Singapore Budget 2019 puts some tax breaks out to pasture

Analysts say impact mitigated by alternatives; schemes had been reviewed for relevance


SEVERAL tax incentive schemes have been allowed to lapse after they were reviewed for relevance by the Ministry of Finance, as part of the Budget package delivered on Monday.

These included a property tax boon for tourism projects, the designated unit trust and approved unit trust schemes for investors, and the "not ordinarily resident" (NOR) scheme for high-skilled foreigners.

The tweaks, said Finance Minister Heng Swee Keat in his speech, are "to further enhance the progressivity and resilience of our tax system".

Tax professionals think that, with various industry alternatives in place, most of the changes are unlikely to have a significant impact on business here - with the possible exception of the NOR scheme, the lapsing of which drew mixed views.

The NOR scheme, introduced in the 2002 Budget, dished out tax breaks such as a pro-rating of Singapore income based on time spent overseas for work, for a five-year period. It is now set to lapse after tax year of assessment (YA) 2020, with NOR status to expire by YA 2024.

Observers told The Business Times that the change could put local and foreign workers on a more even footing, but Wu Soo Mee, executive director at BDO Tax Advisory, added that the beneficiaries are typically high-flyers.

"If the employer bears the employee's taxes, this can mean a significant increase in the costs for the business," she said, noting that the change has come soon after the removal of income-based concessions on employer-provided housing in YA 2015.

But, citing non-tax factors such as safety, ease of doing business and infrastructure facilities, Girish Vikas Naik, PwC's global mobility director, added: "We need to watch this space to see if this proposed measure (on NOR) will result in globally mobile talents choosing to base themselves elsewhere or if, on a holistic basis, Singapore provides a more conducive environment to live and to work."

Simon Poh, associate professor of accounting at the National University of Singapore, noted that employees here are already paying substantially lower taxes, compared with their counterparts in Asia anyway.

Meanwhile, tax practitioners largely shrugged off the sunsetting of other tax incentives in the Budget.

They said that the two unit trust schemes being phased out have, over the past decade, already lost some of their relevance in light of fresh exemptions on fund income in Section 13 of the Income Tax Act.

The approved unit trust scheme, which limited taxes on trustees and had tax exemptions for some unit holders, lapsed on Monday.

But trusts now in the scheme will get five more years of tax breaks - a move meant to give them time to switch to suitable alternative tax incentive schemes.

The designated unit trust scheme, where income is taxable upon distribution with exemptions for qualifying foreign investors and individuals, will lapse on March 31 - although trusts can keep reaping tax deferral benefits if they still meet conditions.

Baker Tilly tax partner Loh Eng Kiat said the designated unit trust scheme "has become less important to the larger retail funds, as the enhanced tier funds scheme emerged".

"It will take some time for fund managers who have never relied on these schemes to understand the provisions, but (the other measures) are quite liberal and may actually make things easier for the retail fund industry," said PwC asset and wealth management tax leader Anuj Kagalwala.

As for the approved unit trust scheme, he said that the impact will be low "since it is generally believed that the take-up rate was low".

Meanwhile, the removal of property tax breaks on tourist projects should have a minimal impact on the tourism industry, watchers said.

The 32-year-old Property Tax (Tourist Projects) Order - which allowed approved projects to compute their annual value based on 6 per cent of the previous year's gross receipts, for five years - ended on Monday.

Ong Siok Peng, tax leader for transportation, hospitality and services at Deloitte Singapore, told The Business Times that the tax incentive had been introduced to boost the appeal of cultural and historical sites. As it did not apply to hotel premises, the removal of the concession should not hurt hotel owners.

"The removal of the property tax concession is unlikely to adversely impact the tourism sector in Singapore," she added, noting that there are other incentives like the Singapore Tourism Board's Tourism Development Fund.

Prof Poh said: "The concessionary property tax computation...can yield substantial tax savings for five years. Its removal, though disappointing again, may not seriously impact the overall tourism industry, which continues to enjoy healthy growth."

Key points

  • Property Tax (Tourist Projects) Order lapsed after Monday
  • Approved Unit Trust scheme lapsed after Monday
  • Designated Unit Trust scheme to lapse after March 31
  • Not Ordinarily Resident (NOR) scheme to lapse after Year of Assessment 2020