Budget 2011 takes Singapore a step closer to becoming a global Asia hub: KPMG

Up to $400,000 of business spending on each qualifying activity qualifies for a maximum tax deduction of $1,600,000 or $272,000 of tax savings per activity.

The measures bring to life the strategies that will position Singapore as a gateway to Asia while enhancing its attractiveness as a regional hub for MNCs, says KPMG.

At the same time, local enterprise has not been forgotten. The Budget has identified measures encouraging the growth of promising local enterprises, empowering them to respond quickly to new global opportunities.

The enhanced PIC scheme has become an important carrot for all enterprises, both big and small, to spur their efforts to improve productivity and pursue pervasive innovation. Up to $400,000 of business spending on each qualifying activity qualifies for a maximum tax deduction of $1,600,000 ($400,000 x 400% tax deduction or allowance), or $272,000 of tax savings (based on prevailing corporate income tax rate of 17%), per activity. In order words, the Government effectively funds up to about two-thirds of the value of the qualifying investments.

Businesses can take advantage of the enhanced PIC scheme as a powerful tool to reap tax savings. Businesses which pay little or no tax can also benefit from the increased cash payout of up to $30,000 per YA, in lieu of tax deductions or allowances. Further, the liberalisation of the combined annual expenditure caps will help a business that is planning a large investment in any one year to maximise their benefit from the full 400% tax deduction or allowance.

There is something to cheer for innovative businesses which have lobbied for R&D tax concessions to be extended to R&D done abroad, especially when there is lack of expertise or facility for R&D to be done in Singapore. The R&D definition in the tax legislation is intended to encompass a broad range of innovative activities undertaken by businesses, big and small, in all industries, and not intended just for breakthrough or high technology R&D.

Therefore, it is worth putting in some effort to identify R&D projects, as expenditure beyond $400,000 may still qualify for 150% tax deduction. 

Businesses should consider appropriate measures to tap on the significant enhancements to the PIC scheme by identifying eligible activities and projects, recording the qualifying expenditure and maintaining necessary documentation to support the PIC claims as part of tax filing.

Overall, the Government has indeed responded swiftly to industry feedback by liberalising the PIC scheme both on the quantum of tax benefits as well as the scope of coverage. This generous measure, coupled with the proposed top up of its investment in the National Productivity Fund and the National Research Fund of $1 billion each, will deliver long term economic benefits for Singapore, against a backdrop of inflation and rising wage costs.  

Click here to read the full report.