portal, an Automation Support Package, an expanded SME Mezzanine Growth Fund, an extension of the Double Tax Deduction for Internationalisation scheme, a National Trade Platform, support for the National Robotics Programme, and an enhanced Local Enterprise and Association Development programme (LEAD-Plus). Additionally, to fuel innovation-driven transformation, a new entity called SG-Innovate will be established to provide enhanced support for startups. The National Research Fund will also receive additional funding, and the Jurong Innovation District will be launched.
The ITP centers around three key pillars. Firstly, it aims to empower businesses to cultivate robust capabilities, leverage technology, achieve scale, and expand internationally. Secondly, it seeks to help industries embrace technology, accelerate innovation, develop joint solutions, explore new overseas markets, and strengthen partnerships within their sectors. Lastly, the ITP aims to propel transformation through innovation.
Heng emphasized the successful transformation of Xin Ming Hua, a major distributor of engines and power systems in Asia, as a model for other enterprises. The company has actively pursued innovation, developed in-house design and manufacturing capabilities, embraced automation to achieve significant productivity gains with support from Republic Polytechnic1, and expanded internationally to better serve its customer base.
One key element of the ITP is the Automation Support Package from SPRING, with over S$400 million allocated over the next three years. This package aims to assist companies in scaling up automation projects by providing grants of up to 50% of project costs (capped at S$1 million) for implementing or expanding automation. A new investment allowance of 100% will be offered for automation equipment used in qualifying projects, and access to loans for these projects will be improved for SMEs through increased government risk-sharing with participating financial institutions (from 50% to 70%). Additionally, IE Singapore and SPRING will assist businesses in accessing overseas markets.
Further supporting businesses, the ITP includes several financing and tax incentives. The SME Mezzanine Growth Fund will be expanded from S$100 million to S$150 million by matching new private sector investment on a 1:1 basis, up to S$25 million. The Merger & Acquisition (M&A) allowance will be increased to cover up to S$40 million of consideration paid for qualifying M&A deals, a significant increase from the current S$20 million cap per year of assessment (YA). Finally, upfront certainty of non-taxation of companies’ gains on equity investments will be extended until 31 May 2022.
Recognizing the importance of international expansion, the ITP extends support in this area as well. IE Singapore has been instrumental in supporting businesses venturing overseas, and its efforts are expected to continue expanding. To further encourage internationalization, the Double Tax Deduction for Internationalisation scheme, which covers qualifying expenses for activities such as participating in overseas business development and investment study trips, will be extended until 31 March 2020.
To streamline the process of applying for government support, a one-stop Business Grants Portal is slated for launch in Q4 2016. This portal will simplify the process for businesses seeking grants, organizing them by key needs such as capability building, training, and international expansion. The portal will also pre-populate information available in the Accounting and Corporate Regulatory Authority (ACRA) database, eliminating the need for businesses to navigate multiple agencies. Starting with grants from IE Singapore, SPRING, Singapore Tourism Board (STB), and DesignSingapore, the portal will gradually incorporate grants from other government agencies. Furthermore, existing support schemes will be reviewed and simplified to enhance accessibility and strengthen assistance for enterprises at different stages of growth.
The ITP also underscores the importance of industry-level transformation, advocating for collaboration among businesses, industry associations, and government agencies. Heng stressed that industry associations are best positioned to lead transformation efforts due to their deep understanding of their sectors’ needs. He emphasized the need for strong partnerships among businesses, industry associations, and the government to drive this transformation.
One key initiative in this area is the National Trade Platform, envisioned as a next-generation platform to facilitate trade. This platform will enable electronic data sharing among businesses and the government, streamlining trade processes and reducing administrative burden, particularly for SMEs. The platform will eventually replace the existing TradeNet and TradeXchange systems. Moreover, it will function as an open innovation platform, allowing third-party service providers to develop value-added services and apps in areas such as operations, visibility, and trade finance.
Another key initiative is the National Robotics Programme, which has been allocated over S$450 million over the next three years to promote the development and adoption of robotics. This technology is seen as a solution to address labor market constraints and create higher-value jobs. The programme will focus on scaling up efforts to develop and implement robotics solutions, particularly for SMEs.
The Local Enterprise Association and Development (LEAD) Plus program will provide funding support to trade associations and chambers to enhance their capabilities and develop industry-wide solutions to shared challenges. As part of LEAD-Plus, up to 20 public officers will be seconded to interested trade associations and chambers over the next five years. A budget of up to S$30 million has been allocated for this program over the next five years.
Recognizing the importance of innovation in driving transformation, the ITP includes several initiatives in this area. The Research, Innovation and Enterprise (RIE2020) plan will see up to S$4 billion allocated for industry-research collaboration, with a S$1.5 billion top-up to the National Research Fund to support the first set of RIE2020 initiatives. Additionally, businesses will have more flexibility in writing down the cost of acquiring intellectual property rights (IPs) over 5, 10, or 15 years. This scheme, extended at Budget 2014 till YA2020, allows businesses to claim writing down allowance on the cost of acquiring IP rights, including patents, trademarks, registered designs, and copyrights.
Further bolstering the innovation ecosystem, SG-Innovate, a new entity, will be established to connect budding entrepreneurs with mentors and venture capitalists. This initiative will build on the work of Infocomm Investments Private Limited (IIPL) and collaborate with SPRING and EDB to expand accelerator programs into new and emerging sectors such as smart energy, digital manufacturing, fintech, digital health, and the Internet of Things.
The Jurong Innovation District, envisioned as a hub for researchers, students, innovators, and businesses to collaborate and develop future-ready products and services, is also a key component of the ITP. This district will integrate learning, research, innovation, and production within a single, next-generation industrial district. The first phase of the Jurong Innovation District is expected to be completed around 2022.
Highlighting the success of the local food manufacturing industry as an example of the ITP’s potential, Minister Heng praised their innovative spirit. He cited examples such as Tan Seng Kee, which has become the first Singaporean company to export fresh noodles paired with special sauce mixes, and Foodgnostic, which is expanding through internationalization and food exports. He emphasized that the industry’s success is a testament to the power of collaboration, innovation, and a forward-thinking mindset.
In summary, the ITP represents a comprehensive, multi-pronged approach to transforming Singapore’s economy through innovation, collaboration, and a focus on building robust, future-ready businesses and industries. The government is committed to supporting this transformation through a more integrated approach, working closely with businesses and industry associations to develop sector-specific transformation roadmaps.
To further support businesses, the Corporate Income Tax (CIT) Rebate will be increased from 30% of tax payable to 50% of tax payable for YAs 2016 and 2017, capped at S$20,000 in rebates per year. This measure is specifically targeted at SMEs. However, broad-based measures will be gradually phased out. The PIC scheme, which currently offers cash payouts along with tax deductions, will see lower cash payout rates, decreasing from the current 60% to 40% for expenditures incurred from 1 August 2016 onward. However, the 400% tax deductions will remain unchanged. The PIC scheme is set to expire after YA 2018.
The Special Employment Credit (SEC), initially set to expire this year, will be modified and extended until the end of 2019. This extension will provide employers with a wage offset for employees aged 55 and above earning up to S$4,000 per month. The SEC will cover approximately 340,000 workers, representing about three out of four older Singaporean workers. Employers with Singaporean workers aged 65 and above will continue to receive a wage offset of up to 8%, in addition to the 3% wage offset for re-employing workers aged 65 and above until the re-employment age is raised in 2017. The SEC will be up to 5% for workers aged 60 to 64 and up to 3% for those aged 55 to 59.
An SME Working Capital Loan scheme will be introduced, offering loans of up to S$300,000 per SME for a period of three years. Under this scheme, the government will share 50% of the default risk with participating financial institutions, encouraging lending to SMEs.
The Transition Support Package, implemented in FY2013, will continue to assist companies in boosting productivity. Firms will receive a total of S$1.9 billion for qualifying wage increases provided under the Wage Credit Scheme7, the highest payout to date.
The Singaporean government is committed to supporting individuals through these changes by equipping them with new skills, particularly in rapidly growing sectors, and facilitating employment and job matching. Continued investment in SkillsFuture, support through the Adapt and Grow initiative to find employment, and a new approach to jobs and training that fosters closer collaboration with companies and industry associations will be implemented. Wage support schemes will be expanded for those facing difficulties finding new jobs, and Professional Conversion Programmes will be broadened to encompass more sectors.
The new TechSkills Accelerator, a skills development and job placement hub for the ICT sector, aims to equip more Singaporeans with the necessary skills to capitalize on job opportunities in this field and contribute to the Smart Nation initiative. The accelerator will facilitate training opportunities for in-demand ICT skills, establish industry-recognized skills standards and certification, and emphasize the importance of certified skills proficiency.
KPMG described the Singapore Budget as “finely-balanced,” highlighting its focus on supporting small and medium-sized enterprises (SMEs) and individuals, while emphasizing the need for collaboration among businesses, trade associations and chambers (TACs), government agencies, and unions. The budget has been lauded for its support of SMEs venturing into innovation and exploring foreign markets by simplifying access to government grants and support. However, experts have pointed out that while the increase in the corporate tax rebate benefits tax-paying SMEs, startups experiencing losses may not reap the same advantages. The reduction in PIC cash payout may also be a drawback for cash-strapped startups that have invested in PIC initiatives. On a positive note, the new ruling on IP offers long-term advantages, as the flexibility to claim writing-down allowances on the acquisition cost of IPs over an extended period will enable companies to fully utilize foreign tax credits on foreign royalty income generated from such IPs. This move encourages companies to bring IPs to Singapore, as it helps minimize the tax impact.