Singapore Budget 2013: Productivity boosters for small and medium businesses

The Singapore Budget 2013 brings some really good schemes especially for small and medium businesses to improve productivity.

The Singapore Government announced the budget for 2013 yesterday. Most importantly for small and medium businesses in Singapore is the Wage Credit Scheme (WCS) and Productivity and Innovation Credit (PIC) Bonus. Under the new budget, the Wage Credit Scheme and PIC Bonus are expected to cost the government S$3.6 billion (around US$2.9 billion) and S$450 million (around US$360 million) respectively over three years to help companies boost productivity.

Wage Credit Scheme

The Wage Credit Scheme will see the Singaporean government co-fund 40 percent of wage increases given to Singaporean employees earning a monthly wage up to S$4,000. Wage increases between 2013 to 2015 will be eligible for the scheme. Government-related entities and entities not registered in Singapore are excluded from the wage credit.

An illustration provided showed how the co-funding scheme helps companies save on their annual wage increments for Singaporean employees. However, the scheme does not reduce the cost of hiring Singaporean employees. Rather, it only makes it easier for companies to retain existing local employees through the scheme. The second concern for small and medium businesses regarding the scheme would be the payout dates. The first payout is scheduled for the second quarter of 2014. This means that companies who are planning to make use of the scheme will still have to bear the initial full wage increments before getting their payout almost a year later. There is also a possibility that employees might use this scheme to justify “productivity” increase through lengthening work hours rather than being an incentive to be more efficient.

Productivity and Innovation Credit (PIC) Bonus

The 2013 budget introduces some new revisions to the existing Productivity and Innovation Credit (PIC) scheme. The added bonus will see qualifying PIC investments in a Year of Assessment (YA) receive a dollar-for-dollar matching cash bonus. The bonus is up to S$15,000 from YA 2013 to 2015. This is on top of the existing PIC benefits of either a 400 percent PIC tax deductions up to S$400,000 in expenditure or cash payout at 60% on up to S$100,000 of qualifying expenditure.

From the provided illustration, the new PIC Bonus will see eligible companies making a return on PIC investments. The full list of approved investments are on the IRAS website.

It would be interesting to see how the Singaporean government controls the use of PIC Bonus. From what we see, it is one that can be abused because it actually provides companies a net return on their PIC approved spending. Say for example a company makes S$10,000 in PIC approved investment, the existing scheme gives them the option of S$40,000 in tax deductions or S$6,000 in cash payout. The PIC Bonus provides another S$10,000 on top of that. Assuming the company takes the cash payout, it will net a total of S$16,000 from the government for a spending of S$10,000.

The PIC Bonus does seem like a method that the Singaporean government can help businesses invest in productivity enhancing tools while providing them with a justified subsidy to counter other increasing costs.

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