A well thought-through Singapore Budget

24 February 2020 | Research - Insights

Amid the country's economic headwinds, Singapore's Finance Minister Heng Swee Keat announced that the GST would not be raised in 2021

| By Associate Professor Simon Poh |

On 18 February, Deputy Prime Minister and Minister for Finance Heng Swee Keat unveiled a highly anticipated “UNITY” budget. 

Budget 2020 is:

  • Unprecedented in its emphasis on near term support compared with long term measures;
  • Nothing short of generous in its outreach to help businesses, employees and households affected by COVID-19;
  • Interesting in introducing top-ups to SkillsFuture Credits that come with an expiry condition;
  • Timely in providing details of the GST Assurance Package ahead of an impending GST hike without committing on a timeframe; and
  • Yarning in building up a collective “Singapore Together” spirit among Singaporeans to face future challenges.

I earlier wrote an article on seven measures to expect from Budget 2020. It may now be timely to take stock of what has been announced.

1. Building on a long-term foundation for businesses and workers

Continuing on the transformation journey, the Minister introduced new initiatives such as the GoBusiness and Asia-Ready Exposure Programmes whilst enhancing existing programmes such as SMEs Go Digital and Market Ready Assurance.

The emphasis again is to help start-up companies spring-bind their ventures on a firm footing whilst assisting existing promising companies to beef up their growth strategy and strengthen their international competitiveness. 

2. Addressing near-term economic difficulties

It was unprecedented when the Minister delved straight into announcing near term support measures soon after starting his Speech. The near term measures take centre stage this time, compared with long term measures.

The temporary relief measures released as part of the $4 billion Stabilisation and Support Package were comprehensively tailored to help targeted industries severely impacted by the COVID-19 outbreak. Also assuring is the setting aside of an additional $800 million in this Budget to support the various efforts to cope with this challenging situation.

There is no doubt that this move will be well received by businesses, households and individuals.

3. No changes to corporate income tax rate but rebate reintroduced

As expected, there was no announcement of a rate change for corporate income tax. There seems to be a general feeling that the corporate income tax rebates will come to an end after being dished out for so many years. Hence, the announcement of a 25 per cent corporate income tax rebate for the Year of Assessment 2020 (as part of the Stabilisation and Support Package) is very welcome news. A cap of $15,000 means that companies with tax payable of at least $60,000 in the financial year of 2019 will enjoy the maximum tax savings. Loss-making companies, as usual, do not benefit from this measure at all.

4. No change in personal income tax rates and personal reliefs

It came as no surprise that the Minister did not attempt to tamper the personal income tax rate structure, last revised in 2017.

He also decided that it is not time to revise any of the personal reliefs although I would have thought that some of these reliefs should be revised. For example, the ever increasing costs of raising a child should justify an increase in the qualifying child relief from $4,000 to $5,000. 

The most notable announcement is the decision to allow the angel investors tax deduction scheme to lapse after 31 March 2020. Angel investors would have to turn to non-tax incentives such as grants to continue to be incentivised.

5. GST rates and taxing low value imported goods

The Minister decided that it is not time to increase the GST rate to 9 per cent from 7 per cent in 2021. But he made a prudent decision not to make an announcement of the exact date of the increase. However, his outline of the GST Assurance Package did not disappoint. The extensive relief measures targeted at Singaporeans should amply address the concerns of the lower income citizens.

Meanwhile, the government has not decided to implement GST on low-value imported goods presumably because they feel that they need more time to iron out implementation details.

6. Taking care of lower income citizens

A slew of initiatives was announced as part of a Senior Worker Support Package. For example, companies stand to benefit from wage offsets when they employ older Singapore workers aged 55 and above. They will also receive CPF Transition offsets to subsidise the anticipated increase in CPF contributions in 2021.

Disappointingly, there were no concrete measures to help the senior citizens, apart from the increase in both the retirement age and re-employment age and the increase in CPF rates. These were already announced before the Budget.

An increase in the earned income relief for senior citizens would have encouraged them to carry on working after reaching retirement, but this idea was not adopted.

7. Lifelong learning

Lifelong learning continues to be an important theme in this year’s Budget.

The Minister decided that it is time to top up the SkillsFuture Credits of all Singaporeans in Budget 2020. Not only did he decide top up $500 for every Singaporean aged 25 and above, senior citizens aged 40 to 60 will receive an additional top up of $500. It is interesting to find that these top-ups now come with an expiry period, which will certainly nudge citizens into action in signing up for suitable courses. But I ponder the decision to exclude those above 60 from the further top-up.

Click here to read the author's earlier commentary on the measures to expect from Budget 2020. 

 

About the author

Assoc Prof Simon Poh.jpg

Associate Professor Simon Poh is from the Department of Accounting at NUS Business, where he teaches taxation and advanced taxation modules. Besides speaking at external seminars and conducting regular workshops for professional bodies, he is also a regular contributor to the local and foreign media on taxation issues.

 

 

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