By Cheong Choy Wai and Ow Yeong Khai Hon
SINGAPORE has weathered the storm and the global economy is now recovering. Although economic growth is expected to remain strong, so is inflationary pressure. Businesses were reminded during the 2011 Budget announcement that despite the current and anticipated increase in business costs, there can potentially be further hikes in foreign workers' levy and employer CPF contributions.
So, what can businesses, especially SMEs, do to take advantage of what has been announced in the Budget 2011 to mitigate the rising costs? The support measures announced are presented in the form of direct giveaway and indirect assistance and subsidies through incentives.
Direct support measure
The main corporate giveaway for Singapore Inc's contribution to the nation's growth is the one-off 20 per cent corporate income tax rebate, for Year of Assessment (YA) 2011, of up to $10,000 given to all companies. Small businesses typically pay little or no tax and hence do not benefit fully from the tax rebate.
However, they can benefit from the one-off cash grant amounting to 5 per cent of revenue in YA 2011, for up to $5,000, if they have made CPF contributions in YA 2011 for at least one employee. Companies will enjoy either the tax rebate or the cash grant, whichever is higher. This will be given automatically when the company files its YA 2011 corporate income tax return, Form C. So, do file your Form C early this year!
Indirect support measures
SMEs need to recognise that containing rising business costs and addressing the challenges of getting foreign workers, or any other group of workers for that matter, will have to be resolved by the businesses themselves.
There are opportunities for SMEs to embrace productivity and innovation while maximising the tax breaks and subsidies provided for in this Budget.
Invest in automation equipment
Salary costs are granted a dollar-for-dollar tax deduction, whereas capital expenditure incurred to buy automated equipment to increase productivity is granted four times the tax deduction benefit.
Under the enhanced Productivity and Innovation Credit (PIC) scheme, businesses may deduct four times the capital expenditure incurred, capped at $400,000 per YA, and up to a combined limit of $800,000 in YA 2011 and YA 2012, and $1,200,000 in YA 2013 to YA 2015.
Train your employees
Where the training costs are not fully or partially reimbursed under existing training grants administered by the relevant agencies such as Spring and EDB, such costs for external training to upgrade the skills of the employees can also enjoy a 400 per cent deduction under the PIC scheme.
These expenses are subject to similar capping rules for automation equipment.