Yesterday, Singapore’s finance minister, Tharman Shanmugaratnam, unveiled the Singapore Budget 2012, which he calls the “budget for the future”.
As prosperous as the nation is, Singapore is under pressure.
Abroad, Singapore’s cautiously optimistic economic outlook this year is tempered by the uncertainty of global events, which include a recovering but weak US economy, a debt-ridden Europe, and an Iran that is threatening to blockade the Strait of Hormuz, a move that would send oil prices soaring.
Locally, the government is facing pressure to revamp its economic model, by cutting its addiction to cheap foreign labor and raising the productivity level of its workers. It also faces political pressure to help lower-income families and the disadvantaged.
Entrepreneurs play a vital role in the Singapore government’s calculus and motivations, which is why the finance ministry has introduced a slew of new of measures to help SMEs, as well as enhance existing ones.
SMEs will receive a one-off cash payout, capped at S$5,000, to help offset higher business costs.
As long as you company is making CPF contributions to at least one employee, your firm will receive a cash grant of 5% of total revenues for 2012, capped at S$5,000 (US$4,000). That employee, however, cannot be a shareholder of the company. So if you’re a start-up with only two co-founders and no full-time Singaporean staff, you can’t claim the benefit.
The problem with the “employee with no shareholder” clause is that it would exclude a lot of startups who give equity to employees to attract them to join the company. Without equity, they might otherwise have chosen to work in a bigger firm. Startups are also the ones that are most vulnerable to fluctuations in business costs.
Firms can claim even more expenditure costs from the government when renovating or refurbishing their premises.
First introduced in 2008, the Renovation and Refurbishment Deduction Scheme allows companies in the service sector to claim up to S$150,000 (US$120,000) to refresh their premises, like a showroom display or restaurant décor. The amount will soon be doubled to S$300,000, and will become a permanent feature of the tax system.
Retail and food entrepreneurs, however, note that this scheme does not address a common problem plaguing their businesses — exorbitant rentals. From 2011 to this year, many big bookstores have closed partly because of risen rental costs. Smaller indie operations are especially vulnerable to the landlord’s whims.
Food businesses like cafes and restaurants are being squeezed too. Without the economies of scale large enterprises like Starbucks enjoy, smaller companies face tight profit margins that are extremely sensitive to rising food prices and fluctuating rental rates.
Companies will have to reduce dependency on foreign workers due to tightening quotas.
Firms in the manufacturing and service sector will not be able to hire as much foreign workers from 1st July, 2012. The Dependency Ratio Ceilings (DRC) will be reduced, from 65% to 60% for the manufacturing sector, and 50% to 45% for the service sector. This means that with effect from 1st July, only a maximum of 45% of the payroll in a service sector firm can consist of foreigners.
The DRC for S-Pass holders, which consist of mid-level foreign workers earning at least S$2,000 (US$1,600), will also be reduced from 25 percent to 20 percent for all sectors.
Companies will not be allowed to bring in new foreign workers beyond the new DRCs after 1st July. For existing foreign workers, companies will be given until June 2014 to comply with the new standards. Which means some firms will have to let go of a few foreigners (or hire more locals).
The government is enhancing the Productivity and Innovation Credit (PIC) and providing more staff training support for SMEs.
Singapore workers are still not as productive as their counterparts in the world’s top cities and countries. According to Minister Tharman, it takes 10 Singapore workers to produce the same amount of output as 7 workers in the US or 6 in Switzerland. The country’s retail industry has been lacklustre — it’s productivity level is less than half of New York, Paris and London, and lags behind Hong Kong’s.
The PIC is designed to combat this. It reward companies who enhance productivity within their ranks and restructure for innovation. First introduced in 2011, the scheme grants tax deductions for expenditure in six areas. The scheme has been enhanced this year.
Businesses will now be given more cash upfront for their investments than before, and less tax deductions. This benefits companies with limited taxable income. Instead of receiving S$30,000 in cash out of a maximum total of S$100,000 of a firm’s PIC expenditure, they will now receive S$60,000.
They will also receive their cash payouts faster. From 1st July 2012, companies will be able to apply for and obtain their cash payouts every quarter instead of waiting until the end of the financial year. This is designed to improve the company’s cash flow.
Companies will find it easier to claim PIC benefits for in-house training costs. The requirement to have these training programs certified by the Singapore Workforce Development Agency (WDA) or Institute of Technical Education (ITE) will be waived. This applies to in-house training costs of no more than S$10,000. More details on PIC changes here.
In addition to the abovementioned benefits, SMEs who upgrade their workers through WDA and Academic CET programs at the polytechnics and ITEs will receive a 90% course subsidy. Together with the enhanced cash payouts under the PIC, training costs could be entirely paid for by the government.
Firms will also receive more compensation from the government for the time employees spend away from the office while attending courses. The absentee payroll cap will be increased from S$4.50 to S$7.50 an hour. The subsidy and payroll cap will run for three years.
Self-employed persons like freelancers in the creative sector will receive similar training benefits too.
Taken together, the government intends that these benefits offset the current and future rise in foreign worker levies that businesses are facing.
Throwing money at the problem is not enough though. Employers must put in effort to design more suitable jobs with the worker in mind. Many homemakers and early retirees are still willing to work on a part-time or full-time basis. They just need the right jobs with sufficient pay.
Job pride must also be instilled in vocations that has been traditionally viewed here as low-class and unfulfilling. Examples include waiters, construction work, machine operators, and chambermaids in hotels. By bringing back respect to these jobs, staff retention will naturally improve, resulting in better service.
The government has introduced Special Employment Credits (SEC) for SMEs to hire and retain older workers, as well as people with disabilities.
Motivated to create a more inclusive society, the government will give SMEs subsidies to cover the salary costs of hiring older Singaporean workers above 50 years-old and earning up to S$4,000 (US$3,180), as well as to retain existing ones.
Firms can reclaim 8 percent of the salary for every senior worker earning up to S$3,000, and a smaller percentage for those earning between S$3,000 and S$4,000. This scheme will be in place from September 2012 to 2016.
The SEC for senior workers was first introduced in last year’s Budget as a one-off payment.
To help senior citizens have more secure retirements however, employers must contribute more to their CPF accounts from September 2012. Singaporean workers aged from 50 to 55 will see a 2.5% rise in monthly contributions (2% from employer), hitting 32.5% in total.
Those aged between 55 and 60 will see a spike from 2% to 23.5%, with 1.5% coming from the employer. The last group, aged between 60 and 65, will see their employers contribute 0.5% more.
Employers should note that further increases to CPF contributions will be made for those between 50 to 55, to an eventual 6%, with 4% coming from the company.
On balance, the SEC is design to offset the increase in CPF contributions, at least until 2016.
Firms will also enjoy SECs for hiring people with disabilities who are special education (SPED) school graduates, receiving a 16% discount off the employee’s wages.
More on the Singapore Budget 2012
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