- Green finance will be key to powering Singapore’s sustainability – spurring blended finance and transition finance ecosystems will be instrumental in intensifying green investments
- Forging a fit-for-future ‘Forward Singapore’ social compact and catalysing capital to create new opportunities for enterprises and talents will be critical
- In view of a potential economic slowdown, support measures for businesses to digitalise, transform, and embed ESG will need to be expanded
SINGAPORE – Media OutReach – 12 January 2023 – KPMG today announced its Singapore Budget 2023 Proposal for the Government, covering the three focus areas of: (i) Sustainability; (ii) Talent; and (iii) Digitalisation and transformation. Highlights are summarised below.
(1) Powering Sustainability (p. 4 of proposal)
(a) Implement a National Blended Finance Framework to spur green financing (p.6)
Singapore has taken steps on its climate commitments through its Singapore Green Plan and its recent appointment of a Government Chief Sustainability Officer. The key challenge ahead, particularly with economic headwinds expected worldwide, will be in financing the green agenda.
A strategy KPMG recommends is for the Government to implement a national framework to spur the growth of blended finance to address the trilemma of security, affordability, and sustainability. This framework can include broad-based schemes with low entry thresholds and targeted initiatives for emissions-intensive industries or transition projects.
Ong Pang Thye, Managing Partner, KPMG in Singapore said:
“A national blended finance framework can be pivotal for sustainable change to happen at-scale nationally and regionally. Countries and companies in the region are also keeping sustainable development on top of their agendas. However, securing funding can be challenging with individual countries facing ongoing economic headwinds, while dealing with domestic developments and priorities.
“As part of this framework, the Government could encourage financial institutions (FIs) to step up their involvement in the climate transition (through incentives) – this can involve FIs redirecting the necessary capital to areas with the highest needs. At the same time, authorities can also extend access to Singapore’s Sustainable Bond Grant Scheme to a wider audience of issuers that need financing for green projects. The successful implementation of such a blended finance framework in the longer term will position Singapore as a leading green finance hub to anchor ASEAN’s green and just energy transition.”
(b) Spearhead asset recycling mechanisms and alternate funding options (p.10)
Ajay Kumar Sanganeria, Partner, Head of Tax, KPMG in Singapore added:
“Singapore can lead the development and implementation of asset recycling frameworks to refinance brownfield infrastructure, while achieving Singapore and ASEAN’s broader Environmental, Social and Governance (ESG) objectives. These mechanisms will optimise private sector innovation, investment and efficiency in operating infrastructure assets, while freeing up capital that can be deployed to other priority greenfield infrastructure projects. An Energy Transition Mechanism involving early retirement of coal-fired power projects is one area with high potential and impact.”
(c) Intensify green investments (p.11)
To tap the potential of green bonds in energy transition, KPMG proposes to set frameworks for analysing a project’s qualification for green investments, including introducing a green credit scoring system with new environment and energy factors. As renewable energy technologies begin to mature in this decade, investments into green infrastructure projects and research and development (R&D) capabilities will be critical. The Government can consider pumping investments into large-scale alternative energy projects in ASEAN countries under a “generate and transfer model” to accelerate the nearshore import of renewable energy and decarbonise the grid at a quicker pace.
Other measures to further drive the decarbonisation agenda include:
- Working with industry bodies to boost support for FIs, such as setting up a new subset of qualifying activities under the Financial Sector Incentive scheme which provides for concessionary tax rates, enhanced deductions or cash grant schemes
- Extending consumer tax incentives, such as the EV Early Adoption Incentive and the Vehicular Emissions Scheme to further bridge price differentials between electric vehicles and internal combustion engine vehicles (p.14)
- Incentives to bridge the green building demand-supply gap, including a 200 percent tax deduction on financing costs and rental of green properties, a 30 percent property tax rebate and a 50 percent exemption on taxable gains from green building sales. (p.13)
2. Opening Doors to Opportunity (p. 15 of proposal)
(a) Attract top talents to augment Singapore’s economy amid a talent war (p.18)
With a global war for talent and an ever-evolving business landscape, Singapore must continue to attract the best minds to its shore, while ensuring that policies to facilitate new ways of working remain robust. At the same time, these new challenges have prompted Singapore’s leaders to refresh the country’s social compact and foster renewed resilience, led by its Forward Singapore roadmap.
Ajay Kumar Sanganeria, Partner, Head of Tax, KPMG in Singapore, said:
“To be a global leader in attracting and retaining talent, Singapore should extend the tax exemption days for foreign employees working in priority sectors of the economy to 90 days. This will attract talents who may not wish to relocate but are still eager to be based in Singapore on a short-term basis.”
(b) Strengthen hybrid and remote working regime (p.18, 19)
As more Singapore businesses leverage talents overseas to grow, Singapore is likely to benefit from the higher corporate tax revenue generated. In step with this, Singapore should initiate at least an ASEAN-wide framework to address tax issues that may arise for Singapore companies with remote workers in another country. Potential challenges to be addressed under the framework include the creation of a Permanent Establishment in an overseas jurisdiction and the taxing rights over the salaries and related remuneration of remote workers.
Ajay Kumar Sanganeria, Partner, Head of Tax, KPMG in Singapore, said:
“Companies are building a future-forward workforce, where hybrid or remote work is now a long-term option for many. However, safeguards against income tax leakages need to be strengthened. This means reviewing underlying policies and setting the relevant guidelines for remote-working employees based in Singapore, to provide more clarity to foreign employers and employees.
(c) Catalyse private and public capital to build Singapore’s social compact (p.22)
Singapore has been reviewing its tax system to boost revenue generation potential, but any enhancements should be carefully considered in terms of rate and scope to remain fair and progressive. Alongside this, KPMG recommends for the Government to catalyse private and public capital for social spending through innovative blended finance structures and social bonds – as already seen in several Asia Pacific countries. Early-stage grants to support the design of social bonds as well as partial guarantees to bond holders to lower investment risks and bring in private investors should be explored. Additionally, platforms such as social stock exchanges can also attract new investment.
3. Strength in Adversity (p. 23 of proposal)
Singapore will need to demonstrate how it can bolster its fiscal resources while protecting prospects for growth as it enters challenging times. To stay ahead, the country should also step up its support for businesses to digitalise, transform and seize new markets.
(a) Decisive measures for Singapore to remain attractive to multinational corporations (MNCs) (p.25)
Ajay Kumar Sanganeria, Partner, Head of Tax, KPMG in Singapore, said:
“In the coming months, policymakers in Singapore will need to move more decisively to restructure its incentives to attract and retain investments from MNCs impacted by global tax developments that will gain momentum in 2023.
“KPMG proposes that a percentage of collections from Pillar Two measures be channelled into a pool of funds that would be used to attract and retain investments not just from global MNCs, but also local MNCs affected by the rules. This pool of funds can provide flexibility to economic agencies to provide targeted programmes to both global and local multinationals.
“There can also be an increase in the number of expenditure-based tax incentives (offered in the form of Qualified Refundable Tax Credits rather than enhanced tax deductions). These can take the form of expanding the list of intellectual property categories that can qualify for writing down allowances. Existing R&D tax incentives should also be redesigned to a Qualified Refundable Tax Credit scheme so that there will be minimal impact under the rules, alongside the increase in grant caps of existing programmes.”
(b) Boost Singapore’s digital asset ecosystems (p.29)
KPMG’s research has shown promising use cases and innovation of digital assets, including non-fungible tokens (NFTs) and Decentralised Finance (DeFi), to boost digital connectivity and economic integration. Singapore should carefully study the changing landscape and look at providing certainty on the regulatory and tax treatments of these new investment products to strengthen its digital asset ecosystems. To further fuel growth, Singapore should also promote the use of digital accelerators or hackathons that allow industry advisory boards to guide and sponsor fintechs to solve industry-wide problems.
(c) Targeted grants for GST-registered businesses (p.27)
Some businesses are likely to be impacted by the staggered Goods & Services Tax (GST) hike over the next two years, with top concerns on compliance costs. The Government can offer grants to specific businesses, such as small and medium enterprises (SMEs) which are more concerned about the cost of complying with the two-step GST rate hike.
(d) Provide certainty on new wealth taxes (p.27)
Ongoing speculations on whether Singapore will see new forms of wealth taxes have led to market uncertainty, in particular for the wealth management sector and high-net-worth individuals contemplating if they should move their assets here. The Government should clarify if it will be introducing wealth taxes in the near future, and what this might mean for the country.
Ajay Kumar Sanganeria, Partner, Head of Tax, KPMG in Singapore, said:
“Singapore has been raising the progressivity of its tax policies in a calibrated manner. However, the market continues to have concerns over the possibility of a new wealth tax or a reintroduction of estate duty or inheritance tax. Budget 2023 will need to be decisive in addressing these speculations.”
(e) Tax rebates and incentives to cope with rising costs
Amid concerns over inflation and rising costs, enterprises will benefit from support as they strive to be more innovative and future ready. We recommend the following measures:
- A one-off 10 percent corporate income tax rebate and an increase in the number of installments that companies can take to pay their income tax liabilities (p.32)
- Expand coverage of the enhanced R&D tax deduction to include costs incurred for overseas R&D activities, beyond its current scope of activities performed in Singapore only (p.32)
- Help businesses invest in the local talent pool with an additional 100 percent deduction on training expenses, with similar conditions to the Productivity and Innovation Credit (PIC) scheme for qualifying training expenditure (p.32)
- Increase Enterprise Development Grant support for overseas mergers & acquisition activities to up to 90 percent for SMEs and up to 70 percent for non-SMEs for an initial period of two years to drive internalisation efforts (p.31)
- Up to 80 percent of funding support under the Productivity Solutions Grant for companies to adopt advanced manufacturing solutions, along with a two-year extension of the 100 percent investment allowance to encourage the sector to shift towards automation. (p.31)
(f) Enable businesses to transform supply chains and embed ESG (p.30)
Ong Pang Thye, Managing Partner, KPMG in Singapore, said:
“Beyond economic factors, Singapore has also had to contend with climate change. However, even as carbon markets are set to expand significantly, carbon trading is not a long-term solution to reducing carbon emissions. Ultimately, large emitters will need to adopt greener and more cost-efficient solutions and the Government has a critical role in driving a mindset change.”
That said, in response to supply chain disruptions and the push towards ESG, more companies are looking to invest in digital transformation to be more efficient and sustainable, and could benefit from these measures:
- Enhanced deductibility of expenses incurred on supply chain digitalisation and transformation
- Special taxation regime and/or financing for companies involved in investment, development and trade of renewable energy, hydrogen and carbon credits.
A copy of our Budget 2023 proposal is available for download at this link.
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The issuer is solely responsible for the content of this announcement.
About KPMG
KPMG in Singapore is part of a global organization of independent professional services firms providing Audit, Tax and Advisory services. We operate in 143 countries and territories with more than 265,000 partners and employees working in member firms around the world. Each KPMG firm is a legally distinct and separate entity and describes itself as such. KPMG International Limited is a private English company limited by guarantee. KPMG International Limited and its related entities do not provide services to clients.
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