What SMEs Need To Know About Singapore Budget 2022

As Singapore experiences broader economic recovery, small & medium-sized enterprises (SMEs) are still grappling with the long-term effects of the pandemic. As part of Budget 2022, Finance Minister Lawrence Wong announced measures on 18 Feb 2022 to help struggling workers and businesses. This year’s Budget has extended business financing schemes, including industry-led skills training for workers, and tightened regulations on the in-flow of foreign workers.

1. Jobs and Business Support Package

The government has set aside a S$500 million support package under the Jobs and Business Support Package. Under this scheme, SMEs most affected by COVID-19 restrictions in 2021 will receive one-off cash grants. These include those in the retail, hospitality, tourism, and food and beverage sectors. SMEs from these industries will receive a payout of S$1,000 per local worker, up to a cap of S$10,000 per company.

Additionally, local sole proprietors and partnerships in qualified sectors and (Singapore Food Agency-licensed) hawkers, coffee shop and market stallholders, who do not have local hires, will also receive a S$1,000 payout.

2. Temporary Bridging Loan Programme and Enhanced Trade Loan Scheme Extended

Due to an increase in electricity prices and materials costs, many businesses have been facing cash flow concerns. To help businesses with these concerns, the Temporary Bridging Loan Programme and the enhanced Trade Loan Scheme will be extended by another six months, from 1 April to 30 September 2022.

Temporary Bridging Loan Programme (TBLP)

Introduced in Budget 2020, the Temporary Bridging Loan Programme (TBLP) provides businesses with additional working capital. The TBLP will be extended for six months, from 1 Apr 2022 to 30 Sep 2022.

This scheme was previously extended for six months, from 1 April to 30 September 2021. Enhanced in April 2020, this scheme adjusted the Government risk-share to 90%. The enhancement will be applicable to new applications made from 8 Apr 2020 to 31 Mar 2021. For applications pending approval from Private Finance Initiative (PFIs), organisations are advised to reach out to their PFIs to check on eligibility.

Enterprise Financing Scheme – Trade Loan (EFS-TL)

• The trade loan scheme will be extended to Sept 30 2022 with a maximum loan quantum of S$5 million per borrower, or S$20 million per borrower group.
• The project loan scheme will be extended to March 31 2023 with a maximum loan quantum of S$30 million per borrower, or per borrower group for domestic projects.
• The merger and acquisition loan scheme will be extended to March 31, 2026 with a maximum loan quantum of S$50 million per borrower, or per borrower group.

3. GST Will Increase in 2023

Tax increases can affect businesses. Thankfully, the government has been mindful of that, introducing a set of measures to help individuals and businesses cope.

The GST increase was delayed to 2023, and staggered in two stages:

Other measures:

4. Helping SMEs Boost Productivity

Productivity Solutions Grant (PSG)

Over the next four years, an additional S$600 million will be put aside for SMEs under the Productivity Solutions Grant (PSG) to boost productivity by automating and digitising business processes.

This is expected to support over 100,000 productivity projects. This is more than twice the number of supported projects since the PSG scheme started.

Launched in 2018, PSG aimed to support the adoption of IT solutions, consultancy services and equipment to boost productivity. In 2020, the maximum funding support under the enhanced PSG scheme was increased from 70 percent to 80 per cent. In the Budget 2021, the enhanced support level of 80 per cent was extended to 31 March 2022.

In the Budget 2022, this earmarked S$600 million will help the government expand the range of solutions under the PSG to encourage more SMEs to take up productivity solutions.

SMEs who meet the following criteria can apply for PSG:

• registered and operating in Singapore
• purchases/subscriptions/leases of IT equipment or solutions must be utilised in Singapore
• hold a minimum of 30% local shareholding; with fewer than 200 employees or an annual sales turnover of less than S$100 million (for selected solutions only)

Support for local companies with research and development projects

Local businesses will also receive more support to take on research and development (R&D) projects that form the basis of innovation.

Finance Minister Lawrence Wong shared that he would like to witness more partnerships between local firms – namely SMEs – and the 80 technology and innovation centres in the Institute of Technical Education and polytechnics. These centres will be able to take on almost 2,000 innovation projects across five pilot sectors over the next five years: agri-tech, food manufacturing, construction, retail and precision engineering.

5. Minimum Salary for S-Pass and Employment Pass Increased

Various foreign worker policies will also undergo some changes:

6. Skills Development Levy

To help smaller businesses train employees, the government is stepping up its efforts to help small businesses train employees. For the qualifying period of 1 January to 31 December 2021, a waiver of the Skills Development Levy requirement will be granted. This is estimated to benefit twice the number of eligible employers from the current 40,000 to 80,000. The deadline to claim the credit will be extended by a year to 30 June 2024.

Moreover, approximately S$100 million will be earmarked to support the National Trades Union Congress (NTUC) in scaling up its Company Training Committees (CTC).

Previously, employers were supported in training their employees through the SkillsFuture Enterprise Credit scheme. However, these employers must have employed at least three local employees and contributed at least S$750 of Skills Development Levy over the qualifying period to be eligible for this scheme. This meant that the qualified employers were mainly from the larger firms.

7. Carbon Tax Increase

To attain Singapore’s new net-zero ambitions, the government will progressively raise carbon tax. This will kick in from 2024.

The use of diesel, petrol and compressed natural gas (CNG) will not have additional carbon tax imposed, since they’re already subjected to excise duties to encourage moderation.

A transition framework will be in place to help businesses in trade-exposed and emissions-intensive sectors to deal with the near-term impact of higher business costs due to the increased carbon taxes.

In lieu of paying carbon tax, companies will be allowed to use high-quality international carbon credits to offset up to five per cent of their taxable emissions from 2024.

Additionally, the government will also provide more support for businesses to invest in decarbonisation and energy-efficient equipment solutions.

8. Progressive Wage for Workers and Its Impact on Businesses

The Progressive Wage Model will be extended to the food services, retail and waste management sectors, as well as to security officers, cleaners, landscape workers, drivers and  administrators across all sectors. This means that companies will face higher labour costs.

Over the next five years, employers who increase the salary of their local lower-wage employees will get co-funding under the new Progressive Wage Credit Scheme.

To qualify for the year’s support, employers must make an average gross monthly wage increase of at least S$100 in a year. This payout will then be automatically credited by the Inland Revenue Authority of Singapore (IRAS) by the first quarter of the year following the salary increase.

To support businesses in increasing the salary of their bottom 20% of wage earners, an initial S$2 billion will be earmarked for this scheme.

9. Employers To Receive CPF Offsets as Basic Retirement Sum for Senior Workers Increase

The Basic Retirement Sum (BRS) will be increased by 3.5% for the next 5 batches that turn 55 between 2023 and 2027, to let senior workers enjoy higher monthly Central Provident Fund (CPF) payouts in their retirement years.

Senior workers who are unable to put aside the BRS will not be required to top up their CPF, but those who do set aside their BRS when they turn 55 in 2027 will get payouts of close to S$1,000 per month when they turn 65. These payouts will continue for the rest of their lives.

The first increase was executed this year after a 1-year postponement, with employers given a 1-year S$80 million offset package tantamount to half of the increase in employer CPF contributions. The planned second increase in CPF contribution rates for senior workers will take place in 2023, and employers can expect a similar offset.

10. Workfare Income Supplement Enhancements

As part of the enhancements to the Workfare Income Supplement (WIS) scheme, younger workers aged 30 to 34 will soon qualify for payments. The qualifying income will be increased from S$2,300 to S$2,500, from 1 January 2023.

Additionally, Workfare will implement a minimum income criterion of S$500 a month to encourage casual workers and part-timers to take on full-time work.

The enhanced WIS scheme is expected to benefit over half a million employees.

11. Corporate Tax Increase

Singapore will need to adjust its corporate tax system in response to global tax developments relating to the Base Erosion and Profit Shifting initiative (BEPS 2.0).

At the moment, Singapore’s headline corporate tax rate stands at 17%, although the effective tax rate of many companies may be lower than that, or even the proposed global minimum. This is because of the tax incentives awarded to those deemed as beneficial to the economy.

Under the first pillar of BEPS 2.0, some multinational enterprises (MNEs) will have to re-allocate financial gain from where activities are conducted to where customers are located. Under the second pillar, Singapore is looking to introduce a Minimum Effective Tax Rate (METR) of 15 per cent for some MNEs.

IRAS will further study the METR and consult the industry, while the government will monitor international developments closely prior to making a decision on the METR. Lawrence Wong also shared that the changes to the corporate tax system will be announced when ready.

12. Property Tax Increase

From 2023, property taxes on Singapore’s highest-value homes will be raised in two steps from 2023.

For owner-occupied residential properties, the property tax for the portion of annual value in excess of S$30,000 will be raised from the current range of between 4 and 16 per cent to between 6 and 32 per cent.

These property tax changes will not affect the 93 per cent of owner-occupied property, including all HDB flats, most condominium apartments and low-value landed property.

For non-owner occupied residential properties – including investment properties – the current range of 10 and 20 per cent will be raised to 12 and 36 per cent.

These changes, when fully implemented, will increase Singapore’s property tax revenue by approximately S$380 million per year.