Source: Budget 2018 site. View of Singapore skyline.

Singapore’s Ministry of Trade and Industry (MTI) anticipates more broad-based economic growth across sectors in 2018, albeit at a moderated pace compared to the heights of 2017, according to Singapore’s Financial Minister Heng Swee Keat during his Budget 2018 speech.

Minister Heng emphasized the need for Singapore to adapt to three major shifts in the coming decade:

• Asia’s increasing global economic influence.

This trend is evident in China’s new regional infrastructure bank and its Belt and Road Initiative, India’s economic reforms including relaxed foreign investment regulations, and the expanding middle class in ASEAN nations, who are moving up the value chain. These developments offer significant opportunities for Singaporean businesses and citizens, requiring the nation’s economy to capitalize on and contribute to Asia’s growth.

• The rise of new technologies and their impact on lifelong learning.

Competition will shift from physical assets to intellectual property, data, and user networks, putting a premium on early adoption and rapid commercialization. Job security and higher wages will depend not just on formal education but on continuous learning, adaptation, and personal growth.

• An aging population, impacting healthcare and social spending, potentially tightening the labor market if productivity and a controlled influx of foreign workers are not addressed.

These three shifts, according to Heng, present both opportunities and challenges. While technology can enhance the productivity of older workers, the same rapid technological advancements might lead to their marginalization.

This year’s budget aims to mitigate challenges while seizing opportunities by:

• Cultivating a more dynamic and innovative economy.

Singapore must establish itself as a global-Asia hub for technology, innovation, and enterprise, attracting investments, talent, and ideas while venturing into new markets. This requires making innovation widespread, developing robust capabilities in companies and workers, and fostering strong local and international partnerships. The shifting global economy and emerging technologies present advantages for Singapore to pursue opportunities beyond its borders.

• Developing a smart, green, and livable city.

Leveraging the latest technology is crucial to improving Singaporeans’ quality of life. This includes enhancing urban sustainability and promoting carbon efficiency for a more livable city.

• Nurturing a caring and cohesive society while planning for a sustainable and secure future.

Strategies for a more innovative economy include:

• Extending the Wage Credit Scheme (WCS) to co-fund wage increases for Singaporean employees earning up to S$4,000 gross monthly. The WCS has been extended for three years, with co-funding rates of 20% for 2018, 15% for 2019, and 10% for 2020.

• Enhancing the Corporate Income Tax (CIT) rebate to 40% of tax payable, capped at S$15,000 for the Year of Assessment (YA) 2018. In YA2019, the rebate will be 20% of tax payable, capped at S$10,000.

• Providing enhanced employee support, upgrading the existing Work Trial scheme into a Career Trial scheme with increased funding to encourage workers exploring new careers. Existing Professional Conversion Programs (PCPs) helped over 3,700 mid-career individuals find new jobs in 2017.

Singapore’s long-term transformation will be supported by Industry Transformation Maps (ITMs) outlining digitalization strategies for various industries. To date, 21 out of 23 proposed ITMs have been launched, with the remaining two expected by end-March. These ITMs are already helping companies prepare for a new phase of growth, with examples cited in precision engineering.

The next phase of the ITM journey involves an ecosystem approach, leveraging synergies, strengthening interconnections, and exploring new opportunities. This will focus on innovation, capabilities, and partnerships, anchoring Singapore as a global-Asia hub for technology, innovation, and enterprise.

New initiatives to support innovation across the value chain include:

• The Productivity Solutions Grant (PSG), consolidating existing grants to support the adoption of pre-scoped, readily available technologies.

• Increased tax deductions on licensing payments for commercial use of intellectual property (IP).

• A new Open Innovation Platform, piloting this year, to connect companies seeking digital solutions with ICT firms and research institutes for collaborative development.

• Continued focus on national research capabilities, supported by public sector R&D spending at 1% of GDP annually. A new NRF-Temasek IP Commercialization Vehicle will be launched with at least S$100 million to support companies utilizing IP from publicly-funded research.

Beyond ITMs, focus is placed on strengthening Singapore’s position as an air and sea hub through the new Aviation Transformation Programme (ATP) and Maritime Transformation Programme (MTP). These programs, with up to S$500 million in support, aim to make Singapore’s airport and seaport platforms for developing, testing, and utilizing new technologies.

The built environment sector will receive targeted support through an expanded National Robotics Programme (NRP).

Additional targeted support for enterprises includes:

• The merger of SPRING and IE Singapore into Enterprise Singapore, providing integrated support for internationalization and capability development. A new Enterprise Development Grant (EDG) will offer up to 70% co-funding for companies to develop various capabilities.

• An enhanced Double Tax Deduction for Internationalization (DTDi) in YA2019, raising the expense limit qualifying for DTDi without prior approval from S$100,000 to S$150,000 per year.

• Adjustments to the Start-up Tax Exemption and Partial Tax Exemption schemes from YA2020, restricting exemptions to the first S$200,000 of chargeable income. These adjustments aim for a fairer and more equitable corporate tax system while keeping rates low for startups and smaller firms.

Support for digital transformation includes:

• Exploring a nationwide e-invoicing framework to improve productivity and cash flow for companies.

• Expanding the Tech Skills Accelerator (TeSA) into sectors like manufacturing and professional services, focusing on digital skills such as data analytics, AI, IoT, and cybersecurity.

Equipping employees with specialized skills remains crucial. A new ASEAN Leadership Programme under the SkillsFuture Leadership Development Initiative (LDI) will help business leaders build networks and plan Southeast Asian expansions. Existing initiatives such as the SkillsFuture Earn and Learn Programme, Go Southeast Asia Award, SkillsFuture Mid-Career Enhanced Subsidy, PCPs, and private sector efforts like the SBF-SMU LEAD-CHARGE Initiative will continue to support workforce development.

For older workers, the re-employment age has been raised to 67, the Special Employment Credit extended, and WorkPro enhanced. These measures aim to encourage age-friendly workplaces and provide better support for older workers. A new Capability Transfer Programme (CTP) will facilitate skill transfer from foreign specialists to Singaporean trainers and trainees.

Collaboration in technology, innovation, and enterprise is a key focus. The government encourages strong local and international partnerships through initiatives like the Partnerships for Capability Transformation (PACT) scheme, providing up to 70% co-funding for collaborative projects.

Singapore’s global innovation efforts are demonstrated through initiatives like the Global Innovation Alliance (GIA) and Singapore Week of Innovation and Technology (SWITCH). As ASEAN chair, Singapore aims to establish an ASEAN Innovation Network, strengthening regional innovation ecosystems and fostering collaboration.

The proposed carbon tax, starting in 2019 at S$5 per tonne of greenhouse gas emissions and increasing to S$10-S$15 per tonne by 2030, is on track. It will apply uniformly to all sectors, encouraging emissions reduction and aligning with international climate change agreements. While impacting businesses, the tax’s impact on households is estimated to be minimal.

To fund national expenditure, the goods and services tax (GST) will increase from 7% to 9% between 2021 and 2025, with the exact timing dependent on economic conditions. Additionally, a GST on imported services, effective January 1, 2020, will ensure equal treatment for imported and local services.

Reactions to the budget from industry leaders highlighted:

• The end of the Productivity and Innovation Credit (PIC) scheme, replaced by more targeted support like the PSG.

• Laudable tax measures encouraging Singapore’s IP ecosystem, such as enhanced deductions for R&D, IP registration, and license payments.

• The PSG’s positive impact on small businesses adopting digital technology.

• The GST on imported services’ impact on digital service providers and consumers, emphasizing the need for differentiation through user experience.

• The potential for increased operational costs and margin pressures for digital service providers due to compliance with the new tax regime and the upcoming GST increase.

• Consumer expectations to adjust online spending behavior in response to the GST on imported services.

• The need for traditional retailers to embrace digital transformation in light of the new tax landscape.

• The reverse charge mechanism’s impact on B2B transactions, particularly in sectors with limited GST claims on business purchases.

• The significance of Singapore becoming the first Southeast Asian nation to implement a digital economy tax.

• The importance of digital capabilities, including analytics, automation, and artificial intelligence, for businesses to thrive in the on-demand economy.

• The potential of Industry 4.0 and advanced manufacturing for Singaporean businesses, particularly SMEs.

• The need for businesses to embrace technological solutions for increased operational visibility and responsiveness in the on-demand economy.

Key economic statistics highlighted in the budget statement included:

• GDP growth of 3.6% in 2017, up from 2.4% in 2016.

• Productivity growth at its highest since 2010, reaching 4.5% based on real value-added per actual hour worked.

• Real median income for Singaporean citizens increasing by 5.3% in the past year.

Singapore’s financial year runs from April 1 to March 31.