Looking ahead to Budget 2018: What it could mean for businesses

Looking ahead to Budget 2018: What it could mean for businesses

Experts expect continued emphasis on longer-term economic transformation measures, including more support to help Singapore companies innovate and venture abroad. Some are not ruling out a surprise corporate tax cut.

singapore's central business district
A general view of the Raffles Place financial district in Singapore. (File photo: AFP/Roslan Rahman)

SINGAPORE: The Budget for 2018 is likely to be pro-business, with longer-term goals of economic restructuring and transformation remaining top on the agenda, according to economists and tax experts. 

This could mean more help for homegrown businesses to innovate, go digital and venture abroad though the Budget, which will be delivered by Finance Minister Heng Swee Keat on Feb 19, could also contain a handful of short-term fixes targeted at the underperforming industries. 

For one, experts are pencilling in more measures to strengthen the Industry Transformation Maps (ITMs) – the 23 roadmaps that were first announced in Budget 2016 as part of a S$4.5 billion industry transformation programme. 

Since then, 15 ITMs have been launched, with the remaining eight scheduled to be rolled out by March. 

While they have been “fantastic starting points”, Mr Max Loh from Ernst & Young said attention will now fall on the execution of these industry-level restructuring blueprints. Amid the increasing convergence of sectors, such as the emergence of fintech (financial technology), “horizontal links” across ITMs will also need to be considered. 

“Each industry has its own needs and challenges, but we also have to pay attention to the sector convergence. There are now businesses that cut across industries, with a lot of the technology and developments making companies sector agnostic,” said Mr Loh, EY’s managing partner for Singapore and Asean. 

The ITMs, which make up one of the key strategies outlined in the Committee on the Future Economy (CFE) report, have come under the spotlight recently amid questions from business and industry leaders about its relevance.

At a pre-Budget roundtable organised by the Institute of Singapore Chartered Accountants (ISCA) last month, DBS CEO Piyush Gupta, who was speaking in his capacity as chairman of the Association of Banks in Singapore, questioned if the ITMs can keep up with the rapid changes in each industry.

“The blueprint and roadmap that you put in place will be outdated by six months so what we have to create is not a transformation roadmap but transformation capabilities,” he said. “We need to take our ITMs to the next level, which is to create the industry’s capacity to experiment and rapidly change.”

Also speaking at the roundtable, Singapore Business Federation (SBF) CEO Ho Meng Kit noted a disconnect between the ITMs, which are led by Government agencies, and the “realities of the industries”. 

He added that he was concerned about the ITMs being developed for the bigger firms and risk leaving out “the long tail of SMEs in the same industry that are not as productive”.

According to the SBF’s latest survey, half of the roughly 1,000 businesses surveyed said they still do not know enough about the ITMs to assess their impact. 

To that, Minister for Trade and Industry (Industry) S Iswaran said on Feb 5 that “it is not possible for the Government to reach out directly” to all enterprises. In a written response to a parliamentary question, Mr Iswaran stressed that unions, trade associations and chambers (TACs) “must help to propagate the message”, while business owners “must also take the initiative to find out more about the ITMs”. 

Nevertheless, DBS economist Irvin Seah expects Budget 2018 to contain more implementation efforts to “ensure that local companies can truly benefit” from the industry roadmaps.

“Defined KPIs, progress markers to monitor the effectiveness of the initiatives, as well as targeted facilitation in the adoption process of the ITMs at the firm level would also help yield higher success for the programme,” he added.

There will also be a continuation of last year’s emphasis on enterprise development, with the upcoming Budget likely to unveil more support for businesses to ride on the digital wave and pursue overseas ventures, experts told Channel NewsAsia.

One example would be further enhancements to the Automation Support Package “with a bigger grant quantum and higher risk-sharing by the Government to help companies invest in digital technologies, additive manufacturing, and robotics”, said Mr Seah. 

Additional measures or tax incentives could also be in the works to help firms venture abroad, said Mr Seah. 

Apart from enhancements to initiatives such as the SME Go Digital Programme and the International Partnership Fund, improvements to the scope and the quantum of the Double Tax Deduction (DTD) on internationalisation expenses would also give companies a leg-up, he added.

While the focus will likely be on efforts to bolster Singapore’s restructuring efforts, Budget 2018 may contain some near-term help for the lagging industries, namely the construction and the offshore and marine sectors.

“The increase in GDP over 2017 has made the Government less worried about the economy but I think they will still be mindful that some industries are still struggling,” said Nomura economist Brian Tan.

Help could come in the form of bringing forward more public sector infrastructure projects for the construction sector, or initiatives to enable firms in underperforming industries to gain easier access to funding, Mr Tan said.

“But support will be very targeted because the Government has always been wary of encouraging dependence,” he added.

Echoing that sentiment, Mr Loh noted that such initiatives could be “sharpened to make it more targeted” given the increasingly-pressing question of how to finance Singapore’s growing spending needs.

While the possibility of tax increases has dominated the chatter in the run-up to Budget 2018, Mr Loh expects the Budget to “still be very much pro-business” while emphasising on “a progressive system of taxation for both businesses and individuals”.


Experts believe that apart from tax incentives aimed at getting businesses to take advantage of emerging technologies and expand overseas, the upcoming Budget will likely flesh out more details about the carbon tax that was announced by Mr Heng last year.

Meanwhile, local brick-and-mortar retailers and providers of e-services may see a levelling of playing field if plans to subject e-commerce transactions and e-services under the local tax regime come to pass.

“GST revenue has been negatively impacted by growing international e-commerce transactions, a large portion of which may be escaping the tax net,” said Maybank economist Chua Hak Bin, referring to a year-on-year drop of 2.8 per cent in the revenue collected from the Goods and Services Tax for the first eight months of FY2018.

“The Government has also hinted that the growing e-commerce industry should be captured in the tax net to level the playing field between online firms and traditional brick-and-mortar stores.”

Dr Chua also raised the possibility of a surprise cut, ranging from 0.5 to 1 percentage point, in Singapore’s corporate tax rate.

While it remains at one of the most competitive in the world – standing at 17 per cent since 2010 –international and regional corporate tax rates have “since been coming down and converging towards Singapore’s tax rate”, explained Dr Chua.

With Hong Kong having a lower corporate tax rate at 16.5 per cent and with tax reform in the US seeing a steep rate cut from 35 per cent to 21 per cent, Dr Chua said “a comprehensive tax review, with all options on the table, might conclude that Singapore should cut its corporate tax rates further”.

Amid a continued contraction in Singapore’s private investment over the first 9 months of 2017, “Singapore’s pull may not be as strong as in the past” and the “lower and falling corporate tax rates may entice foreign companies to opt for other countries”, he added.


There have also been calls for more flexible manpower policies in the lead-up to the Budget.

KPMG, for instance, noted in its Budget wishlist report that firms, particularly those in fast-growing sectors such as cybersecurity, should be allowed to hire more foreigners given the shortage of local talent.

On that, EY’s Mr Loh said that while the policy of tightening foreign manpower may hurt potential growth, Singapore still needs to strike the right balance in order to sustain ongoing efforts to increase productivity.

Hence, any change in manpower policy may have to be “calibrated by sectors”, with attention given to emerging tech industries to “facilitate a transfer of skills”, he said.

Source: CNA/sk