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The Straits Times (Singapore)

Govt urged to do more to ease business costs

E&Y's Budget 2012 wishlist calls for measures to address uncertain times

WITH Singapore teetering dangerously close to a technical recession, Ernst & Young Solutions LLP is hoping that the government will do more to ease business costs and promote productivity in its Budget for this year.

In the accounting firm's Budget 2012 wishlist unveiled yesterday, E&Y's head of tax Adrian Ball said: 'With unresolved sovereign debt issues in Europe and a US economy that continues to struggle, there will be strong economic headwinds that could tip Singapore into recession.'

'Therefore, Budget 2012 needs to address the challenging economic environment by focusing on reducing business costs, ensuring the cash taps remain open, and continuing to drive productivity,' he said.

To do so, E&Y calls for the Productivity and Innovation Credit's (PIC's) cash conversion rate to be raised beyond the current 30 per cent, and the lifting of the conversion cap of $100,000.

This, it says, will allow more cash to be ploughed back into small and medium enterprises (SMEs), ensuring their continued investments in productivity.

Said Tan Bin Eng, director of E&Y's business incentives advisory unit: 'We hope that the government will increase the cash payout to SMEs, otherwise the economic slowdown may blunt the effectiveness of the tax deductions under the PIC.'

In addition, E&Y seeks changes to the mergers and acquisitions (M&A) allowance.

To allow more M&As to qualify, it calls for the removal of the restriction where only one level of special purpose vehicles (SPVs) is allowed in order to be eligible for the allowance.

'Singapore companies will then have increased flexibility and the ability to more cost-effectively structure their acquisitions,' said E&Y transaction tax partner Russell Aubrey.

In this year's wishlist, the firm continues to ask for measures to ease business costs through the introduction of group relief for borrowing costs, and the permanent tax exemption of foreign-sourced income.

The latter, E&Y says, will further bolster Singapore's position as a holding company location in the long run.

E&Y also recommends several tax measures to enhance Singapore's competitiveness.

First, it suggests tweaking the Development and Expansion Incentive (DEI) - which enables companies to enjoy a concessionary tax rate of 10 per cent or lower on qualifying profits above a pre-determined base for a set period of time - by either reducing the DEI's base requirement for the next two years, or removing it entirely.

'Alternatively, the government can also allow companies to choose between a lower concessionary tax rate with a pre-determined base, or a slightly higher concessionary tax rate with no pre-determined base,' added E&Y tax partner Ang Lea Lea.

While E&Y does not expect either corporate or personal income tax rates to be cut in the near term, it urges the government to keep taxes competitive by extending tax rebates to the 2012 tax year.

These, it said, will provide companies and individuals some relief amid uncertain economic conditions.

E&Y also cautions that if there is even a partial unravelling of the eurozone, 'a stronger dose of fiscal medicine' may be needed in Singapore - such as the return of the Jobs Credit Scheme, which could stave off job losses.

Kelly Tay