subpage banner

Media Articles

Steering Through Tough Times With Long and Short-Term Measures

01 Nov 2016

By Russell Aubrey, Sandie Wun

THE global economic slowdown continues to cast gloom on the outlook for many countries. Singapore, by virtue of its open trade economy, is not spared from the volatility ahead. How prepared are companies in bracing for a protracted slow growth environment, and how much government intervention might we see going ahead?

Almost two decades ago during the Asian Financial Crisis, the Singapore government had adopted a cautious wait-and-see approach in the 1998 Budget. Subsequently, off-Budget measures worth some S$2 billion were injected to help reduce business costs and stimulate the economy.

Further calibration was done in November with a S$10.5 billion cost-cutting package. Various short-term once-off measures were introduced, including flexing tax policies to provide rebates on property tax and corporate income tax. CPF contributions were reduced along with tough decisions to cut wages of Singapore civil servants.

In 2001, the Singapore economy was hit again with the slowdown in the US. Then, the government had continued to use off-Budget measures such as tax rebates to cushion the impact on businesses.

However, longer-term measures were added to the mix. Structural reforms such as reskilling and retraining programmes were introduced. There were also concerted efforts to drive the twin engines of manufacturing and services even harder by moving our capacities and capabilities up the value chain.

By the time the next cyclical turbulence hit in 2008, Singapore was in a better position to cope. Still, Budget 2009 was brought forward to January to respond decisively to the global downturn. A S$20.5 billion Resilience Package was introduced, with investments in education and training to help Singapore workers upgrade themselves for longer-term workforce resilience.

Through the various economic cycles, Singapore's tax policies have been instrumental in steering businesses through challenges.

For example, in tax year 2003, the group relief system was introduced to allow Singapore groups of companies to be treated as a single entity for the purpose of utilising each other's current year unabsorbed trade losses, capital allowances and donations. This provided cash flow relief for Singapore groups, particularly during downturns.

That same year, the new Foreign Sourced Income Exemption scheme offered Singapore resident corporate taxpayers tax exemption on specified foreign income received in the country. The conditions under this exemption were temporarily liberalised in 2009 to reduce the costs of businesses in repatriating offshore funds during the credit crunch then.

To help small businesses cope with cash flow issues, a carry-back relief system was introduced from tax year 2006, where companies could carry back qualifying deductions capped to S$100,000, among other conditions.

Temporary enhancements were made in the tax years 2009 and 2010, including doubling the carry-back cap and extending the one-year carry back to three years. This was a much welcomed enhancement during the downturn, where taxes had to be paid for profits made in the preceding years of economic growth.

Then in 2010, in what could have been hailed as a "disruption" in tax policy, the government set aside a significant budget for the Productivity and Innovation Credit Scheme to encourage the proliferation of productivity and innovation activities, along with subsequent measures to lower businesses' reliance on foreign labour.


Over the years, Singapore has cemented a strong economic structural foundation. As we move into a lower-for-longer growth scenario, there are ways that businesses could be offered a helping hand.

From a broad perspective, long-term measures need to be coupled with immediate measures to address areas where the economy appears to be contracting faster than the positive effects of the long-term measures.

Off-Budget measures that had proved to be successful, such as rental and property tax rebates, GST cash vouchers as well as foreign work levy reductions, could be re-introduced to help businesses retain employees and manage costs.

The government can also consider temporary or permanent enhancements to relevant tax legislation to defray tax costs. The loss carryback scheme is an example. This scheme benefits companies that were once profitable (and therefore tax-paying) but have become loss-making as the economy slows down. This would provide focused assistance compared to a broadbased cash rebate, notwithstanding that the conditions of the current scheme is limited and can be sharpened.

At the same time, the country needs to stay focused on promoting the growth sectors of the future and so financial assistance for startups or for the creation of hubs in specific sectors such as fintech and medtech could be introduced.

With slow growth and low valuations, mergers and acquisitions (M&A) activities and internal reorganisations with the intention to restructure and improve business performance can be expected. Relaxing the conditions for a waiver of stamp duty and M&A allowance claims, and allowing tax deduction on borrowing costs will be helpful in reducing transaction costs.

The government can also consider a paradigmatic shift to collect tax from a precedent to current year basis. This can potentially translate to a deferral or a waiver of taxes collected in the transition year. Among other considerations, the impact to the national coffers need to be weighed against the benefits to businesses and individuals in a year where these funds could be more productively utilised.

Last but not least, it is important that any tax policies introduced in alignment with the Base Erosion and Profit Shifting project be relatively free of complexity to minimise unnecessary resources expended by taxpayers in areas such as reporting.

The themes of past year Budgets that centred on seizing opportunities and building resilience worked as invisible hands in strengthening Singapore. These remain relevant today; the critical difference is that with the pace of change that we are seeing today, more needs to be done - and with even greater courage and confidence.

•Russell Aubrey is partner, tax services, and Sandie Wun, partner, transaction tax, at Ernst & Young Solutions LLP.

The views here are the writers' and do not necessarily reflect the views of the global EY organisation or its member firms.

Source: The Business Times © Singapore Press Holdings Limited. Permission required for reproduction.