By Vivien Shiao
More targeted measures are needed for companies to drive innovation, with the expiry of the Productivity and Innovation Credit (PIC) scheme this year, said small and medium-sized enterprises (SMEs) and observers.
If not, Singapore’s standing as a research and development (R&D) hub may be hit, as well as its ability to attract and develop high-potential start-ups, they added.
The programme proved immensely popular as it gave firms considerable tax incentives to lift productivity through innovation.
Some feel its demise will leave a big gap in the business ecosystem.
“The expiry… threatens to make Singapore’s R&D tax incentive one of the least attractive globally, even as other countries enhance their R&D schemes,” said Mr Chiu Wu Hong, head of tax at KPMG.
A KPMG analysis found that smaller firms in Hong Kong would have up to 49.5 per cent of tax savings as a percentage of R&D cost, while Ireland and China would have up to 37.5 per cent. Singapore is lagging behind at 25.5 per cent.
Ms Tan Bin Eng, partner and business incentives advisory leader at Ernst & Young Solutions LLP, agreed. “Given the intensifying global competition… there is now greater urgency for Singapore to address this issue,” she said.
The expiry of the PIC scheme this year means firms will lose out on a valuable resource that they could tap for cash and tax deductions on automation and digital equipment, worker training and R&D initiatives.
Axis Engineering managing director M. Palaniappan said: “We want PIC in the current form, as it is an easier approach to productivity enhancement.”
His firm, which used the PIC scheme for staff training and to buy machines, found the process to be straightforward.
Ms Christine Lim, managing director of food distributor San SeSan Global, had to shelve plans to upgrade to an enterprise resource-planning system at the end of last year.
As its financial year-end was March 2017, the business was unable to make use of the PIC grant.
“It affected our decision to invest… as now we will have to bear 100 per cent of the costs,” she said.
But despite the PIC scheme’s popularity, the Government had made clear its intention to move in the direction of more targeted, industry-specific measures.
Mr Alvin Ea, chief executive of Hub Logistics, said: “We have prepared ourselves for this, hence the issue is not that bad. But continuity in PIC is always better for us.”
The PIC scheme was used by 85.4 per cent of businesses last year, according to the Singapore Chinese Chamber of Commerce and Industry, making it the most popular of such programmes.
But while industry transformation maps and R&D tax incentives may help to fill the void for innovation, industry watchers say much more must be done. Some pre-Budget 2018 wish lists included tax incentives and further streamlining of processes to make it easier and more affordable for SMEs to undertake R&D.
They also fear that the PIC’s expiry could dent Singapore’s ambitions to lure high-potential start-ups.
There have been growing calls by the Singapore Business Federation-led SME Committee (SMEC) to focus on “unicorns” – start-ups valued at over US$1 billion (S$1.3 billion) – as a growth strategy for Singapore in the upcoming Budget.
The hope is either to groom or attract the next Grab and to hail it as a Singapore brand.
But attracting big and successful start-ups is not just for the sake of novelty, but also for jobs, said Mr Lawrence Leow, chairman of the SMEC.
“Grab is Malaysian, but it’s seen as a Singapore company. If we start looking into this, we are going to have a lot of these unicorns here. The potential to the economy will be very positive. Once they are here, they create jobs, they create a lot of other spin-offs,” he said.
This also goes to the heart of another key issue – labour shortages.
The Singapore Business Federation and KPMG have suggested that manpower policies be adjusted to help firms keen to move into emerging-growth areas.
San SeSan Global’s Ms Lim said: “Our challenge is to be able to attract higher-calibre people at reasonable wages, as they tend to work for bigger companies.
“We may not be able to match the salaries, but we have to be able to try to attract them in other ways.”