Welcome to our Singapore Budget 2012 summary.
The following is the summary of the tax changes were announced by Minister for Finance, Mr. Tharman Shanmugaratnam in his Budget Statement for the Financial Year 2012 which was delivered in Parliament on Friday, 17 February 2012.
Enhanced Earned Income Relief (EIR) for elderly and handicapped workers
With effect from Year of Assessment (YA) 2013, the amount of EIR and Handicapped EIR will be increased to encourage elderly workers to stay employed and to provide more support to handicapped workers.
For the individual below 55 year old is not affected and the Earned Income Relief is remained as $1,000 per year.
For All Businesses
(1) SME Cash Grant for companies
Companies will be granted a one-off non-taxable SME cash grant pegged at 5% of the company’s revenue for YA2012, capped at $5,000. To enjoy the cash grant, the company must have made CPF contributions for at least one employee during the relevant accounting period for YA 2012.
To be eligible for the SME Cash Grant, the company must have made CPF contributions for at least one employee who is not a shareholder of the company during the basis period for YA 2012.
Upon the company’s filing of the YA 2012 income tax return, IRAS will compute and advise the SME Cash Grant amount.
(2) Enhancement of the Productivity and Innovation Credit (PIC) Scheme
To provide more support for businesses to invest in innovation and productivity, the PIC scheme will be enhanced in 4 areas:
(i) Cash Payout
The cash payout rate will be increased from 30% to 60% for up to $100,000 of qualifying expenditure from YA2013 to YA2015. Businesses may also claim the cash payout any time after the end of each financial quarter, but no later than the due date for the filing of its income tax return for the relevant year.
(a) In-house training courses
Certification will not be required for qualifying in-house training expenditure incurred up to $10,000 per YA. The total training expenditure cap eligible for tax deduction remains unchanged at $400,000.
(b) Training of agents
Expenditure incurred by a principal on the training of its agents may qualify for PIC subject to certain conditions.
(iii) Research & Development (“R&D”)
(a) R&D cost-sharing agreements
Expenditure incurred on R&D cost-sharing agreements may qualify as expenditure on R&D and enjoy PIC deduction. The qualifying expenditure will be deemed to be 60% of the shared costs.
(b) Software development
The multiple sales requirement will be removed to facilitate R&D in software development not intended for sale. In-house R&D software development can now qualify as R&D. However, the development of software for internal routine administration of businesses will not be considered as R&D.
(iv) Investments in Automation Equipment
Qualifying automation equipment acquired on hire purchase with repayment schedule straddling two or more financial years will be eligible for the cash payout option.
(3) Enhancing the Renovation and Refurbishment (“R&R”) deduction scheme
To help businesses that need to renew and refresh their premises regularly to remain competitive, the R&R deduction scheme will become a permanent feature of the income tax regime. With effect from YA2013, the expenditure cap will be doubled to $300,000 (before is $150,000) for each three-year period.
(4) Simplifying capital allowance claims for low-value assets
With effect from YA2013, the full cost of each asset that may be written down in one year will be increased to no more than $5,000 (before is $1,000) to further ease the claiming of capital allowances.
The aggregate cap of $30,000 per YA for 100% write-off of all such assets remains unchanged.
(5) Providing certainty of non-taxation of companies’ gains on disposal of equity investments
For companies’ disposal of shares on or after 1 Jun 2012, gains derived from the disposal of equity investments by companies will not be taxed, if:
(i) the divesting company holds a minimum shareholding of 20% in the company whose shares are being disposed; and
(ii) the divesting company maintains the minimum 20% shareholding for a minimum period of 24 months just prior to the disposal.
For share disposals in other scenarios, the tax treatment of the gains/ losses arising from share disposals will continue to be determined based on a consideration of the facts and circumstances of the case.
(6) Enhancing the Merger & Acquisition (“M&A”) Scheme
To further support companies carrying out M&A, 200% tax allowance will be granted on the transaction costs incurred on qualifying M&A, subject to an expenditure cap of $100,000 per YA. The allowance will be written down in 1 year.
The definition of qualifying M&A has been extended to include those where:
• The acquiring company acquires shares of the target company through multiple tiers of wholly-owned subsidiaries; and
• The qualifying conditions imposed on the target company are satisfied by any of the multiple tiers of wholly-owned subsidiaries of the target company
Extension of scheme
The M&A scheme will be available as an added feature for existing Headquarter incentive schemes, on a case-by-case basis. The condition that the acquiring company must be held by an ultimate holding company incorporated in, and a tax resident of, Singapore may be waived subject to conditions. EDB will administer this waiver.
These changes will take effect for qualifying M&A completed from 17 Feb 2012 to 31 Mar 2015.
(7) Introducing the Integrated Investment Allowance (“IIA”) Scheme
To keep pace with the evolving business environment, a new IIA scheme will be introduced to provide an additional allowance on fixed capital expenditure incurred for productive equipment placed overseas on approved projects with effect from YA2013. EDB will administer the scheme.
(8) Enhancing the Double Tax Deduction (“DTD”) for Internationalisation Scheme
To further encourage our SMEs to venture abroad, and reduce administrative burden on businesses, tax deduction of up to 200% may be allowed on qualifying expenditure, up to $100,000 per YA, incurred on 4 specified activities on or after 1 Apr 2012, without the need for approval from IE Singapore or STB.
(i) Overseas business development trips/missions;
(ii) Overseas investment study trips/missions;
(iii) Participation in overseas trade fairs; and
(iv) Participation in approved local trade fairs.
(9) Liberalising the cash distribution requirement for tax transparency for Real Estate Investment Trusts (REITs)
REITs that make distributions to unit holders in the form of units can enjoy tax transparency, subject to certain conditions. Unit holders who elect to receive distributions in units will be taxed in the same manner as if they had received the distribution in cash. This change will take effect for distributions made on or after 1 Apr 2012.
(1) Increase in CPF Contribution Rates for Older Workers
The Government will be helping older workers grow their retirement savings by raising their employer and employee CPF contribution rates from September 2012.
(2) Managing our Dependence on Foreign Workers
The Government will be introducing further measures to moderate the increasing dependence on foreign manpower which has grown by 7.5% per annum over the last two years.
The key changes are:
a. DRC reductions:
i.Services Sector Work Permit DRC will be reduced from 50% to 45%;
ii.Manufacturing Sector Work Permit DRC will be reduced from 65% to 60%; and
iii.S Pass Sub-DRC for all sectors will be reduced from 25% to 20%.
To give companies time to adjust their strategies, they will have up to 30 June 2014 to comply with the new DRCs in relation to their existing foreign workers. However, from 1 July 2012, companies which hire new foreign workers will not be allowed to exceed the new DRCs.
b. Construction Sector:
i.Further reductions in the Man-Year-Entitlement (MYE) by an additional 5% for new projects awarded with effect from 1 Jul 2012. This will bring cumulative MYE cuts to 45% by July 2013;
ii.A higher Foreign Worker Levy (FWL) of $650 will be introduced for basic skilled Work Permit holders in the MYE-waiver category from 1 Jan 2013, and this will be raised to $750 in July 2013.
(3) Enhanced CET funding for Small & Medium Enterprises (SMEs)
The Government will enhance training support for Small and Medium Enterprises (SMEs) by further lowering their cost of training to encourage greater training participation.
This will be applicable for all courses certified by the Singapore Workforce Development Agency (WDA), and for academic Continuing Education and Training (CET) programmes at the polytechnics and the Institutes of Technical Education. Course fee subsidies will be enhanced to 90%, while the absentee payroll cap will be increased from $4.50 an hour to $7.50 an hour. This scheme will run for three years.
In addition, WDA will work with relevant economic agencies and appropriate associated organisations such as the Media Development Authority and the National Taxi Association, so that self-employed persons such as freelancers in the creative sector and taxi-drivers can benefit from the enhanced training support through targeted programmes.
Permanent GST Vouchers Scheme
The Government has introduced a permanent system of offsets in the form of a GST Voucher to help our lower-income Singaporeans, and has set aside $3.6 billion in the GST Voucher Fund to finance the scheme for the first five years. The GST Voucher will fully offset what our elderly households staying in 1- to 3-room HDB flats pay in GST, and offset about half of the total GST bills for our lower-income families (who do not have elderly members).
The GST Voucher has 3 components and will cost $680 million in FY2012.
For more details on Budget 2012, please refer to the following web site
(a) IRAS – Budget 2012 – Overview of Tax Changes
(b) MOM – Budget and Committee of Supply 2012