Government to spend $520m for businesses to enjoy lower tax

Singapore businesses will be allowed to deduct 400% of their expenditures from their taxable income.

According to Budget 2011 delivered by Finance Minister Tharman Shanmugaratnam, the government will allow businesses to deduct from their taxable income 400% of their expenditures in any of the broad categories of investment under the PIC scheme. This is up from the 250% tax deduction introduced last year. The government will also raise the cap for such claims for each category of investment from $300,000 to $400,000 of expenditure. As before, businesses can undertake any number of investments in a year, in the six categories.

Finance Minister Shanmugaratnam said, "I will also enhance the current cash payout option under the scheme, which was introduced last year to benefit SMEs who pay little or no taxes currently, but wish to invest in productivity and grow. I will allow businesses to opt for a cash payout of up to $30,000 for the first $100,000 of their investments, in lieu of tax deductions. This is an increase from the maximum grant of $21,000 that a business can currently get under the PIC."

"I will also introduce other changes to make it easier for businesses to make full use of the PIC scheme. First, to help SMEs benefit from the PIC scheme, last year I had allowed businesses to combine their annual expenditure caps for YA 2011 and YA 2012. I will now extend this principle, so that businesses can combine their annual expenditure caps for the following three years, from YA 2013 to YA 2015. It will help an SME that is planning a large investment in any one year to benefit from the full 400% tax deduction," he adds.

The government will now also allow businesses to enjoy PIC benefits on expenditure for the R&D done abroad.

For the companies that are investing in productivity improvements, it effectively amounts to a significant cut in the corporate taxes that they would pay. Take for example a medium-sized company with annual turnover of about $5 million and net profit of $200,000, and which invests $40,000 in productivity. The generous tax deductions under the PIC would reduce the company’s tax burden by some 60%, from 8% to 3% as a percentage of its net profits.