A FINTECH tax incentive, new R&D (research and development) incentives for SMEs (small- and medium-sized enterprises), and tax deductions for healthcare expenses are among Ernst & Young's (EY) Budget 2019 recommendations, released in a report on Thursday.
One idea involves administering a fintech tax incentive that offers a preferential rate of 5 or 10 per cent to promote financial-related activities by companies in the areas of digital and mobile payments, blockchain, cloud computing and robotics.
Another recommendation includes allowing the M&A (mergers and acquisitions) allowance to be transferred to other companies within the group, encouraging Singapore companies to internationalise through M&As. This is because in many cases, the acquiring company is the Singapore holding company or an intermediary, which has no or limited taxable income, EY noted. Under the current M&A scheme, local companies can offset a portion of the costs of acquiring shares in another firm, subject to various conditions. Nonetheless, its benefits may be curtailed as the allowance cannot be transferred to other companies within the Singapore group.
To support the growth and innovation in SMEs, EY also called for new R&D incentives for smaller companies. The existing R&D incentive scheme provides eligible taxpayers with tax deductions for expenditure incurred on qualifying R&D activities. However, the Productivity and Innovation Credit scheme (including cash payout option) expired after the year of assessment 2018.
Business Incentives Advisory partner, Tan Bing Eng, noted that local SMEs in a non-tax paying position have been slow to take up the current R&D incentive scheme as they are primarily focused on cash savings, rather than tax savings. "To specifically help SMEs drive growth, the government may wish to offer R&D cash payout as an alternative option to enhanced tax deduction. Where necessary, to minimise abuse, such cash conversions could be approved on an application basis," Ms Tan said.
EY's Budget wish list - which joins a chorus of business associations, accountants and other groups giving suggestions in the run-up to the Feb 18 Budget - also contained tax-related suggestions for households and individuals, including an idea to provide tax deductions for medical insurance policies.
Currently, there is no standalone tax relief available for premiums paid on medical-related or health insurance policies, EY noted.
"Allowing a tax deduction that is not tied to CPF (Central Provident Fund) contributions, subject to a cap of say S$5,000 for premiums paid for medical-related insurance paid by individuals for themselves or their family will encourage taxpayers to be more responsible for their health and well-being," said People Advisory Services partner, Panneer Selvam.
He added that this will encourage more taxpayers to take up health insurance policies, and offer them greater access to healthcare. "A tax relief for medical costs incurred by those over 50 years old for health screening every other year may also be considered to encourage preventive care," noted Mr Selvam.
Similarly, Tax Services partner Chai Wai Fook recommended that the government simplify the deduction rules on medical outlays for companies. "The deduction rules for computing the deductible medical expenses can be tedious and companies have to identify all the relevant staff costs to determine whether the medical deduction claims exceed the statutory cap of 1 per cent or 2 per cent, depending on the taxpayer's circumstances," the report stated.
"This may result in additional compliance and administrative costs ... Further, the provision of medical benefits is a staff recruitment and retention tool by businesses. It is therefore timely to revisit the income tax rules for medical costs and simplify the deduction rules, especially for SMEs," said Mr Chai.
On the social front, EY suggested providing tax deductions for caregiver expenses, with nursing aides and specialised caregivers increasingly being employed to care for ageing family members, or those with special needs. This will help to defray the costs in caring for such family members, noted People Advisory Services partner Kerrie Chang. To this end, EY recommended that a tax deduction of up to S$10,000 be granted to taxpayers who incur costs to hire specialised aides. The deduction claim may also be restricted to the lower of S$10,000 and the actual costs incurred, Ms Chang added.
Separately, EY noted that one way of broadening the tax base is to introduce a sugar tax, where the additional tax revenue collected may be used to subsidise healthcare costs and support healthier lifestyles. According to a report by the International Diabetes Federation in 2015, Singapore has the second-highest proportion of people with diabetes among developed nations.