Investing in Change

for Future Generations

 Table of Contents

5 8 11 13 15
Encourage enterprise Tax system changes Environmental Towards a Smart A caring and
and innovation protection Nation/Digitalisation inclusive society

Investing in Change for Future Generations 3

 encourage enterprise and innovation,
attract businesses through a
competitive tax system, and invest in
technology and in our people.

Budget 2020 proposals

PwC suggests the following changes to

encourage enterprise and innovation, attract
businesses through a competitive tax system,
and invest in technology and in our people.

4 Investing in Change for Future Generations

 Encourage enterprise
and innovation

Investing in Change for Future Generations 5

 Encourage enterprise and innovation
Tax relief for entrepreneurs and businesses that use the Open
Innovation Platform to create innovative solutions and platforms
for goods and services development
The Government should consider introducing a new tax relief for local
entrepreneurs or companies that carry out research and development
(R&D) and innovation activities in Singapore to solve problems using
the Open Innovation Platform, which is an initiative by the Info-
communications Media Development Authority of Singapore. This will
also create awareness for the Open Innovation Platform as well as spur
more R&D activities in Singapore.
Collaboration between multinational corporations (MNCs) and
small and medium-sized enterprises (SMEs) can help the SMEs to
tackle challenges in R&D and innovation activities. For example, the
Partnerships for Capability Transformation initiative by Enterprise
Singapore has helped SMEs upgrade their capabilities in areas
including technology and supply chain by working with MNCs. To
further encourage successful partnerships between businesses, a
double deduction may be introduced for expenses incurred for such
collaboration undertaken to generate economic spin-off to Singapore
(e.g. costs related to establishing joint ventures).
Public-private partnerships for HealthTech start-ups
The Government should consider setting up a collaborative and
integrated public-private partnership (PPP) to provide support to local
HealthTech (including BioTech and MedTech) start-ups. In addition to
funding and financial / business support, the PPP should ensure that
these start-ups have access to clinical trials and early clinical input
to validate the problems they have identified. Introducing a robust
and structured programme will help them to increase their chances of
successfully commercialising their R&D and IP, as well as help to ensure
that funding and resources are invested in viable ventures.
6 Investing in Change for Future Generations
Allow enhanced deduction for overseas R&D activities
with a nexus to Singapore
Certain aspects of R&D activities cannot be carried out in Singapore
for practical reasons such as inadequate sample size and different
geographical environment. By necessity, these activities must be
carried out overseas by businesses intending to locate and exploit the
resulting IP in Singapore.
Section 14DA of the ITA should be enhanced to include qualifying R&D
activities conducted overseas so long as the activities have a nexus
to the Singapore business, e.g. the majority of the IP developmental
activities will be carried out in Singapore or the IP developed out of the
R&D will be owned by a Singapore resident enterprise.
Liberalise writing down allowance for acquisition of
intellectual property
Singapore is recognised as having robust intellectual property (IP)
protection and is a preferred location for IP ownership. Even so, MNCs
may not be able to transfer full ownership of their IP to Singapore in
light of legal or commercial constraints. Nonetheless, they should be
encouraged to locate activities relating to the management and control
of their IP in Singapore and exploit it from here, as this will create
economic spin-off for the Singapore economy.
Recognising this, we suggest that the writing down allowances for IP
under section 19B of the Income Tax Act (ITA) should be extended to
the “economic owner” of IP in Singapore, without the need for prior
approval from the Economic Development Board (EDB). This would be
consistent with practices on IP amortisation around the world where
relief is given for IP recognised on balance sheet and no distinction is
made between the economic and legal owner of IP.
The Government should also consider expanding the definition of
IP e.g. goodwill that is marketing intangibles and customer lists.
The clawback upon disposal of the IP should also be removed if the
taxpayer has held the IP for a defined holding period (e.g. five years)
and the IP is not transferred to and section 19B allowance claimed by a
related party.
 Enhance the mergers and acquisitions allowance scheme to Talent attraction by reintroducing incentives for employee share
allow entry of new investors plans

The mergers and acquisitions (M&A) allowance scheme should be
enhanced in the following ways:
• Extend the scope to include instruments (e.g. preference shares,
bonds) that are convertible into ordinary shares to give investors
Cash-strapped start-ups and smaller companies often resort to
share option and stock award schemes to attract talent and reward
entrepreneurship and ownership. The Government should consider
re-introducing an incentive for share option and stock award schemes
(similar to the employee equity-based remuneration incentive scheme

1
greater flexibility.
• Allow the M&A allowance to be claimed on a group basis rather
than solely by the acquiring company. This will give groups
more flexibility in structuring their acquisitions and planning any
subsequent restructuring. If the intention is to impose a cap on the
allowance, the value of qualifying acquisitions and the cap on the
M&A allowance could be computed on a group basis to prevent
groups inadvertently claiming in excess of the cap.
that was previously available under sections 13J and 13M of the ITA).
This could be restricted to employees of start-ups or SMEs. These
schemes can also be enhanced to provide for deferral of taxation
in specific cases to the time of share disposal e.g. in the case of
start-ups where there may not be a ready market for their shares. In
addition, the value of equity-based remuneration schemes should be
taken into consideration by the Ministry of Manpower when evaluating
whether minimum salary requirements are met for the purpose of
employment pass applications.

• Allow the balance of the M&A allowance not yet claimed by an

acquiring company to be transferred to another company within a
group (as defined by the group relief rules) if the acquiring company
were to leave a group and prior to its leaving, the target company is
transferred out and held by another company within the group. This
refers to a scenario where the acquiring company itself becomes
the subject of an acquisition, but the potential acquirer is not taking
over the target, and therefore the target will have to be transferred
out prior to the acquisition.

Angel Investors Tax Deduction Scheme

To boost the growth of start-ups particularly in the technology industry,
the Government should consider liberalising the Angel Investors Tax
Deduction (AITD) scheme to make it easier for individual investors to
qualify.

A suggestion could be to waive the eligibility conditions and approval

requirements for an angel investor under the AITD scheme for
certain classes of wealthy individuals e.g. Accredited Investors as
defined in the Securities and Futures Act. In addition, the scheme
should be extended to companies and venture capital funds that
provide financing to help the qualifying start-ups and help them to
commercialise their products or services. This will also help to position
Singapore as a key venture hub on the international stage.
Investing in Change for Future Generations 7
 Tax system changes

8 Investing in Change for Future Generations

Tax system changes
Enhance competitiveness of tax regime
Singapore’s tax incentive regime needs to be comprehensively re-
evaluated in light of global tax developments. Certain tax incentives,
such as those which offer concessionary rates above 10% yet require
taxpayers to make economic commitments and meet qualifying
conditions, are no longer attractive given global developments such as
US GILTI and the proposed Pillar 2 measures.
Singapore should also consider measures (such as a participation
exemption regime) to clearly differentiate itself as a favourable
holding company location. The current tax rules, although favourable
are complex and lack certainty, unlike countries such as Ireland,
Switzerland and Hong Kong.
To provide greater certainty of treatment, the sunset clause in section
13Z of the ITA should be removed as companies need to plan on a
longer term basis, and the five-year time frame is too short a time to
give certainty.
Liberalise deductions for borrowing costs
In today’s uncertain economic climate, businesses may take up
standby credit and similar facilities to better manage financial costs
and cash flow in order to ensure they can sustain business operations.
The upfront cost of securing these standby facilities could be viewed
as capital in nature and hence not deductible. As such, the list of
prescribed borrowing costs should be expanded to cover such
borrowing costs regardless of whether the facilities are drawn down.
Alternatively, a “fixed ratio rule” akin to that proposed in the BEPS
Action 4 Report (Limiting Base Erosion Involving Interest Deductions
and Other Financial Payments) may be considered.
Liberalise requirements for carry forward of losses
It is not uncommon for start-up companies to bring in new investors
at different stages of their development. This may result in a change in
shareholders and possible forfeiture of the unutilised losses. Whilst it
is possible to seek a waiver of the continuity of shareholders test from
the Inland Revenue Authority of Singapore (IRAS), losses preserved by
such an avenue are subject to the same trade test. Although genuine
investors typically should not be deterred by the potential inability (or
otherwise) of the company to utilise past losses, these rules could deter
companies from venturing into new fields and seeking new investors.
The same business test and continuity of shareholdings test as anti-
abuse measures; however, they inhibit change and innovation and
may be removed as we believe the general anti-avoidance rules are
sufficient to clamp down the trading of loss-making companies.
Liberalise requirements for carry back of losses
The cap on the amount of unutilised loss items a company is allowed
to carry back should be removed altogether and companies should
be allowed to carry back losses to any year of assessment that has
not been time-barred. This is of particular relevance to insurers with
exposure to natural catastrophe risks as they typically find themselves
in cycles of profitable years and when a significant disaster occurs, in
significant loss positions. The current carry-back loss relief system is
grossly inadequate in view of the cyclical nature of writing natural
catastrophe risks. The offshore and marine sector is also facing a
downturn which is expected to last several years. The ability to carry
back losses would also provide some relief to these companies.
In addition, section 34AA of the ITA, which provides for the tax
treatment of financial instruments under Financial Reporting Standard
109 – Financial Instruments (FRS 109) does not give taxpayers a choice
to opt out of FRS 109 tax treatment (unlike under FRS 39). The ability to
carry back losses could help to mitigate the tax impact of the transition
from the realisation basis of taxation to FRS 109 tax treatment.
The ability to apply losses to offset unrealised gains is of particular
relevance today, given the increase in volatility of business cycles.
Investing in Change for Future Generations 9
 Liberalise foreign tax credit claim for multi-tier structures
In certain prescribed scenarios, such as where an operating company
is held by an intermediate holding company in another country, foreign
dividends received in Singapore may be exempt under section 13(12)
of the ITA if they were paid out of income that had been subject to tax
at the operating company level, notwithstanding that no further tax
is paid by the intermediate holding company. For parity of treatment
and to encourage the repatriation of foreign income, foreign tax credit
should similarly be allowed for tax at lower (operating company) levels
where dividends flow to Singapore via a chain of companies.
GST on imported services
The implementation of GST on imported services will require significant
changes to businesses’ processes and systems. Companies expect that
there will be teething problems. To encourage the voluntary disclosure
of GST errors, and similarly introduced during the implementation of
GST, we suggest the Government to consider waiving the penalties on
non-fraudulent GST errors that are disclosed during the first two years
of implementation of GST on imported services i.e. 1 January 2020 to
31 December 2022.
Improve our competitive advantage in the efficiency of tax
administration
The stability of tax policy and efficiency of tax administration has
increasingly become a key factor in investment decisions. Transparent,
open and business-friendly tax administrations have proven to appeal
to investors. To improve our competitive advantage in the efficiency of
tax administration, we recommend the following:
• Enhance the advance ruling programme
Currently, a redacted summary of an advance ruling issued by the
IRAS may be published with the taxpayer’s consent. To encourage
more taxpayers to give consent, the IRAS could offer such
taxpayers the option of an express ruling (IRAS currently agrees to
express rulings only in exceptional circumstances).
Align taxation of gains from employee share plans with global
norms
Most countries’ tax authorities follow the guidance of the Organisation
for Economic Co-operation and Development (OECD) on sourcing of
share-based reward in cross-border situations, i.e. that stock options
(and other stock-related awards) should be sourced based on the
number of days an individual has spent working in each country during
the vesting period.
However, Singapore does not follow the global norm in this respect.
Singapore tax legislation currently defines the source of an employee’s
rights to acquire shares based on whether the right or benefit to
acquire shares is granted in respect of employment exercised in
Singapore. Shares granted to an individual whilst working in Singapore
which vest after he has been transferred to an overseas entity will
still be considered fully taxable in Singapore, either under sections
10(6) or 10(7) of the ITA. We would suggest aligning Singapore’s basis
of taxation with the OECD Model Tax Convention’s recommended
approach, in order to avoid double taxation.

• Audit effectiveness and taxpayer certainty

As audit activity and cross border disputes increase, the Government
should consider legislating the procedural aspect of queries and audits
to provide transparency and ensure the timely finalisation of tax matters.

• Flexibility in tax administration

Taxpayers should be allowed to opt out of applying certain tax
treatments when these are introduced for administrative convenience
(e.g. due to changes to accounting standards).

10 Investing in Change for Future Generations

Environmental protection

Investing in Change for Future Generations 11

 Environmental protection

Incentives to ensure sustainability in the supply chain

To encourage the agriculture and fishing sectors to upgrade and adopt
the latest technologies to raise their efficiencies and productivity,
the Government should consider extending the Land Intensification
Allowance (LIA) to these sectors.

Enhance the Sustainable Bond Grant scheme

The Sustainable Bond Grant Scheme encourages the issuance of
green, social and sustainability bonds in Singapore and is valid till 31
May 2023. Currently, the scheme will fund 100% of eligible expenses
attributable to obtaining an external review for green, social and
sustainability bonds, up to a grant amount of $100,000 for each
qualifying issuance. To further encourage companies to take up
green financing, the Government can consider allowing enhanced tax
deductions for expenses incurred in excess of the $100,000 cap.

12 Investing in Change for Future Generations

Towards a Smart Nation/
Digitalisation

Investing in Change for Future Generations 13

 Towards a Smart Nation/Digitalisation
Concessions to help companies digitalise, with qualifying
conditions that are tied to growth
Local start-up enterprises will have to incur expenditure that spans
from hardware infrastructure costs to labour costs of digitising data,
information migration and staff training. In this regard, targeted reliefs
and funding would help businesses alleviate the investment cost of
going digital, and encourage them to digitise their data and modernise
their processes, e.g. relief for expenditure such as the gathering,
analysis and utilisation of big data would encourage the adoption and
use of data analytics.
To safeguard revenue and reward investments in productivity, the
scheme can be tied to incremental revenue and margin of the claimant;
for example, companies which have invested in digital technology and
are able to demonstrate incremental revenue and profit margin growth
for the year could opt for a co-funding scheme or be given enhanced
allowances / deductions. This will prevent an erosion of taxes on
existing income and be growth focused.
14 Investing in Change for Future Generations
Incentives for early stage venture capital investments into
technology start-ups
Access to capital funds is crucial to technology start-ups. Many of
these start-ups are able to obtain seed financing e.g. through the
various schemes promoted by the Government. However, they will
require multiple rounds of funding as they seek to commercialise
innovation. The current section 13X incentive requires a minimum fund
size of $50 million, which is too high for most venture capital (VC) funds
to qualify. Section 13R scheme does not have a minimum Assets under
Management (AUM) requirement, but it imposes a qualifying investor
test. The Government should introduce a new tax exemption scheme
for early stage VC investments with a lower AUM threshold of say $10
million. This should help to entice more VCs to surface and to bring
overseas funds to invest in Singapore technology start-ups. As a form
of check and balance, the incentive should be confined to VC funds
which are managed by fund managers that are licensed by the
Monetary Authority of Singapore.
A caring and
inclusive society

Investing in Change for Future Generations 15

 A caring and inclusive society
Simplify benefits-in-kind
Further simplification of certain benefits-in-kind would increase
efficiencies for employers and reduce their administrative burden. For
example, soft benefits which are insignificant and work-related should
be tax exempt, e.g. car parking benefit provided during overseas
business trips.
Tax relief for premiums paid on medical-related or health
insurance policies
Currently, there is no standalone tax relief available to individuals
for premiums paid on medical-related or health insurance policies.
Allowing a tax deduction that is not tied to Central Provident Fund
contributions, subject to a cap of, say $5,000, for premiums paid for
medical-related insurance by individuals for themselves or their family
members (e.g. spouses, children, parents and parents-in-law) will
encourage taxpayers to take ownership of the well-being of themselves
and their families.
Enabling a tax write-off for health insurance premiums will not only
encourage more taxpayers to take up health insurance policies for
themselves and their families, but also offer them greater access to
healthcare. The tax deduction could be subject to a cap which could
be scaled according to age.
A tax relief for medical costs incurred by those over 50 years old
for health screening every other year should also be considered, to
encourage preventive healthcare. Perhaps a cap of $500 per year could
be set, to be claimed every other year and on an incurred basis.
16 Investing in Change for Future Generations
Introduce rules for deductibility claims for home office usage
As telecommuting and home offices become increasingly common,
employees who work from home should be given some personal
tax relief as their residence and resources are partially used for
employment purposes. The Government could consider introducing
home office relief, which can be given as a percentage of expenses
incurred or at a per-day rate.
Another option is to allow deductions for work-related expenses such
as business telephone calls, additional utilities, etc., like in the UK or in
the US. In Malaysia, personal tax reliefs are available for the purchase
of computers and broadband subscription fees, subject to a cap.
Personal tax rate
To help reduce the tax burden of the middle-income group, the
progressive personal tax rates should be reviewed. We suggest
removing the lowest two personal tax rate bands and increasing the
tax-free income threshold to $40,000.
Support mothers to continue working
Many companies in Singapore are increasing their efforts to foster
a pro-family workplace, and putting in place suitable facilities to
encourage mothers to return to the workforce. However, many new
mothers will have extended absence from work or leave the workforce
altogether to tend to their young children for a variety of reasons.
Funding or a new tax relief which will help new mothers to defray the
cost of taking care of infants (whether in the form of post-natal care
or purchase of feeding essentials) can encourage and support them
to return to the workforce after maternity leave and at the same time
alleviate the financial burden of working women with young children.
As for childcare arrangements, a tax relief regime should also be
introduced for working mothers who enrol their children in centre-
based care that is registered with the Ministry of Social and Family
Development. This should include infant and childcare centres,
kindergartens as well as after-school student care centres as many will
need for primary school-going children.

To further encourage mothers to stay in the workforce, the above-

mentioned reliefs and the Working Mother’s Child Relief should be
excluded from the $80,000 cap on personal income tax reliefs.

Support caregivers
We suggest that the foreign maid levy relief be extended to all
taxpayers, regardless of marital status and gender, who employ foreign
domestic workers to care for their elderly parents or parents in law and/
or young children.

Investing in Change for Future Generations 17

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