Speech By Mrs Lim Hwee Hua, Senior Minister Of State For Transport And Finance, At The Asia Pacific Tax Summit 2008, Thursday 20 November 2008 At The Ritz Carlton Millenia20 Nov 2008
Ladies and gentlemen, Good morning.
It gives me great pleasure to join you this morning at the Asia Pacific Tax Summit. This year's Summit is held in a challenging economic climate. Global economic conditions have taken a turn for the worse in the past few months. Stock markets are down. Some banks are retrenching. Even as we try to cope with the current economic downturn, it is important that we cast our sight on the longer term horizon to see how we can stay competitive for the long haul.
Creating Value By Embracing and Catalysing Innovation
2. With lower cost countries like China and India progressing up the skills and technology ladder, the only way that Singapore can retain a competitive edge is for us to become more innovative. Singapore has what it takes to be an innovative city. As a nation, we have an educated workforce, with a good foundation in science and technology. We are an international business and financial hub, where ideas, people and funds flow. We also have a strong base of multinational companies (MNCs), as well as an increasingly vibrant small and medium enterprises (SME) sector.
Building A Strong Innovation and Enterprise System
3. In the past, we focused mainly on Knowledge Creation by building up the R&D capacity of our universities and Research Institutions (RIs). Going forward, we will step up our efforts to encourage the translation of knowledge and inventions into innovations that will benefit society. This is how we intend to build up a strong innovation and enterprise system, through Knowledge Creation, Diffusion and Usage.
Knowledge Creation: Knowledge Generation and Capability Development
4. First, Knowledge Creation. Based on A*STAR's preliminary 2007 National Survey of Research & Development results, our R&D expenditure has hit an unprecedented $6.3 billion in 2007. The number of Researchers, Scientists and Engineers (RSEs) has grown from 16,000 in 2000 to 27,000 in 2007. Building on this momentum, $13.6 billion of public funding has been set aside for 2006 to 2010 to promote R&D activities, so that together with the private sector, our annual national research spending will reach 3% of GDP by 2010.
5. Our Universities, RIs and Polytechnics play an important role in knowledge creation and capability development. These R&D performing organizations are not only our main source of knowledge generation, but are also the training grounds for future entrepreneurs and knowledge workers.
Knowledge Diffusion: Building Bridges between Research Players and Industry
6. Innovation involves putting knowledge into use, which is the second part on Knowledge Diffusion. Universities, Polytechnics and RIs play a key role in diffusing knowledge and translating technology into applicable forms that companies can use. We have stepped up efforts to enhance the collaborations and synergies between the research players and businesses.
7. For example, the polytechnics have deepened their links with industries to boost local research and innovation efforts. The Centres of Innovation (COIs) set up in selected niche areas in our polytechnics are a key platform for the polytechnics and local enterprises to engage in joint research, innovation and development.
8. The Government is also planning to work more closely with the industry. A $90-million Innovation Fund was set up this year. This fund serves as a seed fund to achieve breakthrough public services through partnerships with the private sector. A good example is the use of RFID technology by the Singapore Airshow organizers, in collaboration with A*STAR, to record the experience of its visitors as they navigate the exhibition ground. The data collected will be used to help organisers enhance future exhibitions.
Knowledge Usage: Enterprise Innovation
9. Third: Knowledge Usage. Ultimately, it is enterprises that convert knowledge into real value and bring about innovation-driven growth. We have introduced measures to incentivise and assist companies to invest more in R&D, as well as give high-tech start-ups a boost to their innovation activities. A favourable taxation regime is important to provide a conducive environment for businesses to grow and innovate. I will highlight three aspects of our taxation regime that seeks to achieve this.
A Favourable Taxation Regime For R&D and Firm Innovation
Competitive CIT Rate
10. First, we have an overall tax regime that is internationally competitive. We keep our corporate income tax rates low to provide maximum incentive for enterprises. Our corporate income tax rate was reduced by two percentage points, to 18% with effect from Year of Assessment 2008. We have also increased the threshold for the Partial Tax Exemption for companies so that small companies have even lower effective tax rates. These help firms to have adequate resources to innovate.
11. Second, besides our generally low personal income tax rates (with the highest marginal tax rate at 20%), we have tax schemes to help companies attract and retain talent, who are crucial for innovation. One example is the Employee Equity-based Remuneration Scheme (ERIS), which provides exemption on personal income tax on gains made on employee stock options or share awards, which are useful tools for high-tech, high-growth companies to hire the talents they need. Recognizing that the risks involved in working for start-ups are naturally higher, for the Budget this year, we have enhanced the scheme for start-ups by granting their employees a larger exemption from personal income tax on such gains.
12. Third, as part of the concerted efforts by government to encourage R&D, this year, we have introduced a comprehensive set of new tax measures to encourage our companies to do more R&D in Singapore. These include a 150% tax deduction for spending on R&D done in Singapore. The enhanced deduction will benefit all companies, big and small, start-up or established.
13. We also introduced the R&D Tax Allowance which can be utilised to offset incremental expenditure on ongoing R&D which a company does in Singapore. The R&D Tax Allowance will particularly benefit SMEs.
14. There is also the new R&D Incentive for Start-Up Enterprises called RISE ? this allows start-ups that engage in R&D locally but have yet to make taxable profits to convert their losses into cash grants.
Staying Innovative in Times of Uncertainty
15. With the current global economic crisis, Singapore is gearing up for rough times ahead. The Government has begun exploring measures to help our businesses and households - the Minister for Finance Mr Tharman Shanmugaratnam recently announced that next year's Budget would be expansionary. It will aim to support economic growth and jobs. It will also help business to remain strong and competitive by helping them with their costs and cash-flow.
16. However, even with the global uncertainty, innovation remains fundamental for us to stay ahead. Singapore has made good progress in her innovation journey. I urge you to proactively engage yourselves and your partner-agencies in this innovation journey. I wish you all a fruitful forum this afternoon. Thank you.