EY has unveiled its wish list ahead of Singapore's Budget 2025 statement, scheduled for Feb 18.
The proposed measures cover three themes, which will help “position Singapore for the next lap of sustainable, inclusive growth [through] active participation of individuals and collaboration among enterprises”, says Liew Nam Soon, EY Asean regional managing partner and Singapore managing partner at EY.
Advancing Singapore’s digital economy
Supporting whole-of-nation advancement in research, innovation and digital economy is the first theme of EY’s Budget 2025 wish list.
To foster innovation and economic growth, EY advocates for the relaunch of the IP Financing Scheme and conducting a study to understand the challenges faced in the first iteration of the scheme.
“A common challenge that businesses face is unlocking the value of intangible assets (IA) or intellectual property (IP) via the raising of capital. An easily measurable indicator of business success is the amount of funding that can be raised against IA and IP. Having an active marketplace for fundraising against IA and IP can create a vibrant ecosystem aligned to the objectives of the Singapore Intellectual Property Strategy 2030,” explains Andre Toh, EY Asean and Asia Pacific Valuation, Modelling and Economics leader.
See also: Deloitte’s Budget 2025 wishlist: Fine-tune specific tax policies, expand R&D incentives
As artificial intelligence (AI) will be a key driver of the digital economy, EY suggests providing small and medium enterprises (SMEs) with AI adoption incentives. Launching sector-specific AI hubs will help SMEs identify use cases and get tips on fully harnessing AI’s potential, too.
In terms of closing the tech skills gap, EY proposes SkillsFuture Credit top-ups, micro-credentials and modular courses, AI literacy programmes and Workplace AI integration training.
Moreover, EY urges the government to provide greater support to businesses in strengthening their cybersecurity capabilities to better protect themselves and maintain customer trust.
Proposed changes to the tax system
The second theme is maintaining a relevant tax system. EY has proposed several changes to further encourage research and development (R&D) and improve the overall business improvement. They include:
- R&D tax deduction convertibility
EY suggests allowing companies to convert some of their qualifying R&D tax deductions into a refundable tax credit. This would improve cash flow, especially for SMEs, and help larger companies manage their effective tax rate as Singapore implements the 15% domestic top-up tax from January 1.
- Extending R&D benefits to overseas activities
The enhanced R&D tax deductions should be extended to cover a portion of qualifying R&D costs incurred overseas, up to a capped limit, in recognition of the collaborative nature of R&D. The enhancement can also be limited to R&D associated with IP residing with Singapore taxpayers to ensure it contributes to Singapore’s R&D ecosystem.
- Group Relief System (GRS) refresh
The GRS should be modernised to account for more complex group structures. “We suggest enhancing the GRS to look beyond intermediate holding entities. If the transferor and transferee are Singapore tax resident companies and are both ultimately held by a Singapore tax resident holding company, group relief should be available. Anti-avoidance provisions can be put in place to ensure that the holding structures are not artificial and temporary arrangements,” recommends Chin Wai Fook, partner, Tax Services at EY.
- Enhanced M&A scheme
EY suggests allowing the tax benefits arising from strategic acquisitions, such as the M&A allowance, to be transferable under the GRS. “To prevent abuse, this transfer can be limited to group companies that are 100% owned, or group companies conducting the same business,” says Sandie Wun, Partner, International Tax and Transaction Services at EY.
- Include insurance policies as designated investments for funds tax incentive schemes
This could attract single family offices (SFOs), which leverage insurance policies as an important component of wealth planning. Desmond Teo, Asean EY Private Tax Leader, says: Including insurance policies as part of designated investments can stimulate investments managed from Singapore, increasing the demand for insurance products, and boosting the broader financial sector.”
- Tax treatment of S-REIT income
Newer and different forms of space usage arrangements have emerged in the real estate space and SREITS have since expanded into new areas. This includes offering ancillary services such provision of storage and networking assets and the sale of solar energy.
“To reflect the changing real estate landscape, we suggest that the above income streams be viewed holistically as part and parcel of the S-REITS’ business of management and holding of immovable properties and be accorded the tax transparency treatment,” says Toh Ai Tee, Partner, Tax Services at EY.
Continued support for the workforce
Finally, EY hopes that initiatives under Budget 2025 will provide continuing assurance to all Singaporeans.
EY recommends enhancements to senior employment support, such as wage subsidies for employers who hire senior employees and provide tailored training programmes.
The SkillsFuture Jobseeker Scheme should also be enhanced to cover higher wage groups as recent retrenchment exercises tend to impact Professionals, Managers, Executives and Technicians (PMETs) more.
To stay ahead of Singapore and the region’s corporate and economic trends, click here for Latest Section
With the Workplace Fairness Legislation coming up, EY suggests establishing a fund to assist companies in complying with it without undue financial burden.
Moreover, EY has put forward several recommendations aimed at sustaining Singapore's position as a leading international hub for talent while maintaining a business-friendly environment.
This includes a review of the Work Pass Exempt (WPE) list of activities to allow foreign professionals to carry out restricted short-term work without the need for a full work pass.
There should be greater flexibility in the issuance of short-term Employment Passes (EPs) and S Passes, too. This includes extending the job-advertising exemption period under the Fair Consideration Framework and the COMPASS framework exemption for foreign employees working in Singapore for up to two months. Doing so will facilitate skills transfer and short-term work exchange programs.
EY also recommends deferring the scheduled increase in the S Pass levy for an additional year to alleviate the financial burden on employers, especially in the face of rising business costs.
Recognising the increasing prevalence of remote and hybrid work arrangements, EY advocates that employees receive tax relief for employment-related expenses incurred to enable work-from-home setups, with a cap on the allowable tax deduction.
