'5 Rs' for the upcoming Budget

Feb 7, 2011

By JAMES CLEMENCE, MARK AMATYA & KEITH CONNAUGHTON

WITH the Singapore economy registering an impressive performance last year, resulting in the build-up of a robust budgetary surplus, Singaporeans are eagerly anticipating carrots from the upcoming Budget as we enter the Year of the Rabbit.
Prime Minister Lee Hsien Loong has already suggested that the Budget this month should bring good news on the back of a higher-than-anticipated tax yield. Before we jump for joy, however, we need to recall Mr Lee's words in March 2008, when he cautioned against focusing on immediate handouts when discussing the Budget and instead stressed the need to take a longer-term view.
The PM's mindset is reflected in the recent decision of the Ministry of Finance to increase employers' contributions to the Central Provident Fund (CPF) by 1 percentage point, as well as the decision not to repeat the one-off personal income tax rebate of up to $2,000 that was given for the Year of Assessment 2009. Both decisions suggest a move away from short-term handouts and a focus on long-term investment in the country's future.
Senior Minister Goh Chok Tong's speech before last year's National Day, when he encouraged us to strive for the '5 Cs' of career, comfort, children, consideration and charity also places a strong emphasis on planning for the future. In keeping with the PM's and SM's theme, we have identified '5 Rs' for the upcoming Budget, which can help to build a stronger future for Singapore.

1 Remove the 3.5 per cent and 5.5 per cent bands for personal income tax
Currently, the two lowest tax bands of 3.5 per cent and 5.5 per cent yield a maximum tax intake of $900 per year per individual and are most proportionately felt by the lower earners in our society.
Removing these two tax bands would go a long way towards reducing the burden on the less well-off. It would also reduce employers' administrative burden in creating large numbers of IR8As for those who earn less than $40,000 a year, thereby cutting down on the cost of doing business in Singapore.
Finally, it would reduce the Inland Revenue Authority of Singapore's administration costs in processing large numbers of tax returns to collect only a few hundred dollars in tax from lower-paid employees each year.

2 Revisit tax-deductible voluntary CPF contributions
Currently, employees' mandatory CPF contributions decrease with age, starting at the age of 51. However, the closer we get to retirement, the more likely we are to want to plan for this period of our lives.
Allowing tax-deductible voluntary CPF contributions (subject to reasonable limits) for employees aged 51 and older would be a welcome move for those looking to plan for their silver years.
An increase in available tax deductions would also be more valuable for employees later in life as many enter higher tax brackets towards the end of their careers.
Such a move would also be in line with PM Lee's call at the recent ComCare appreciation lunch encouraging people to provide for their own future needs rather than relying on the Government's assistance.

3 Review tax reliefs and rebates
Certain tax reliefs and rebates are given in recognition of individuals' efforts and contributions in areas consistent with the Government's social policies. In view of the current healthy state of the country's exchequer, now may be a good time to build upon the available incentives for consistency with the Government's policies.
Retaining the current tax deduction of 250 per cent for approved charity donations on a permanent basis would be a firm commitment to helping those who cannot help themselves, and in line with SM Goh's definition of the '5 Cs'.
The percentage of 250 per cent could also be applied to course-fee relief - this would make the relief more attractive to lower-income earners who may be most in need of upgrading their skills and qualifications to remain competitive in the labour market.
A review of the foreign maid levy relief, currently applicable only to female taxpayers, would also be welcome. Male taxpayers are increasingly employing foreign maids to take care of the elderly in their families, and recognition of this would be in keeping with the strong emphasis we place on the family unit. A similar review of the working mother's child relief to make it gender-neutral would also be a positive move.
Finally, it is generally acknowledged that the fact that the younger generation is typically marrying and starting families later in life, to pursue careers, is a contributing factor in the declining birth rate.
A balance between a healthy birth rate and maintaining a strong career focus could be helped by introducing an annual married couple's relief, which would encourage couples who are both already working (and therefore more likely to return to work after childbirth) to 'tie the knot' and create their family units earlier.

4 Revamp the 'Not Ordinarily Resident' (NOR) scheme
The requirement for three years of non-residency before qualifying for the NOR scheme effectively excludes most Singaporeans from enjoying the time apportionment concession available to many internationally mobile foreign nationals based in Singapore.
A removal of this condition is in order, considering that a number of home-grown talented Singaporeans are increasingly assuming regional positions but do not stand to benefit from the NOR scheme in its current format.
At the same time, abolishing the five-year limit on NOR status would help Singapore to retain its existing pool of foreign talent, making it a more attractive base for medium- to long-term residency, and retaining our competitiveness as a leading business hub for the Asia region and beyond.

5 Readjust the Skills Development Levy (SDL), Angel Investor Scheme (AIS) and Green Vehicle Rebate (GVR) programme
Last year's strong economic performance has benefited employers as well as the exchequer.
In view of this, it may be an opportune time to consider an increase to the SDL rate.
Currently, the SDL is capped at 0.25 per cent of $4,500 per month. Increasing it to 0.5 per cent should not result in a significant additional cost to the employer. However, it would represent a substantial increase in the funds available to the Workforce Development Agency to encourage employers to send their workers for training and skills enhancement.
Secondly, the AIS is a welcome scheme to encourage the investment of seed capital in Singapore start-up enterprises, but the conditions make it difficult to qualify and administratively burdensome to apply for.
A simplification of the application processes and an increase in the investment ceiling would make this a more valuable proposition to potential investors, as many may feel there is a disproportionate amount of work currently required to qualify for a tax saving of $20,000 in two years' time.
Finally, the GVR programme, aimed at promoting the purchase of green vehicles, which are more fuel-efficient and emit less air pollutants than their conventional petrol or diesel equivalents, is due to expire in December.
The scheme should be extended further to narrow the cost differential between green vehicles and conventional vehicles. Ideally, the scheme should be maintained until such time as the cost of green vehicles is lower than that of conventional vehicles.
While the Budget has always strived to lead Singapore in the desired direction of long-term sustainable growth, last year's inspiring economic performance provides us with a unique opportunity to work collectively towards the '5 Cs' envisioned by SM Goh and to build for a stronger future.
By giving consideration to the '5 Rs', the Finance Minister could take steps to achieve this in a well-planned manner, resisting the temptation of short-term windfalls and ensuring we can continue to help ourselves as we move forward.

The writers are respectively partner, senior manager and manager of PricewaterhouseCoopers International Assignment Services (Singapore).