Budget 2024: Singapore to introduce new refundable tax credit to attract high-quality investments (2024)

SINGAPORE: Singapore is introducing a new refundable tax credit to remain competitive and continue to attract high-quality investments, said Deputy Prime Minister and Finance Minister Lawrence Wong on Friday (Feb 16).

Making the announcement in his annual Budget speech, he noted that Singapore faces tougher competition for investments as governments around the world, such as Japan, roll out vast subsidies to attract investments, especially in strategic industries.

Singapore’s investment pipeline has been healthy so far despite a challenging external environment, he said.

Last year, the Economic Development Board (EDB) attracted S$12.7 billion (US$9.4 billion) in fixed asset investments and S$8.9 billion in Total Business Expenditure per annumwhich are expected to create over 20,000 new jobs.

“We cannot afford to engage in a bidding war with the major economies, but neither should we stand still and just do nothing,” Mr Wong said.

The new Refundable Investment Credit (RIC) – which works as a tax credit with a refundable cash feature – will aim to support “high-value and substantive economic activities”, the minister said.

These include the setting up or expansion of manufacturing facilities, new innovation and research and development (R&D) activities, as well as activities that support the green transition.

The RIC will be given out based on qualifying expenditures incurred by a company for a qualifying project over a period of up to 10 years, according to information provided by the Finance Ministry.

Such qualifying expenditures may include capital expenditure, manpower and training costs. Companies can receive up to 50 per cent of support on each qualifying expenditure category.

The total quantum of RIC that a company is eligible for will be determined by EDB or EnterpriseSG.

If awarded, companies will be able to use the credits to offset against their payable corporate income tax. Any unutilised credits will be refunded to the company in cash within four years from when the company satisfies the conditions for receiving the credits.

Separately, a S$2 billion top-up will be made to the National Productivity Fund this year, as a further boost to the country’s investment promotion toolkit, said Mr Wong.

SUPPORT COMPETITIVE INDUSTRIES, R&D

Besides anchoring new investments, Mr Wong also announced a slew of measures to reinforce Singapore’s competitive lead in certain industries, such as finance.

Noting that major financial institutions are “keen to do more out of Singapore”, the government will be making a S$2 billion top-up to the Financial Sector Development Fund.

Mr Wong said this will give the Monetary Authority of Singapore more resources to take full advantage of current opportunities, as well as extend the country’s lead beyond core areas such as banking and capital markets, but also build new capabilities like financial technology.

In addition, the government intends to inject another S$3 billion into the Research, Innovation and Enterprise 2025 plan – a five-year blueprint to spur R&D that was launched in 2020 with a commitment of S$25 billion.

“This will sustain our investments in research, innovation and enterprise at about 1 per cent of GDP,” Mr Wong said.

“The additional resources will go towards research and related investments in national priorities such as advanced manufacturing, sustainability, the digital economy and healthcare.”

Mr Wong noted that investments in R&D will “take some time to translate into concrete economic outcomes”, which is why Singapore must take a long-term view.

“These investments help to develop a critical mass of capabilities, ideas and talent. They enable us to sharpen our competitive edge globally as a knowledge-based and innovation-driven economy,” he said.

DEVELOPING LOCAL COMPANIES

Mr Wong also touched on the need to invest and strengthen local companies, noting that partnerships with multinational enterprises (MNE) is one way to do so.

Currently, the Partnerships for Capability Transformation (PACT) scheme supports such collaborations between larger firms and local small businesses in the areas of supplier development and co-innovation.

Moving forward, this scheme will be enhanced to support partnerships in more areas, namely capability training, internationalisation and corporate venturing.

“With the enhanced PACT, we aim to help more of our firms plug into global supply chains, compete in markets abroad, and grow to become industry leaders in their own right,” said Mr Wong.

Local small and medium-sized enterprises (SMEs) also need to embrace sustainability to be competitive, said Mr Wong.

“Many multinational enterprises are looking to reduce their carbon footprint. They expect their suppliers to do the same,” he said.“To play in the MNE value chain, our own companies must be ‘sustainability-ready’.”

On that front, the government will extend enhanced support for green loans under the Enterprise Financing Scheme, while expanding the scope to help more SMEs adopt green solutions.

In addition, the Energy Efficiency Grant, which was introduced in 2022 for companies in the food services, food manufacturing and retail sectors, will be broadened to include more sectors.

The new sectors include manufacturing, construction, maritime, as well as data centres and their users.

“Beyond pre-approved energy-efficient solutions supported under the grant, we will provide additional support for companies with more ambitious plans to reduce their emissions,” said Mr Wong.

HELP WITH RISING COSTS

Businesses also need help to manage rising costs, such as wages, rental and utilities, noted Mr Wong as he unveiled a new Enterprise Support Package worth S$1.3 billion.

First, companies will receive a 50 per cent corporate income tax rebate, capped at S$40,000 in the Year of Assessment 2024.

As not all companies are profitable and will not benefit from such a rebate, the government will provide a minimum benefit of S$2,000 in cash payouts for companies that employed at least one local employee in 2023.

Second, the Enterprise Financing Scheme will be enhanced, with the maximum working capital loan quantum being permanently raised to S$500,000.

The enhanced maximum trade loan quantum and the government’s risk sharing of project loans to support domestic construction projects will also be extended until Mar 31, 2025.

Third, the SkillsFuture Enterprise Credit, which provides additional support for eligible employers to cover out-of-pocket expenses when they take on workforce and business transformation, will be extended by a year to Jun 30, 2025.

Mr Wong said these measures are “tilted towards firms that make the effort to restructure and transform”.

“I encourage all firms to make full use of these schemes so that they can thrive and succeed amidst a more challenging operating environment,” he told the House.