The much anticipated annual Budget speech was delivered yesterday by Finance Minister Heng Swee Keat (HSK) in parliament. It was titled “Together, a Better Future” reflecting a need for a united stand to face the challenges of today and tomorrow. The full speech and associated annexes can be found here.
I’ve looked forward to annual Budget speech every year since taking the Income tax module in business school as I loved tearing apart all the schemes, incentives and changes…
So were there any revolutionary changes to tax / economic policy? Here are 10 key measures talked about in the speech that probably affects most Singaporeans and my quick thoughts:
1) Extension of Wage Credit Scheme to 2020
In case you didn’t know, the Government has been co-funding salary increments for Singaporeans since 2013 up to a gross salary of $4,000 to ease the burden on businesses as wage cost inflation hits their bottom line. And they just extended the scheme to 2020. So more increments for us, yay?
For me, I’m not too sure about the effectiveness of this scheme as it is clearly a temporary measure and there’s no way this is a long term solution to drive wage inflation. Good news for businesses, I guess?
2) Corporate Income Tax rebate for YA2018 and YA2019
CIT rebate is set at 40% capped at $15k for Year of Assessment (YA) 2018 and 20% capped at $10k for YA2019.
Nothing much to talk about, this clearly beneficial for SMEs.
3) Intellectual Property tax deductions
Tax deductions for licensing payments for use of IP and registration fees of IP is set at 200% instead of 100% currently following the expiry of the Productivity and Innovation Credit (PIC) scheme. Qualifying R&D expenses will get tax deductions of 250% instead of 150% instead. These changes are effective YA2019 – YA2025.
The Government clearly wants Singapore companies to improve productivity through licensing or developing their own IP and are supporting that through the above tax deductions.
4) Start Up tax exemption and Partial tax exemption scheme adjustments
The Start up tax exemption and Partial tax exemption schemes are the Government’s way to reduce taxes for SMEs who do not have large chargeable incomes in their tax returns. How this is done is by providing tax exemptions for qualifying companies on their first $300,000 of chargeable income.
Here’s a comparison of the current scheme versus the revised version:
As you can see, the Government has reduced the amount of tax exemptions for companies and in turn raised the tax payable on companies. It is interesting that HSK noted in his speech that “Every profitable company should pay some taxes. This is sound and equitable.” and this is reflected in the changes above.
The changes result in the following impact:
As you can see, companies will need to pay additionally up to $12,750 or $8,500 under the respective schemes especially if the company has a chargeable income between $200k – $300k. Overall, I think the tweaks will affect mostly the “richer” SMEs.
5) Carbon tax details
The Government intends to implement a carbon tax of $5 per tonne of greenhouse gases from 2019 – 2023 with a review expected then. HSK further guided that they aim to raise the carbon tax to $10-15 per tonne by 2030. This will be applied uniformly across all industries and will be paid by buying credits from the NEA.
The most direct impact is probably your electricity bill. And all the goods and services costs will probably follow suit. The hope is that the industry will work to reduce their own emissions to reduce the amount of cost they will pass on to end users. Whether that comes to fruition remains to be seen.
6) Enhanced Proximity Housing Grant
HSK also announced a simplification in eligibility criteria by changing it to the resale flat has to be within 4 km of parent / children’s HDB flat.
Nothing much to add other than slightly more support for the resale HDB market.
7) GST hike and changes
GST will be hiked to 9% around 2021 – 2025 depending on the circumstances. HSK also guided that it will be sooner rather than later.
GST will also start to apply to imported services from 2020. Examples include consultancy and marketing services from overseas. The most relevant example that applies to us is that GST will apply to apps and music purchases from 2020. Import of overseas goods and e-commerce for now is still not taxed.
So the rumours have been proven true. The good thing is that the Government has guided this 3 years in advance.
8) Buyer’s Stamp Duty changes
Thinking of buying a > $1 million residential property soon? It just got 1% more expensive. Overall, it’s not that big a change, it affects mainly the luxury residential market, the property stocks should probably breath a sign of relief. Will foreign investors be deterred by this change? Only time will tell.
9) Tax transparency changes for REIT ETFs
Hidden in Annex A-5 of the Budget, amongst all the tax changes affecting banks and financial institutions, details this change that has significant impact on REIT ETFs.
Currently, Real Estate Investment Trusts (REITs) are not subject to corporate tax as long as 90% of their taxable profits are paid out to unitholders, among other conditions. This is previously not the case for REIT Exchange Traded Funds (ETFs), which explains to me why their distributions were lower than their component REITs. This change accords the same tax treatment for REIT ETFs as REITs, thus increasing the amount of distributions to REIT ETF holders.
This should be beneficial for the REIT ETFs like the Lion-Philip S-REIT ETF.
10) SG Bonus
HSK announced a “special dividend” for Singaporeans called SG Bonus.
Several things to note:
- Applies to Singaporeans is turn 21 in 2018
- Assessable income refers to “gross income” before reliefs like earned income relief, CPF relief etc.
- Assessable Income for YA2017, ie your 2017 tax return (which is based on your 2016 income)
I find it interesting that they didn’t tie it to the Annual value of your home this time round, as such affluent retirees who stay in 1 home but a large investment portfolio (other than properties) are eligible for $300 SG bonus. ?
Summary
There are plenty of things that was outlined in the budget that needs to be paid for, which is reflected in the forecasted increases in GST, changes in the partial / start up tax exemption, carbon tax and buyer’s stamp duties. This is cushioned a little by the extension of GST vouchers, U-Save rebates, S&CC rebates and, in a way, the SG Bonus.
For me, it didn’t seem too radical a change and there has been more foreshadowing from PM Lee and HSK. Plenty to discuss and wait for further details.
What do you think of Budget 2018? Comment and email me your thoughts 🙂
Happy Hunting,
KK