The DPM and Finance Minister delivered the Government Budget for fiscal year 2012 on 17 February and the theme for the budget this year is “An inclusive Singapore, a stronger Singapore”. The budget this year is unique compared to past years. Many changes to fiscal and tax policies are introduced to achieve social objectives, rather than economic goals. The budget aims to provide strong support for the poor and needy, and the less privileged in our society. The budget also signals the will of the Government to improve productivity of our workers, and to curb the influx of foreign workers. In line with this objective, changes to policies are introduced to encourage the employment of older Singaporean workers.
In the budget, the Government announced a Special Employment Credit (SEC) scheme to encourage the employment of older Singaporean workers, as one of the measures to ease the tight labour market. The other changes announced include adjustment to CPF contribution rates for older workers, changes to foreign workers quota, enhancements made to productivity and innovation credit (PIC) and renovation and refurbishment deduction scheme, and payment of a one-off SME cash grant to all companies in Singapore. We summarize below the changes in fiscal and tax policy as announced in the budget:
- Key Features
1.1 No change to Corporate Tax Rate and GST Rate, Changes to Individual Tax Rate
There will be no change to the tax rate for corporate tax and GST. The corporate tax rate remains at 17% with partial tax exemption for the first S$300,000 chargeable income. GST rate will remain at 7%.
For corporate tax, a partial tax exemption is applicable to the first S$300,000 chargeable income. After deducting the partial tax exemption, the effective tax rate for the first S$300,000 chargeable income is only 8.36% for the year of assessment 2012. Qualifying newly incorporated companies will enjoy an effective tax rate of only 5.67% for the first S$300,000 chargeable income for their first 3 years of assessment after incorporation.
The corporate tax rates for the current ten years are as follows:
Year of Assessment |
Corporate
Tax Rate (%)
|
2003 |
22 |
2004 |
22 |
2005 |
20 |
2006 |
20 |
2007 |
20 |
2008 |
18 |
2009 |
18 |
2010 |
17 |
2011 |
17 |
2012 |
17 |
Individual tax rates will be revised from the YA 2012, as announced in last year budget. We append below the new individual tax rates table from the YA 2012:
| Tax Rates Table with effect from YA 2012 |
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Gross Tax Payable
($) |
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On the first |
On the next |
On the next |
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On the first |
On the next |
On the next |
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On the first |
In access of |
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1.2 The Special Employment Credit (SEC)
Effective from Jan 2012 and for a period of 5 years, employers in Singapore will be granted with the SEC if they employ Singaporean workers aged above 50 with monthly salary of less than S$4,000. A cash rebate at 8% of the monthly salary will be payable to the employers who employ Singaporean workers aged above 50 with monthly salary of up to S$3,000. A lesser amount of rebate will be given for those employees earning between S$3,000 to S$4,000. The cash rebate details are as follows:
Monthly Salary |
SEC for the month ($) |
S$500 |
S$40 |
S$1,000 |
S$80 |
S$1500 |
S$120 |
S$2,000 |
S$160 |
S$2500 |
S$200 |
S$3,000 |
S$240 |
S$3,500 |
S$120 |
Above S$4,000 |
S$0 |
1.3 SME Cash Grant for Corporate Taxpayers for YA 2012
A one-off SME cash grant will be given to corporate taxpayers for the YA 2012. The cash grant is based on 5% of the revenue for the YA 2012, capped at S$5,000. The cash grant may be set off against tax payable. To enjoy the cash grant, the company must have made CPF contribution for at least one employee during the accounting period for the YA 2012. The SME cash grant will be given to companies upon finalization of the tax assessment for the YA 2012.
1.4 Enhancement of Productivity and Innovation Credit (PIC) Scheme
The amount of cash grant under this scheme will be increased from the current 30% of the expenditure to 60% from the YA 2013 to YA 2015, subject to a cap at S$100,000 of the qualifying expenditure. The six types of qualifying activities under the PIC scheme are:
(i) R&D expenditure;
(ii) Investment in design;
(iii) Acquisition of Intellectual Property (IP) rights;
(iv) Registration of IP rights;
(v) Investment in automation and,
(vi) Training.
Certification is not required for in-house training expenditure of up to S$10,000. Besides, there are adjustments made to conditions for training of agents, R&D cost sharing and in-house software development.
1.5 Reduction in Foreign Workers Quota – Dependency Ratio Ceilings (DRC)
Following the adjustments made to foreign workers levy (FWL) introduced in last year budget, the Government will further tighten the inflow of foreign workers by reducing the DRC from 1 July 2012. The details are as follows:
(i) The DRC for manufacturing sector will be reduced from 65% to 60%;
(ii) The DRC for service sector will be reduced from 50% to 45%; and
(iii) The sub-DRC for “S” passes will be reduced from 25% to 20% for all sectors.
1.6 Changes to CPF Contribution Rates for Older Workers
With effect from 1 September 2012, the CPF contribution rates will be increased for employees aged above 50 years. The changes are summarized as follows:
CPF Contribution Rates Changes
|
New contribution rates from 1 Sep 2012
(increases from current rates are in brackets)
|
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Total |
> 50 - 55 years |
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> 55 - 60 years |
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> 60 - 65 years |
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Medical contribution for self-employed persons aged 50 and above with net annual trade income above S$18,000 will also be adjusted from 1 Jan 2013. The contribution rate will be changed from 9% to 9.5%. The contribution rate for persons aged between 45 to below 50 will remain at the current rate of 9%.
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- Tax Changes for Businesses
2.1 Withholding Tax Payment
Under the current requirement, taxpayers are required to pay withholding tax to the IRAS by the 15th day of the month following the month in which payments are made (or deemed paid) to non-tax residents. The law will be changed from 1 July 2012 and taxpayers will be given an additional month for payment of withholding tax. E.g., if fees were paid to non-resident in the month of July 2012, payment of withholding tax will be due on 15th Sep 2012, instead of 15th Aug 2012.
2.2 Enhancement of Renovation Deduction Scheme (Section 14Q)
Currently, tax deduction is allowed for expenditures incurred on renovation and refurbishment for up to S$150,000 in every three-year period. With effect from YA 2013, the amount will be increased to S$300,000 for every three-year period.
2.3 Enhancement of Merger & Acquisition (M&A) Allowance Scheme
The scheme will be enhanced to allow 200% tax deduction for M&A transaction costs for qualifying M&A, capped at S$100,000 per YA. The allowance will be written off against income in one year. The scheme will be available for qualifying M&A for the period from 17 Feb 2012 to 31 Mar 2015.
2.4 Capital Allowance (CA) for Low-Value Assets
Currently, assets with purchase cost of up to S$1,000 per qualifying item will be given 100% CA in one year. Effective from YA 2013, the amount will be increased to S$5,000 per qualifying asset item. However, the capping at $30,000 per YA remains unchanged.
2.5 Exemption on Gains from Disposal of Equity Investments
Currently, gains from disposal of equity investment may be taxable if the transaction is regarded by the IRAS as trading in nature. Effective from 1 Jun 2012, such gains from disposal of equity investment will be regarded as capital in nature and not taxable, if two conditions are met. Firstly, taxpayer must hold at least 20% of the equity in the investee company and secondly, the 20% equity must be held for at least 2 years.
2.6 Integrated Investment Allowance (IIA) Scheme
This new scheme is introduced to replace the existing integrated Industrial Capital Allowance scheme. The new scheme allows CA to taxpayer for assets used in business but placed outside Singapore. The scheme will be administered by the EDB and takes effect from YA 2013.
2.7 Modification to Double Tax Deduction (DTD) Scheme
Under current practice, taxpayers can apply to International Enterprise Singapore (IES) or Singapore Tourists Board (STB) for double tax deduction for costs incurred for overseas trade fairs or overseas business development trips. Effective from 1 April 2012, prior approval is not required for expenditure of up to S$100,000 per YA for 4 types of activities. These are overseas trade fairs, overseas business development trips, overseas investment study trips and approved local trade fairs.
2.8 Liberalization of Distribution Requirements for REITs
With effect from 1 Apr 2012, unit holders will be taxed on distribution in the form of units in the same manner as if they had received cash distribution from the REIT.
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Tax Changes for Financial Sector
3.1 Enhancement of Withholding Tax Exemption Scheme for Banks
Under the enhanced scheme, specified entities will not need to withhold tax on interest and other payments made to permanent establishments in Singapore. The scheme will cover the period from 17 Feb 2012 to 31 Mar 2021.
3.2 Extension of Withholding Tax Exemption Scheme for OTC Derivatives Payments
The current withholding tax exemption on all payments made on qualifying Over-The-Counter (OTC) financial derivatives will be extended to 31 Mar 2021.
3.3 Extension of Tax Deduction for Collective Impairment Provisions
Under current laws, banks and finance companies are allowed to claim tax deduction on collective impairment provisions. The scheme is expiring in YA 2013 or YA 2014. The scheme will be extended for another 3 years to YA 2016 or YA 2017.
3.4 Enhancement of Designated Investment and Specified Income List
The current list of specified income and the list of designated investments will be revised into an Exclusion List for various financial sector tax incentives. The changes will take effect from 17 Feb 2012.
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- Tax Changes for Maritime and Aviation Sectors
4.1 Tax Exemption on Gains from Disposal of Vessel for Qualifying Ship Operators
Effective from 1 Jun 2012, qualifying ship operators and ship lessors under the Maritime Sector Incentive (MSI) scheme will be granted tax exemption automatically for gains from disposal of vessels.
4.2 Withholding Tax Exemption on Payment of Ship Charter Fees
From 17 Feb 2012, charter fees paid to non-residents ship owner or charterer will be exempted from withholding tax. The existing withholding tax rates range from 0% for non-residents from tax treaty country to 3% for non-residents from non-tax treaty country.
4.3 Enhancement to Maritime Leasing (Container) Award
There are 3 changes made to this incentive. The changes are:
- Withholding tax exemption on interest payment on loan for purchase of containers. This takes effect from 17 Feb 2012;
- From YA 2013, income from leasing of trailer will be granted with concessionary tax rate of 5% or 10%; and
- From YA 2013, the qualifying container should adhere to standards defined by ISO, IICL or any other equivalent organization.
4.4 Extension and Enhancement to Aircraft Leasing Scheme (ALS)
The ALS will be extended to 31 Mar 2017. In addition, taxpayers awarded with the ALS will be granted withholding tax exemption on interest and qualifying payments made on or after 1 May 2012.
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- Changes to Individual Income Tax
5.1 Adjustment to Earned Income Relief for Elderly and Handicapped Workers
Earned income relief (EIR) will be adjusted for older and handicapped taxpayers from YA 2013. The EIR for taxpayers aged above 55 to 59 will be increased from S$3,000 to S$6,000 and EIR for taxpayer aged 60 and above will be increased from S$4,000 to S$8,000. EIR for handicapped taxpayers will also be increased from S$2,000 to S$4,000 (age below 55), from S$5,000 to S$10,000 (age between 55 and 59), and from S$6,000 to S$12,000 (age 60 and above).
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- Changes to Stamp Duties
6.1 Enhancement to Stamp Duty Relief for Qualifying M&A
Stamp duty relief will be extended to qualifying M&A deals completed between 17 Feb 2012 and 31 Mar 2015. The relief will be granted where:
- The acquiring company acquires shares of the target company through multiple tiers of wholly owned subsidiaries; and
- The qualifying conditions can be met by any of the multiple tiers wholly owned subsidiary company.
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- Changes to Goods and Services Tax (GST)
7.1 GST Exemption for Investment-grade Gold and Precious Metals
This new tax incentive will take effect from 1 Oct 2012. From 1 Oct 2012, supply and import of investment-grade gold, silver and platinum will be classified as GST exempt supply and free of GST.
7.2 Extension of GST Temporary Import Period
Temporary import period allows parts or articles to be brought into Singapore for repair purposes. GST and import duty will be suspended if the period of such import and re-export is less than 3 months. With effect from 1 April 2012, the temporary import period will be extended to 6 months.
7.3 Extension of GST Tourists Relief to International Cruise
The existing tourists refund system for air travelers will be extended to international cruise passengers from 1 Jan 2013.
7.4 Simplifying of GST Import Relief for Incoming Travelers
The current GST import relief for incoming travelers will be adjusted to give better relief to travelers. The relief for travelers away for more than 48 hours will be adjusted to S$600, from S$300. For travelers away for less than 48 hours, the relief will remain at S$150.
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- Other Changes
8.1 Permanent GST Vouchers Scheme
A permanent GST voucher scheme will be available for qualifying Singaporeans from 2012. There are 3 components to the GST voucher, these are:
- Cash payout. An annum amount of S$250 or S$100 will be paid to qualifying Singaporeans. Details are as follows:
GST Voucher – Cash
Assessable Income for YA 2011
|
Annual Value of Home as at 31 Dec 2011 |
|
|
< $24,000 |
$250 |
$100 |
- CPF Medisave top up. An annual medisave top up of between S$150 and S$450 will be paid into the CPF medisave account of older Singaporeans. Details are as follows:
GST Voucher – Medisave
|
Annual Value of Home as at 31 Dec 2011 |
Up to $13,000
(All HDB Flats)
|
|
65 - 74 |
$250 |
$150 |
75 - 84 |
$350 |
$250 |
> 85 |
$450 |
$350 |
- U-Save. Annual utilities rebates will be given to HDB households in the following manner:
GST Voucher – U-Save
|
Annual U-Save |
HDB 1- and 2-Room |
$260 |
HDB 3-Room |
$240 |
HDB 4-Room |
$220 |
HDB 5-Room |
$200 |
HDB Executive |
$180 |
8.2 Changes to Vehicle Tax
The following are the changes to vehicle taxes announced in the budget:
