Singapore Budget 2016
Executive Summary

Finance Minister Heng Swee Keat delivered his maiden budget speech on 24 March 2016 for the fiscal year April 2016 / March 2017. This is the first budget for the government after the general election last year and it sets the direction of the new government to embark on the next “SG50”. The priorities of the government are to grow our economy and invest collectively for the long term, especially in our people, our home and our security.     

The changes announced in the budget include the increase of corporate tax rebate from 30% to 50% of the tax payable for the YA 2016 and 2017, capped at maximum of S$20,000 per tax year. The Productivity and Innovation Credit (“PIC”) which was introduced in YA 2011, will lapse after YA 2018. The PIC cash payout will be reduced to 40% of the qualifying cost effective from 1 August 2016. Other changes include the capping of maximum personal relief to S$80,000 per taxpayer for personal income tax from YA 2018. The government also introduced industry transformation program to help our industry and commerce in tackling the challenges faced in the ever changing world economy. The budget also sets aside funds to encourage parenthood and building a caring society. One of the many schemes introduced in the budget is the “Silver Support Scheme” which provides financial support to qualifying seniors aged 65 and above.                   

We summarize below the tax changes announced in budget 2016:

Key Features

1.1 No change to Corporate Tax Rate and GST 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. The tax rate of 17% has been introduced since the year of assessment 2010 and remained competitive compared to other jurisdictions in the Asia Pacific region. GST rate remains 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 2016. 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 (%)

2007

20

2008

18

2009

18

2010

17

2011

17

2012

17

2013

17

2014

17

2015

17

2016

17



For comparison, we append below corporate tax rates for selected jurisdictions:
 

Jurisdiction

Corporate

Tax Rate (%)

Hong Kong

16.5

Taiwan

17

Thailand

20

South Korea

22

Indonesia

25

Malaysia

25

Vietnam

22

China

25

The Philippines

30

India

30

Japan

23.9


1.2 Capping of Personal Tax Relief from YA 2018

The government has introduced a new capping on claiming of personal tax relief from the YA 2018 for all resident individual taxpayers. The total amount of personal relief available to resident individual taxpayers will be capped at S$80,000. 

1.3 Tax Rebate for Corporate Taxpayers for YA 2016 and YA 2017

Tax rebate will be increased from 30% to 50% of the tax payable for the YA 2016 and 2017, but the maximum tax rebate is capped at S$20,000 per tax year.

1.4 Changes made to the Productivity and Innovation Credit (PIC) Scheme

The PIC scheme will lapse after YA 2018. Hence, financial year 2017 will be the last year that businesses can enjoy the tax benefits under the scheme. The PIC cash payout given by the Inland Revenue Authority of Singapore (IRAS) will also be reduced from the current payout rate of 60% of the qualifying cost to 40% from 1 August 2016. 

2. Tax Changes for Businesses

2.1 Compulsory E-filing of Corporate Tax Return

All corporate tax returns will be e-filed in future. The government has decided to implement the compulsory e-filing of corporate tax returns in the following stages:

- From YA 2018 – All companies with turnover of more than S$10 million in YA 2017;

- From YA 2019 – All companies with turnover of more than S$1 million in YA 2017; and

- From YA 2020 – All companies. 

2.2 Double Tax Deduction (DTD) for Internationalization Scheme

DTD allows qualifying companies to claim double the amount of cost incurred on overseas marketing expenses. The scheme has been in force for some years and the government has decided to extend the scheme for another 4 years from 1 April 2016 to 31 March 2020. All other conditions for the DTD remain unchanged.     

2.3 Compulsory E-filing of PIC Cash Payout Application

Under the PIC cash payout scheme, taxpayers can claim for cash payout from the IRAS for cost incurred in the purchase of qualifying equipment or training of staff. From 1 August 2016, all applications are to be made to IRAS under the e-filing platform of the IRAS website.    

2.4 Automation Support Package

A new scheme will be introduced to grant 100% investment allowance (IA) to qualifying capital cost incurred on automation projects. The IA is given in addition to the usual capital allowance available for purchase of plant and machinery. The amount of IA available will be capped at S$10 million per automation project. 
 
2.5 Enhancement of the Mergers and Acquisition (M&A) Scheme

The following enhancements will be effective from 1 April 2016 to 31 March 2020:

- The cap for qualifying cost will be increased from the current S$20 million to S$40 million per YA; and

- The cap for Stamp Duty relief will also be raised from S$20 million to S$40 million.

2.6 Certainty on Capital Gain under Section 13Z

The above scheme was introduced to provide certainty on non-taxability of capital gain from corporate re-structuring. The scheme will be extended to 31 May 2022 to provide upfront certainty on exemption from disposal of equity investment. All other conditions remain the same.  

2.7 Enhancing the Land Intensifying Allowance (LIA) Scheme

The LIA replaced the old Industrial Building Allowance (IBA) in granting tax allowance on qualifying cost incurred in construction and acquisition of industrial buildings. The criteria for LIA are generally stringent and the scheme is only available upon application and approval granted by the Economic Development Board (EDB). The following 2 amendments are made to the scheme for application made from 25 March 2016:

- The scheme will be extended to users or multiple users who are related, and for one or multiple qualifying trades; and

- The applicant of LIA must be related to the qualifying user or users.        

2.8 Revision to the Writing Down Allowance for Intellectual Property Rights (IPRs)

The current scheme allows owners of IPRs to write down the qualifying costs against taxable income in 5 years. The scheme which is provided under Section 19B will be revised to provide options of 5, 10 or 15 years period for taxpayers to claim the allowance. The election is non revocable once elected and the new scheme is available to taxpayers from YA 2017 to 2020. 
 
2.9 Anti-Avoidance Measures for the Section 19B Allowance

To prevent abuse of the allowance, the following measures will be introduced to the scheme:

- If the transfer price of the IPR is higher than Open Market Value (OMV), the Comptroller of Income Tax (Comptroller) can limit the qualifying cost of acquisition of IPR to the OMV and allow tax allowance based on the OMV substituted; and

- If the transfer price is lower than the OMV, the Comptroller can also use the OMV to compute the balancing adjustment due to the seller of the IPR.

2.10 Business and IPC Partnership

Under this new scheme, businesses can partner with the Institutes of Public Character (IPCs) to provide support services to the IPCs. Subject to the acceptance of the IPCs, the qualifying business can claim 250% tax deduction on its payroll and incidental expenses for secondment of their employees to the IPCs to perform volunteer works. The tax deduction is capped at S$250,000 per tax year and will be available from 1 July 2016 to 31 December 2018.

2.11 Allocation of Pre-Commencement Expenses

Under current treatment, pre-commencement expenses are not allocated to pre-tax incentive period if business is granted with tax incentive. This treatment has been adjusted to a fairer basis. Section 14U will be amended to allow allocation of pre-commencement expenses to both pre-incentive and incentive period. The new treatment takes effect from 25 March 2016.

2.12 Extending the Tax Incentive for Not-For-Profit Organizations (NPOs)

All NPOs are currently exempt from tax under Section 13U. The tax incentive will be extended to 31 March 2022.   
 
2.13 Withdrawal of Approved Investment Company Scheme under Section 10A

The current scheme is assessed to be no longer relevant and will be withdrawn from YA 2018.

2.14 Withdrawal of Tax Exemption for Non-Residents for Consignment Trading

The current scheme is assessed to be no longer relevant and will be withdrawn from YA 2018.

3. Tax Changes for Financial Sector

3.1 Extending and Enhancing Finance and Treasury Centre (FTC) Scheme

Under current treatment, approved financial institutions are granted with concessionary tax rate of 10% on qualifying income. Changes are proposed to be made to the following:

- The concessionary tax rate will be reduced to 8%. However, more qualifying criteria will be added;

- FTCs are allowed to obtain funds from approved offices and associated companies, subject to check on round-tripping of funds; and

- Tax exemption under Section 13(4) will be expanded to include interest payment to the non-resident offices and associated companies.

The above changes will take effect from 25 March 2016.   
 
3.2 Tax Incentive for Trustee Companies

The current tax incentive for trustee companies will be subsumed under the Financial Sector Incentive (FSI) scheme from 1 April 2016. Under the revised scheme, qualifying trustee company can enjoy a concessionary tax rate of 12% on approved trustee income.

3.3 Enhancing the Global Trader Program (Structured Commodity Finance) (“GTP(SCF)”)

The current scheme will be enhanced from 25 March 2016 to include the following qualifying activities:

- Consolidation, management and distribution of funds for designated investments;

- Merger and acquisitions advisory services; and

- Steaming financing.

4. Tax Changes for Insurance and Maritime Sectors

4.1 Tax Incentive for Marine Hull and Liability Insurance

The current scheme grants tax exemption or concessionary tax rate at 5% will expire on 31 March 2016. The scheme will be subsumed under the Insurance Business Development (IBD) scheme from 1 April 2016. Under the renewed scheme, concessionary tax rate of 10% will be granted to qualifying marine hull and liability insurance business.

4.2 Specialized Insurance Business and Captive Insurance Incentives

Changes are proposed to be made to the above incentives from 1 September 2016 and 1 April 2018, respectively. A concessionary tax rate of 8% will be introduced for specialized insurance from 1 September 2019. An interim rate of 10% will be applicable for the period from 1 September 2016 to 31 August 2019. For captive insurance, a concessionary tax rate of 10% will apply to new and renew awards from 1 April 2018.     

4.3 Maritime Sector Incentive (MSI)

Currently, there are 3 incentives for ship owners and operators, namely, the Singapore Registered Ships (SRS) scheme, Approved International Shipping (AIS) Enterprise scheme and MSI-Leasing Award scheme. The scope of the qualifying activity for the schemes will be expanded to include income from operation and leasing of ships for exploration of offshore energy, offshore minerals and ancillary activities. For incentive on leasing of ships for qualifying activities, the ships must be used outside the port limit of Singapore. Changes to the incentive take effect from 25 March 2016.    

5. Goods and Services Tax (GST)

5.1 There were no changes proposed for GST in budget 2016.
 
6. Changes to Individual Income Tax

6.1 Changes to Personal Income Tax Rates from the YA 2017

The changes to personal income tax rates were announced in budget 2015. We append below tax rate table up to YA 2016 and the new tax rate table from the YA 2017:


Current tax structure

 

Tax structure with effect from Year of Assessment (“YA”) 2017

 

Chargeable Income

 

 ($)

Tax Rate

 

(%)

Gross Tax Payable ($)

 

 

Chargeable Income

 

 ($)

Tax Rate

 

(%)

Gross Tax Payable ($)

On the first

On the next

20,000

10,000

0

2

0

200

 

On the first

On the next

20,000

10,000

0

2

0

200

On the first

On the next

30,000

10,000

-

3.5

200

350

 

On the first

On the next

30,000

10,000

-

3.5

200

350

On the first

On the next

40,000

40.000

-

7

550

2,800

 

On the first

On the next

40,000

40.000

-

7

550

2,800

On the first

On the next

80,000

40,000

-

11.5

3,350

4,600

 

On the first

On the next

80,000

40,000

-

11.5

3,350

4,600

On the first

On the next

120,000

40,000

-

15

7,950

6,000

 

On the first

On the next

120,000

40,000

-

15

7,950

6,000

On the first

On the next

160,000

40,000

-

17

13,950

6,800

 

On the first

On the next

160,000

40,000

-

18

13,950

7,200

On the first

On the next

200,000

120,000

-

18

20,750

21,600

 

On the first

On the next

200,000

40,000

-

19

21,150

7,600

On the first

In excess of

320,000

320,000

-

20

42,350

 

On the first

On the next

240,000

40,000

-

19.5

28,750

7,800

 

 

 

 

 

On the first

On the next

280,000

40,000

-

20

36,550

8,000

 

 

 

 

 

On the first

In excess of

320,000

320,000

-

22

44,550

 


6.2 Personal Income Tax Rebate

No tax rebate was announced in the budget for personal income tax for YA 2016.

6.3 Removal of Concession for Leave Passage

The current concessionary tax treatment of assessing only 20% of the value of one home passage for expatriate employee will be removed from YA 2018.

7. Changes to Central Provident Fund (CPF) Policy

7.1 Silver Support Scheme

Eligible Singapore citizens aged 65 and above will receive quarterly payments as follows:

Live in

Payout per quarter

1- and 2- room HDB

$750

3-Room HDB

$600

4-Room HDB

$450

5-Room HDB

$300


The first payment under the scheme will be made in July 2016.

7.2 Workfare Income Supplement (WIS) Scheme

The income qualifying ceiling will be raised from the current S$1,900 monthly to S$2,000 and payment will be made to qualifying recipients on a monthly basis. All changes will be effective from 1 January 2017.

7.3 Increase in Medisave Withdrawal Limit for Pre-Delivery Expenses

The daily withdrawal limit will be increased from the current S$450 to S$900 from 24 March 2016.

7.4 Extension of Special Employment Credit (SEC)

Under the current scheme, employers who hired Singaporean employees aged 55 and above receive wage offset under the SEC. The scheme will be tiered into 3 age groups with wage offset ranging from 3% for the youngest group (aged 55+) to 8% for the oldest group (aged 65+). Payments will be made semiannually for 3 years from January 2017 to December 2019.  

8. Other Changes

8.1 Adjustment to Work Permit Holders Levies

The following adjustments are proposed in budget 2016:

- The proposed increase in levy for work permit holders for Marine and Process sectors will be deferred from July 2016 until further notice;

- However, the proposed increase in levy for Construction and Services sectors will proceed from July 2016 as announced previously; and

- Levy for “S” Pass holders will also increase from July 2016 as announced previously.

8.2 GST Voucher (GSTV) – Cash and Medisave, U-Save and S&CC Rebate

All eligible citizens will receive the regular GSTV and a one-off GSTV cash payment ranging from S$250 to S$500 in August 2016 and November 2016. In addition, eligible senior citizens aged 65 and above will receive GSTV medisave and U-save payments in 2016. Eligible households in HDB flats will receive Service and Conservancy Charges (S&CC) rebate ranging from 1 to 3 months in 2016.

9. Year of Assessment 2016 tax filing due dates

We wish to take this opportunity to remind our clients of the tax filing due dates for the Year of Assessment 2016:

Personal Tax                filing due on 18 April 2016 (By e-filing)              

Partnerships, Clubs,        filing due on 15 April 2016

Associations and Management Corporations

Corporate Tax                filing due on 30 November 201


Mr Chng Chung Hing
Tax Director
Accredited Tax Advisor
Loke Lum Tax Advisory Pte Ltd

Compiled on 28th March 2016

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