On 19 February, Finance Minister Heng Swee Keat, unveiled Singapore’s 2018 budget. Analysis revealed a pointed focus on the future, with efforts to prepare Singapore’s tax system, and its citizens, for the challenges of the next decade. Notably the budget introduces a GST increase, which promises to hit consumption and GDP - the hike has surprised many, particularly given the city’s ongoing surplus, but the steps seem to have been taken to deal with disruptive financial factors, and the long-term prospect of increasing government expenditure on welfare and infrastructure.
Long-Term Risks, Short-Term Rewards
The 2018 budget positions Singapore for a range of disruptive global and regional trends, including the anticipated impact of innovative factors like robotics, artificial intelligence, the internet of things, and additional commercial digital influences. The budget also includes tax and spending measures to deal with Singapore's ageing infrastructure, and its ageing population (via support for the ElderShield insurance scheme).
The 2018 budget isn’t all bad news for Singaporeans: along with some beneficial tax measures, Mr Heng announced that citizens over 21 years old will receive a one-off hongbao (monetary gift) of between S$100 and S$300 - a way of sharing the surplus with the population. The impact of the new tax measures has also been mitigated - with a broad implementation date of 2020 offering businesses time to prepare for the necessary changes.
The main tax changes and financial measures included in the Singapore Budget 2018 can be summarised as follows:
Corporate Income Tax
Singapore’s 2018 budget includes a variety of corporate income tax measures:
1. Rebate: For 2018 assessment year, the CIT rebate amount has been increased from 20% to 40% (of taxable income). The rebate is capped at S$15,000. The rebate has also been extended to the 2019 assessment year at 20% (capped at S$10,000).
2. Start-up Tax Exemption (SUTE): Start-ups in Singapore continue to enjoy an amount of tax exemption on income. The 2018 budget however, lowers the exemption amounts with effect from the 2020 assessment year. The exemption details are as follows:
Up to YA 2020:
- The first S$100,000 of taxable income receives 100% exemption
- The next S$200,000 receives 50% exemption
- Tax paid on first S$300,000 = S$17,000 - effectively charged at 5.7%
From YA 2020 and beyond:
- The first S$100,000 of taxable income receives 75% exemption
- The next S$100,000 receives 50% exemption
- Tax paid on first S$300,000 = S$29,750 - effectively charged at 9.9%
3. Partial Tax Exemption (PTE): The tax exemption for all non-SUTE companies is also being lowered with effect from YA 2020:
Up to the 2020 assessment year:
- The first S$10,000 of taxable income receives 75% exemption
- The next S$290,000 receives 50% exemption
- Tax paid on first S$300,000 = S$25,075 - effectively charged at 8.4%
From the 2020 assessment year and beyond:
- The first S$10,000 of taxable income receives 75% exemption
- The next S$190,000 receives 50% exemption
- Tax paid on first S$300,000 = S$33,575 - effectively charged at 11.2%
4. Tax deductions: Under the 2018 budget, a number of tax deductions available to Singapore businesses have been enhanced:
- Double tax deduction: The cap for tax deduction claims for expenses incurred as part of an international business trip (and not pre-approved) has been raised from S$100,000 to S$150,000 - with effect from YA 2019.
- Qualifying expenditure deduction: The deduction for staff costs and consumables associated with R&D projects in Singapore has been increased from 150% to 250% - effective from YA 2019 - 2025.
- IP-protection deduction: The tax deduction for the first S$100,000 of the cost of protecting intellectual property has been increased from 100% to 200% - effective from YA 2019 - 2025.
- Donations deduction: Qualifying donations made on or before 31 December, 2021, will be protected by the extension of the existing 250% tax deduction scheme.
- Business partnership deduction: The existing Business and IPC partnership scheme has been extended to 31 December, 2021. The scheme offers a 250% tax deduction for expenses incurred in the provision of services to an employer - or if employees are seconded to an IPC.
Goods and Services Tax
The major announcement of the 2018 Singapore Budget is the increase of GST from 7% to 9% - to be implemented progressively at a point between 2021 and 2025 depending on the condition of the Singaporean economy and expenditure growth.
As a further measure, from 1 January 2020, GST will also be levied on imported services as follows:
- Business-to-business imported services: Recipients of imported B2B services are liable for accounting for GST to Singapore’s internal revenue authority (IRAS). B2B services are taxed using a reverse mechanism.
- Business-to-consumer imported services: Imported B2C services are to be taxed via a system of Overseas Vendor Registration. B2C suppliers, and operators in the electronic marketplace (like app stores), must be registered for GST in Singapore.
Individual Income Tax
The 2018 budget includes an extension (to December 31, 2021) of the 250% tax deduction scheme for charitable donations originally introduced in 2009. Qualifying donations must be made to Institutions of Public Character (IPC).
The 2018 budget raises the highest rate of buyer’s stamp duty. Previously charged at 3% of the property value, the top stamp duty rate will now be 4% - applicable to residential properties worth over S$1 million. The new stamp duty rates are as follows:
- Below S$180,000 1%
- S$180,000 to below S$360,000 2%
- S$360,000 to below S$1,000,000 3%
- S$1,000,000 and above (new rate) 4%
The Wage Credit Scheme, introduced in 2013, will be extended by 3 years - to 2020. The scheme is a mechanism for the government to co-fund wage increases in Singapore at a rate of 20% in 2018, 15% in 2019, and 10% in 2020.
In a response to the current weakness in Singapore’s Marine Shipyard and Process sectors, the 2018 budget defers for a year a proposed increase in Foreign Worker Levy rates.
If you need to know more about Singapore’s tax system, or the impact of the 2018 budget, explore activpayroll’s dedicated Singapore Global Insight Guide.