24 February 2015
ASME sees little cost relief
Mindy Tan

Association chief cites higher CPF contributions, deferred levy hike instead of cuts

WHILE the extension of the corporate income tax rebate and Wage Credit Scheme is welcomed, businesses say the raft of rebates and scheme enhancements does not necessarily point to lower costs for businesses.
 
"Generally, I think the Budget is continuing to point to a potentially higher cost environment," said Kurt Wee, president of the Association of Small and Medium Enterprises (ASME). "We're not cutting levy although we're deferring it, and we're increasing Central Provident Fund (CPF) contributions. There is also an emphasis that our labour policy will continue to be tight. So I think in the larger scheme of things, we're not looking at business costs coming down."
 
But market watchers agree that the lowering of the income tax rebate cap to S$20,000 while maintaining it at 30 per cent is a clear indicator that the government wants to focus the benefits of the rebate mainly on the SME sector. This is opposed to the previous scheme, which benefits a wider spectrum of corporate taxpayers, noted Alan Lau, tax partner at KPMG in Singapore.
 
In Budget 2013, a 30 per cent corporate tax rebate capped at S$30,000 per year was granted to companies for three years. In the Budget announced on Monday, the cap was reduced to S$20,000, and extended for another two years.
 
Chai Wai Fook, partner, tax services, at Ernst & Young Solutions said: "(This) is welcomed for all companies, especially for cash-strapped SMEs which can reinvest the tax savings to upgrade their capabilities and drive innovation."
 
Meanwhile, the Wage Credit Scheme - designed to encourage wage increases of Singaporean employees who earn a gross monthly wage of below S$4,000 - will see the government's co-funding levels drop to 20 per cent from 40 per cent.
 
Despite the drop, the extension of the scheme is a "welcome move" said Tan Boon Ngee, tax partner at KPMG in Singapore. "The gradual phase out will push businesses to restructure in the tight labour market," he said.
 
Separately, a host of enhancements have been made to the Temporary Employment Credit (TEC) and Special Employment Credit (SEC) schemes.
 
There were two main enhancements to the TEC - bumping the TEC from 0.5 per cent (as announced last year) to 1 per cent of wages in 2015, and extending the TEC by two years. The TEC will be 1 per cent of wages in 2016 before dropping to 0.5 per cent of wages in 2017.
 
Despite the enhancements, it is worth remembering that the TEC was announced in 2014 as a support scheme to help employers cope with higher wage costs arising from the 1 percentage point increase in the CPF employer contribution rate, noted ASME's Mr Wee. The enhancements announced are also balanced by the higher salary ceiling and increased CPF contribution for older workers.
 
In terms of SEC enhancements, employers who hire Singaporean workers aged 65 years and above earning up to S$4,000 a month in 2015 stand to receive an additional offset of up to 3 per cent of wages, bumping the maximum offset achievable to 11.5 per cent (capped at S$345 per month).
 
For Singaporean employees, the SEC payout is 11.5 per cent of wages for salaries up to S$3,000 per month. For those with salaries between S$3,000 and S$4,000, the SEC payout reduces linearly from 11.5 per cent of wages (or S$345) to S$0.
 
Separately, Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam also announced a one-year road tax rebate for commercial vehicles that use petrol, to ease the transition to higher petrol duties. The higher duty rates - an increase of S$0.20 per litre for premium grade petrol and S$0.15 per litre for intermediate grade petrol - kicked in on Monday.
 
"The ground sentiment has always been that when oil prices go up, petrol prices goes up quite quickly but when oil prices come down, petrol prices come down at a slower pace. If petrol prices come down, technically, that was going to translate into business cost savings. Now, businesses cannot capture that," said Mr Wee. SMEs need to take advantage of the temporary support schemes and measures to innovate and "shape up" now, said Mr Wee.
 
"If you don't increase your level of innovation and productivity and level up more, I suspect that in 18 to 24 months, you'll be left in the wind. It's a very focused and targeted Budget, and I think DPM is very clear on what he wants to achieve, how he wants to mold the landscape. There are no more low hanging fruits for businesses in this budget. This is the last bus."