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Businesses want more help to spur value creation: KPMG

The Big 4 audit firm suggests that the Government could help companies ramp up productivity through a "tiered" incentive scheme with higher payouts in the initial years of a business' life cycle. 

SINGAPORE: Businesses in Singapore are recognising the need for a greater focus on value creation and innovation to develop Singapore brands and want the Government's help to do so, according to the results of a pre-Budget 2016 poll by Big 4 firm KPMG released on Wednesday (Feb 17). 

In the survey of 106 companies comprising small and medium enterprises (SMEs), large Singapore companies and foreign multinational companies, 87 per cent of the respondents said they viewed investing in innovation and productivity improvements as one of the top three strategies to grow their businesses. 

However, 81 per cent, including 85 per cent of the SMEs, stated that there was insufficient recognition and support of value creation activities. 

Similar concerns were expressed by business leaders who took part in a series of focus groups KPMG conducted during the same period between November and December 2015, it said. 

Head of Tax at KPMG in Singapore Tay Hong Beng said that as Singapore progresses up the economic ladder, it needs to shift from simply adding value to creating value in order to develop a strong core of Singaporean businesses to compete globally at the higher end of the value chain.

"There needs to be a Singapore-centric talent pool, not only just having technical skills but also having the ability to innovate, lead and manage in the face of a weaker economy.”

TAX INCENTIVES TO ENCOURAGE SMES TO UNDERTAKE R&D

Like fellow Big 4 audit firms PricewaterhouseCoopers and Ernst & Young, KPMG's recommendations for Budget 2016 include measures to help SMEs undertake research and development (R&D). 

Mr Tay said the current threshold for qualifying for the R&D tax incentive is too high for many SMEs, and suggested the Government create a sub-category of innovation under the Productivity and Innovation Credit (PIC) scheme that caters to the innovative efforts of SMEs.

"This scheme can be restricted to SMEs, and will cater to efforts to undertake new or improved products, services and business models that may be innovative to the company," he elaborated. 

He also recommended widening the scope of eligible expenditure under the PIC R&D tax incentive to include overseas R&D expenditure and other expenditure required to undertake R&D such as direct overheads and equipment costs. For cases where the intellectual property or know-how is owned overseas, even though the R&D is undertaken in Singapore, Mr Tay said the tax incentive could be reduced to a 125 per cent deduction instead of the full 150 per cent deduction. 

More tax incentives to encourage growth in innovations in the specific areas of renewable energy, solutions for the ageing population and financial technology could also be introduced, he added. 

A 'TIERED' PIC SCHEME TO PROMOTE PRODUCTIVITY

In the pre-Budget poll, 51 per cent of firms polled said the current PIC scheme was not sufficiently effective and should be calibrated to different developmental stages in a business’ lifecycle.

Mr Tay said that the time is ripe, six years after the launch of the PIC, to recalibrate the scheme: “There should be a combination of broad-based and targeted incentives to encourage innovation and value creation. By definition, innovation can arise in any industry or business, and with much shorter innovation cycles, it will be difficult for the Government to ‘pick winners’.”

One possible solution Mr Tay suggested was a "tiered" PIC system that would provide more support in the initial years to promote productivity adoption, before shifting the focus to value creation through innovation and internationalisation for the companies' growth years.

This would entail higher cash payout limits for the initial years for businesses as well flexibility on the condition that there must be at least three local employees for start-ups. 

“Further efforts could be calibrated to focus on extending assistance for the SMEs, customising the support for different stages of growth. The focus could be on keeping costs low through spurring productivity in the initial stage, while shifting to igniting innovation and internationalisation in the growth stage”, added Mr Tay.