THE SINGAPORE GOVERNMENT has unveiled its Budget for 2012 against a backdrop of slowing economic growth, while costs of living and doing business continue to rise. There was a significantly higher-than-expected budget surplus of $2.3 billion, or 0.7% of GDP for FY2011.
So have the demands on many wishlists been met? Earlier, polls done by audit and tax consultancy firms suggest that businesses want measures to ease rising operating costs, measures to improve productivity, as well as clarity on tax on gains from disposals.
During his address, finance minister Tharman Shanmugaratnam stressed that the Budget isn’t just aimed at providing a counter-cyclical boost to the economy, but one that will set Singapore up for the long-term. This involves restructuring the economy to help local companies move up the value chain or expand abroad; improving the productivity of the workforce; further boosting Singapore’s competitive strengths particularly in tourism and offshore and marine services; and developing a gold trading hub here.
The first order of business was to address Singapore’s reliance on foreign labour. Tharman notes that the foreign workforce, excluding domestic help, had grown 7.5% annually over the last two years and is now about one-third of Singapore’s total workforce. “We have no alternative but to slow down the growth of our foreign workforce.”
As such, from Jul 1, there will be tighter limits on how many foreigners businesses in the manufacturing and services sector will be allowed to hire. The ratios have been cut from 65% to 60% for manufacturing companies, and from 50% to 45% in the services sector. There will also be tighter limits on S Passes, or the work visa for skilled foreigners earning at least $2,000 a month.
But the construction industry is not subject to this change. Tharman acknowledges that the sector will require even more foreign workers over the next five years, given the major housing and infrastructure projects. However, construction companies will be subject to the tighter limits for S Passes, as well as a further reduction of Man-Year Entitlements by 5%, and higher foreign worker levies.
To mitigate the increase in business costs that these measures contribute to, to some extent, the government says it will provide “broad-based support to help as many businesses as possible retain their roots in Singapore and grow”. Companies will receive a one-time cash grant amounting to $5,000 or 5% of revenues for YA2012, whichever is lower. This is expected to cost the government about $320 million.
Indeed, to encourage businesses to remain in the country, the government has set aside $1.4 billion this year in support, mainly to help companies upgrade and hire older workers. Small-to-medium enterprises (SMEs) are also expected to receive further help. Separately, SMEs wanting to grow through acquisitions will also get more help in the form of a 200% tax allowance on transaction costs incurred, subject to a cap of $100,000.
One initiative to help some businesses expand abroad is the setting up of a specialised project finance company by Temasek Holdings that will plug gaps in financing for larger, long-tenure projects overseas. The financing company is scheduled to begin operations in the second half of this year, and is expected to provide about $400 million in financing annually for “cross-border projects with significant Singapore-based corporate participation”.
Meanwhile, companies in the marine and offshore industry can expect some help in developing new capabilities for deepwater oil production, with $150 million in research funds allocated to A*Star and the Economic Development Board for this purpose.
Separately, Singapore is set to capitalise on the strong demand in Asia for gold as an asset. The government is exempting investment-grade gold and other precious metals traded as financial assets, from the goods and services tax (GST). This is already being done in a number of other countries such as Australia, the UK and Switzerland.
Finally, in addressing companies’ concerns over the treatment of capital gains, particularly in the context of disposal of assets or subsidiaries, the government has clarified that gains from disposal of equity investments by a company will not be taxed if the firm maintains a minimum shareholding of 20%. “There continues to be uncertainty for companies that hold less than 20% and what happens if there is, for example, a dilution in the shareholding,” points out Lennon Lee, a tax partner at PwC Services in Singapore. “If there is a rights issue, the divesting company might be forced to subscribe for the rights issue to prevent it falling below the 20% shareholding.”
Meanwhile, not everyone is convinced that forcing Singapore companies to cut foreign hires is a good thing, at least for now. “The proposed measures will simply make it more difficult for local businesses, which are starved of appropriately qualified human capital, to meet their resource needs,” says David Sandison, also a tax partner at PwC Services. “It remains to be seen whether the measures introduced to encourage employment of older workers will counter-balance this proposed move to restrict the employment of foreign workers."
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