Budget 2014 focuses on the journey towards social and economic transformation

Finance Minister Tharman Shanmugaratnam presented Budget 2014 in Parliament on Feb 21 unveiling a number of economic and social measures. The objective is to provide more support for raising business productivity, enhancing social equity and achieving quality growth.

The Productivity and Innovation credit scheme which was due to expire in Year of Assessment 2015 has been extended for another three years until Year of Assessment 2018. In addition, an enhanced version of the scheme called the Productivity and Innovation Credit Plus scheme was introduced for the benefit of small and medium enterprises (SMEs).

An SME has been defined as an entity with a turnover of not more than $100 million or having not more than 200 employees.

Such SMEs can now claim 400 per cent tax deduction or allowances in respect of expenses incurred on qualifying activities up to a limit of $600,000 per qualifying activity a year (instead of the $400,000 limit under the current PIC scheme).

On the social side, to honour 450,000 Singaporeans belonging to the Pioneer Generation (those who were at least 16 years old in 1965 and who became citizens on or before Dec 31, 1986), the Finance Minister will set aside an $8 billion fund to meet their healthcare needs for the rest of their lives.

The fund will be used for subsidising their outpatient care, Medisave top-ups and also subsidising their Medishield life premiums.

Mr Tharman acknowledged the contribution of this generation in developing Singapore and hoped that this Pioneer Generation package would go towards creating a fair and equitable society, particularly since many in this generation have now retired, or because they would no longer have access to a regular income, but are surely affected by increased living and medical costs in Singapore.

The following are some of the other major highlights of Singapore Budget 2014:

lInterest and royalty payments to Singapore branches of non-resident companies are currently subject to withholding tax unless the branch had applied for and received a waiver from the Inland Revenue Authority of Singapore.

To reduce compliance costs, the Finance Minister proposed to exempt such payments from withholding tax with effect from Feb 21 .

This is a welcome move towards simplification of the tax collection process as Singapore branches of non-resident companies are in any case, required to file tax returns in Singapore and pay taxes.

- SMEs which invest in scaling up their information and communications technology solutions whose adoption has proven to help raise productivity will receive a 70 per cent subsidy for the amounts invested.

The Infocomm Development Authority of Singapore (IDA) will pre-qualify vendors and their solutions and reimburse the vendors directly.

- To encourage SMEs to pilot emerging technology solutions that can transform businesses through innovation or automation, 80 per cent of the project costs will be subsidised up to $1 million for each SME. Vendors will be required to submit their proposals to IDA which will reimburse vendors directly based on agreed milestones.

- To encourage SMEs to access high speed connectivity, certain one-time costs and 50 per cent of the monthly recurring costs of fibre subscription plans will be subsidised (subject to caps).

In addition, commercial buildings are encouraged to upgrade their infrastructure such that they are wired up and tenants can have access to high speed connectivity. IDA is proposing to subsidise up to 80 per cent of the costs of one-time infrastructure enhancements up to $200,000 per qualifying building.

- Employers’ contribution to the Medisave account of CPF has been increased by 1 per cent. In addition, CPF rates for those aged 50 and above have also been marginally increased.

The increase in employer contributions will be allocated to the Special Account and the increase in employee contributions will be allocated to the Ordinary Account.

 - The dependant parent relief has been increased for taxpayers who are living with as well as those who are not living with their dependant parents/grandparents (including in-laws).

Dependant relief has also been increased for handicapped siblings, spouse or children. It will now be possible to share the dependant relief among taxpayers.

- Excise duties on cigarettes and manufactured tobacco have been increased by 10 per cent.

- Excise duty on liquor has been increased by 25 per cent.

- Betting duty rates have been increased from 25 to 30 per cent.

All in all, based on the Finance Minister’s analysis, Budget 2014 is expected to result in a deficit of $1.16 billion unless the consumption of liquor continues to rise and the property market remains hot and beats market expectations!

Budget 2014 focuses on the journey towards social and economic transformation