Preparing for opportunities

E.1. We will complement our initiatives to preserve jobs and to catalyse bank lending with other measures to support business cash-flow and strengthen Singapore’s competitiveness. The tax measures and grants that we will provide, together with the Jobs Credit and substantial subsidies for training, will give companies significant support in this crisis.

E.2. What we can do is to help sound companies weather this storm and sharpen their competitiveness. What we will not be able to do however, is to save companies that are inefficient or whose products have lost relevance or appeal in the marketplace.

E.3. The speed of the decline in trade and economic activity in the last few months has understandably taken most companies by surprise. However businesses will soon have to reassess their strategies, in order to survive this crisis and to emerge in a better position. Even after the global economy recovers, markets will not return to where they were before the crisis.

E.4. The major measures we are undertaking in this Budget therefore are not aimed at preserving the status quo. How well companies are able to benefit from the Government’s support will depend on how they themselves review their business models, restructure, and put effort into improving their products and exploring new markets. As with all previous crises, there will be opportunities for the entrepreneurial and the innovative.

E.5. Many of our businesses are in fact beginning to look at new opportunities, even in the midst of recession. The emergence of the Asian middle-classes remains the big story of the next 10 to 15 years. China, India and regional economies like Vietnam are slowing down in the crisis but are widely expected to come back up. India, even today, has a booming domestic consumption market.

E.6. Our companies have the skills and the Singapore brand to help them in these rapidly growing markets. Take healthcare for example, where our Singapore players have developed a strong reputation for top quality and reliable service, across a full spectrum of healthcare. The Asian healthcare market, valued at about US$240 billion last year, is expected to grow by up to 10% this year despite the global slowdown.

E.7. AsiaMedic Limited, a locally-listed company which provides diagnostic imaging and specialist medical services, announced plans just this week to manage a diagnostic imaging centre in Abu Dhabi. Our larger players too are growing. Thomson Medical Centre (TMC) took a stake in a hospital in Vietnam last year. Likewise, Raffles Medical Group is still growing and sees a unique window of opportunity in this crisis to expand into other Asian markets.

E.8. There are examples in other sectors. Singapore’s education is expanding abroad – from pre-school to tertiary providers, and offering a range of products such as software aimed at bilingual language learning. Singapore’s fashion brands too have taken off, and are still growing in the recession. Local brand Raoul, which started out in 2002, has over 30 stores around the region and in the Middle East and is now making their presence felt in London. Others like alldressedup are seeing their creations in stores and magazine covers around the world.

E.9. We must also use this opportunity to enhance Singapore’s attractiveness to global firms. The multinationals are reassessing where they should put their investments around the world. We will give them more reasons to be in Singapore and to grow their operations here.

(i) Easing business cash-flow

E.10. I will lighten the tax burden of businesses in the coming year.

Property market measures

E.11. I will provide a 40% property tax rebate for industrial and commercial properties for 2009. This will cost the Government about $800 million.

E.12. The Government strongly urges landlords to pass on the benefits of this rebate to their tenants. Landlords should also consider further adjustments of rentals and more flexible leasing arrangements and payment terms, in light of the severe downturn in demand faced by their tenants. JTC, HDB and SLA will play their part by providing a 15% rental rebate to their tenants and land lessees, exceeding the savings due to the property tax rebate. The rental rebate will also be extended to stallholders who are paying market rents in markets and food centres managed by NEA.

E.13. IRAS will also be bringing forward its property tax assessments for 2009, in view of the change in market conditions. The assessed Annual Values of properties went up last year, in line with actual market rentals. Most property owners have therefore seen increased tax bills. IRAS’s move to accelerate assessments for this year will help property owners in addition to the savings they will be getting from the property tax rebate.

E.14. I will also defer property tax for land which is approved for development. This will help developers which intend to hold back their developments that they had originally planned. The deferral will be for up to two years from today (until 21 Jan 2011), or the TOP date of the development, whichever is earlier. (Details are in Annex C-1 ( 48kb).) This measure will cost the Government $290 million per year for 2009 and 2010.

E.15. To give further flexibility to developers to phase out their projects, the Government will allow a one-year extension of the project completion period for private residential projects. The Government will also extend the period for developers with qualifying certificates to dispose of all residential units in their developments, from two to four years, and allow developers to rent out unsold residential units during this period. In addition, we will allow the reassignment of Government sale sites and private land owned by foreign developers.

Loss carry-back

E.16. More of our businesses will make losses in the recession. To help them with their cash-flow, I will enhance the current loss carry-back relief system for this year and the next (YA2009 and YA2010). This enhanced system allows them to get a cash refund on taxes that they had paid in previous years.

E.17. I will increase the cap on losses that can be claimed against past taxable income to $200,000 from $100,000 currently. I will also allow businesses to claim losses against their preceding three years of taxable income, instead of just the immediate preceding year under the current scheme. In addition, IRAS will allow provisional claims for the tax refund to be based on estimated losses (instead of waiting for the finalisation of their chargeable income and tax assessments). This will allow businesses to obtain their refunds much earlier - by six to 18 months in most cases.

Foreign-Sourced Income Exemption

E.18. Over the years, many of our companies have internationalised their operations and earned a growing proportion of their income overseas. To help these companies, I will temporarily expand the scope of the Foreign-Sourced Income Exemption scheme which was introduced in 2003 to cover all foreign-sourced income. I will also temporarily lift the conditions that are currently required for foreign- sourced income to be exempted from tax when remitted to Singapore. With these temporary changes, they will be able to make the best use of all their sources of funds to meet business financing needs in Singapore at this time of credit tightness. All foreign incomes which have been earned before today will be exempted from tax when they are remitted, with immediate effect for one year.

Transport-related taxes

E.19. To provide further help to businesses on their cash-flow, I will grant rebates and concessions on transport-related taxes and fees.

E.20. First, a 30% road tax rebate for goods vehicles, buses and taxis for one year. The rebate will take effect on 1 July 2009 and will yield savings of about $40 million for businesses. In addition, I will waive the special (diesel) tax for un-hired taxis for one year which will yield savings of about $6 million. MOT will work with the taxi operators and the taxi operator associations to have the savings passed on to taxi drivers.

E.21. Second, I will extend the special tax exemption for CNG (Compressed Natural Gas) vehicles for two years till 31 December 2011. However, from January 2012, a CNG unit duty will be introduced at $0.20 per kg. With this further two-year extension of tax exemption, CNG vehicle owners would have time to adjust to the changes. The CNG duty rate of $0.20 per kg will be significantly below the equivalent duty that we currently levy on petrol⁵ . We will study the appropriate long-term CNG duty rate, which should be benchmarked against the prevailing petrol duty rate, taking into account the relative impact that these two fuels have on the environment. (The measures are summarized in the Annex C-1 ( 48kb).)

E.22. Third, a 20% concession in port dues will be granted to all harbour craft engaged in commercial activities. This will help to lower the business cost of port service providers. This is in addition to the increased rebates on aircraft landing fees which were announced in December. (Details are in Annex C-2 ( 25kb).)

Further extension of the government fee freeze

E.23. As a further short-term measure to help businesses, the Government will freeze government fees and charges with immediate effect, to the end of 2009. Like the fee freeze in 2008, it will be applied to all government-provided services (including all license fees).

(ii) Sharpening competitiveness and capabilities for innovation

Reducing taxes to encourage investments

E.24. The Resilience Package will provide further incentive for both local and foreign businesses to strengthen their operations here and make investments for the future.

E.25. More companies are expected to shift to Asia where markets are expected to grow most rapidly. We will do more to anchor them in Singapore, investing in high-value production operations as well as coordinating their base of Asian activities from here. By lowering taxes and providing added incentives for them to invest in human capital and infrastructure, we will ensure that Singapore remains a compelling destination.

Singapore still preferred location for MNCs

E.26. 2009 is going to be a challenging year for attracting foreign investments. Globally, investments are down. However, EDB is confident of bringing in more than $10 billion dollars of new Fixed Asset Investments (FAI).

E.27. Many of the large global companies are in fact continuing to grow their investments in Singapore in the downturn. Rolls-Royce is an example. They are a world-leading supplier of power systems and are actively engaged in our aerospace, energy and marine industries. Rolls-Royce, which already has 1,300 employees in Singapore, intends to continue recruiting in 2009. It is also broadening the depth and range of both its operations and R&D work in Singapore.

E.28. Likewise for Procter and Gamble (P&G). They have a regional HQ and R&D operations in Singapore, and also their first Asian perfume plant. P&G expects continued growth in their business in Asia and is not letting up on recruitment in Singapore this year. Although nothing is recession proof, P&G calls its products “recession resistant” - people still want to look good in bad times.

CIT cut from 18% to 17% for YA2010

E.29. We will take a further step to sharpen our competitiveness. I have decided this year to reduce the corporate income tax from 18% to 17% effective from YA2010. This will cost us $400 million to $500 million a year over the medium term.

E.30. It is a signal of the Government’s continued and future commitment to being the best hub for enterprises, small and large, from all over the world. In particular, together with the changes we have made to the Partial Tax Exemption scheme over the last two years, our effective corporate tax rates are now lower than in any competing destination for small and medium-sized enterprises.

Encouraging investment in equipment and business renovation

E.31. I will complement this cut in corporate taxes with an accelerated capital allowance regime to encourage investments.

E.32. Currently, businesses can write down the costs incurred for acquisition of plant and machinery on a 3-year straight-line basis. I will grant an accelerated capital allowance for equipment acquired this year as well as in 2010. Such investments can be written down within two years with 75% of the write-down taking place in the first year.

E.33. Many of our service sector establishments also intend to use the period of the downturn to refit their business premises, in preparation for the recovery. I will accelerate the writing down of renovation and refurbishment expenses to help these businesses. They will be allowed to write down these expenses fully within one year, from the current three years. This concession likewise applies to expenses incurred this year and the next. (Claimable in YA2010 and YA2011)

Simplify our tax framework for corporate amalgamations

E.34. Downturns are typically a time of opportunity for companies to merge, acquire or restructure. We will simplify our tax framework to make it easier for companies to restructure and rationalise. This will significantly lower the tax burden when a company acquires another and takes over all its assets and liabilities.

Fund management

E.35. The fund management business has contracted over the last year. But it is a matter of time before it recovers - especially in Asia where wealth will be on an upward trajectory over the next 15 to 20 years. I will significantly enhance our tax incentives for fund management to reinforce our position as a leading Asian hub in the business. The current incentives inadvertently discourage resident corporates from having their funds managed from Singapore, as there are limits placed on their holdings in the incentivised funds. We will now remove all these limits on qualifying funds so that they can accept investments freely from resident corporates, in addition to resident individuals. This will allow our resident corporates to enjoy the full benefits of tax exemption on qualifying income derived by the funds.

E.36. I will also simplify the rules for recovering input GST for the fund management industry. Further, I will make enhancements to the Financial Sector Incentive – Headquarters Services scheme and the Commodity Derivatives Traders scheme. (Details of the tax changes to promote the financial sector are in the Annex C-1 ( 48kb).)

Maintenance, Repair and Overhaul (MRO)

E.37. Singapore is one of the largest and most comprehensive Maintenance, Repair and Overhaul (MRO) hubs in the Asia-Pacific. We account for a quarter of the total MRO market in Asia. To further enhance our competitiveness, I will expand the scope of GST zero-rating for the industry, and help facilitate the import of qualifying aircraft components and systems. (Details of the tax changes are in Annex C-1 ( 48kb).)

Auction, exhibition and wine-trading

E.38. To encourage the growth of the auction and exhibition industry, for example in art and collectibles, as well as wine trading activities, I will suspend duty and GST on goods temporarily removed from Zero-GST or licensed warehouses for auctions or exhibitions. (These and other related measures are summarised in Annex C-1 ( 48kb).)

Making innovation pervasive

E.39. Besides tax competitiveness, we are moving ahead in developing our companies’ capabilities for innovation and R&D. Innovation has to be pervasive in our economy and through good times and bad.

E.40. We have established a good foundation. Just recently, INSEAD ranked Singapore as Asia’s most innovative economy and fifth in the world in its new Global Innovation Index. We rate well on our legal and regulatory framework relating to intellectual property and ICT, and ease of starting businesses. But we have a lot of catching up to do in other respects, especially in securing competitiveness through unique and innovative products amongst our enterprises.

E.41. We see it growing. There are more start-ups and smaller players who are making their mark by bringing innovative ideas to the market. Take local start-up Gothere.sg for example. It was started by four Singaporeans in their twenties in April last year, who felt that there was a need to do more to help people make sense of the whole range of transport options in any part of the island and at a glance - the quickest and cheapest way to get from A to B. They wanted to provide far more detail than what Google maps have. So they developed their own maps for Singaporeans – they drove through every single road on our island to do this – complete with information on bus routes, train routes and ERP charges at different times of the day. Gothere.sg is getting more than 15,000 hits daily and is currently collaborating with the LTA to develop a user-friendly travel advisory for public transport journeys.

E.42. In the last Budget, we put in place substantially enhanced tax incentives for innovation and R&D, which makes Singapore one of the most competitive locations in Asia for corporate R&D and especially for small enterprises. So a small company, around the 80th percentile of tax-paying companies, and which would be paying an effective tax rate of around 9%, would find its taxes reduced to zero if it spends an additional $150,000 on R&D.

E.43. We are complementing these tax incentives with a range of grants in this Budget to develop new capabilities and spur innovation amongst our enterprises. In total we will commit $900 million in the next few years towards this effort.

Capability development

E.44. We will spend $130 million to enhance our grants and training schemes to encourage enterprises across various sectors to refresh and develop new capabilities so as to capture growth opportunities in the recovery. The Government will take a greater share of costs under SPRING’s existing capability development schemes and IE Singapore's internationalisation schemes. We will also widen the scope of activities that qualify for grants. Further details will be announced at MTI’s COS.

E.45. We will add $45 million to the Maritime Cluster Fund (MCF) to support new projects that build business and manpower capabilities in the industry.

E.46. We will expand support for the media and digital entertainment industry where opportunities are growing rapidly. We will set up the $230 million Singapore Media Fusion (SMF) fund to provide grants to help local enterprises export content, applications and services to the world, as well as to build up a world-class media talent base. This will complement our plans to develop Mediapolis at One-North, which will help position Singapore as a leading media hub in Asia.

E.47. Singapore is an emerging hub for firms in the interactive digital media arena. Two weeks ago for example, gaming peripherals company Razer launched the Razer Mamba, using advanced proprietary technologies developed out of Singapore. Selling for USD$130 – it’s not your everyday mouse. It is the fastest gaming mouse in the world.

E.48. To encourage the media and digital entertainment businesses to exploit intellectual property (IP) from Singapore, I will allow them to write down the cost of acquiring qualifying IP rights in two years instead of five years currently.

Test-bedding ideas

E.49. We will also do more to encourage test-bedding of new ideas. We will put $200 million in a Test-Bedding Fund to make Singapore a “living lab” for companies and entrepreneurs to nurture new ideas, test innovative solutions and develop future global businesses. The first wave of test-bedding will be based on areas where we have key strengths such as urban planning and traffic management, water management and lifestyle products and services. EDB and other agencies will invite and support private sector players to test, develop and implement new solutions in Singapore before exporting them elsewhere.

E.50. Last year, we set up a Core Innovation Fund (CIF) to help private companies collaborate directly with government agencies to develop innovative solutions for public services. We will set aside $180 million in the CIF over the next two years. In addition, the Government will take a more proactive approach in seeking collaboration with the private sector, through the use of Calls for Collaboration (CFC). This will bring clusters of companies together to develop solutions for government agencies, businesses and the public.

E.51. Finally, in addition to these sums that we will spend in promoting enterprise innovation, we will continue to expand R&D funding for our universities and research institutes this year. I will also top up the National Research Fund by $400 million this year to support Singapore’s continuing push forward in R&D.

Sharpening business capabilities

E.52. We are providing significant support in this Budget to help companies with their cash-flow in the current difficult economic situation and to encourage them to preserve jobs as far as possible. We are providing strong incentives for those who want to take the opportunity now to make investments or refurbishments in preparation for the upturn. We are also taking a further step to reduce corporate taxes to complement all our efforts to encourage enterprise and draw companies to Singapore in the coming years. At the same time, we are making a further push on innovation and R&D for enterprises small and large.

E.53. Together, our efforts will sharpen our business and workforce capabilities across the board and help us emerge stronger in the recovery.

E.54. Mr Speaker, with your permission I will continue later on with the measures we will implement to support Singaporean families in this downturn, and to strengthen our investments in both the social and economic infrastructure we need for our future.

⁵ The CNG rate equivalent to $0.41 per litre of petrol would have been $0.53 per kg.

STIMULATING BANK LENDING

SUPPORTING FAMILIES