Roundup: Tax support for SMEs, cap on income tax relief for individuals: S'pore Budget 2016

More tax incentives will be given to SMEs while a cap on total amount of personal income tax relief was included in the new budget plan, announced by the country's Finance Minister Heng Swee Keat on Thursday.

In order to promote economic transformation and help more SMEs to seek opportunities both domestically and overseas, Heng announced multiple tax incentives in his first budget plan for FY2016.

Under the plan, the government will raise the existing Corporate Income Tax (CIT) Rebate, from 30 percent of tax payable to 50 percent of tax payable, with a cap of 20,000 Singapore dollars (14,600 U.S. dollars) rebate each year for 2016 and 2017.

"The last time we had this 50 percent rebate was in 2001," said Heng, who added that the increased support is expected to cost an additional 180 million Singapore dollars (131 million U.S. dollars) over two years.

For firms, especially SMEs that are eager to seek new markets and new growth opportunities overseas, the government will extend the Double Tax Deduction for Internationalisation scheme, till March 31, 2020, which covers qualifying expenses incurred for activities such as participation in overseas business development and investment study trips.

"The extension of the double tax deduction scheme for internationalisation by another four years will allow more SMEs expanding overseas to benefit from the scheme and gain a foothold on the global stage," analyzed Chai Wai Fook, Partner, Tax Services, Ernst & Young Solutions LLP.

For individuals, Heng said that there will be a tax change to the current 15 personal income tax reliefs.

The government will introduce a cap on the total amount of personal income tax relief an individual can claim, at 80,000 Singapore dollars (58,394 U.S. dollars) per year. At this threshold, 99 percent of tax-resident individuals will not be affected.

"We have enhanced many of these (tax reliefs) over the years ... However, taken together, the tax reliefs may unduly reduce total taxable incomes, for a small proportion of individuals ... This cap will make our personal income tax system more progressive. Nevertheless, our personal income tax burden remains low. Our personal income tax structure must allow us to continue to stay competitive," Heng stressed.

In response to this new cap, Kerrie Chang, Partner, People Advisory Services of Ernst & Young Solutions LLP said, "Notably absent this year is the announcement of any one-off personal tax rebates to reduce the tax cost of all resident taxpayers. This must be disappointing for taxpayers especially in light of continuing challenges with high costs of living and amidst a slowing economy."

The new personal income tax relief cap will take effect from 2018 and is expected to raise an additional 100 million Singapore dollars (72.8 million U.S. dollars) a year. Endit