This article was first published in the June 2015 Singapore edition of Accounting and Business magazine.

Budget 2015, also known as the Golden Jubilee Budget in celebration of Singapore’s 50th year of independence, continues to build on the central theme of supporting Singapore-based companies to expand within niches of sophisticated, high-value demand, at the same time surmounting the constraints of slower growth in the Singapore workforce. 

Navigating this ‘new normal’ of a permanently tight labour market requires Singapore to chart a new course for growth and has sparked a decade-long effort by the government to transform Singapore’s economy into one where growth is driven by quality of efforts rather than the quantity of inputs.

Embarking on this new course of growth has seen successive Budgets from 2010 organised around three major initiatives: 

  1. a sustained effort to raise productivity and promote innovation among companies and workers 
  2. to support the growth of globally competitive Singapore companies
  3. to build a fair and inclusive society where the fruits of growth are shared equitably.

International outlook

While the Golden Jubilee Budget includes wide-ranging measures to address the aforementioned initiatives, more emphasis appears to have been placed on the internationalisation of Singapore companies and enhancing progressivity in society. 

A major part of future global growth will come from emerging markets. In Asia, and particularly South-East Asia, rapid urbanisation and the attendant increased demand for higher value services will provide Singapore companies with opportunities to expand in these markets. 

Venturing abroad not only helps Singapore companies overcome the constraints of the domestic market; keen competition in the international arena also sharpens these companies’ competitive edge. Collectively, raising productivity, promoting innovation and supporting the growth of globally competitive Singapore companies creates a positive ecosystem that forms a virtuous cycle.

Companies that create value will find it easier to penetrate foreign markets; likewise, those that are required to face international competition will find it necessary to create value.

Indeed, Finance Minister Tharman Shanmugaratnam remarked that ‘outward-oriented sectors saw productivity growth of over 5% per year on average, compared to less than 1% for our domestic-oriented sectors.’

Perhaps it is for this reason that the Productivity and Innovation Credit (PIC) scheme was left largely untouched in Budget 2015, having just been enhanced in last year’s Budget, with the extension of PIC and introduction of PIC+ for small and medium-sized enterprises (SMEs). Instead, a major thrust of Budget 2015 is to support internationalisation efforts of Singapore-based companies. A multi-pronged approach sees, among others:

  1. a new tax incentive, the International Growth Scheme (IGS), being introduced to provide support to meet the needs of larger Singapore companies in their internationalisation efforts. Companies that qualify for IGS will enjoy a concessionary tax rate of 10% on their incremental income from qualifying activities for a period not exceeding five years
  2. the expansion of the Double Tax Deduction for Internationalisation scheme, which was introduced in Budget 2011 to encourage Singapore companies to expand overseas. Going forward, salaries incurred for Singaporeans posted overseas, capped at S$1m per year, will enjoy double tax deduction to give greater support to companies and create skilled jobs for Singaporeans to venture overseas
  3. support for grants to promote internationalisation getting beefed up, with the support level increased from 50% to 70% until 31 March 2018
  4. the application process for projects under S$30,000 under the Capability Development Grant being simplified.

In a related development, the Mergers and Acquisitions Scheme was both extended and enhanced. M&A is generally regarded as a useful strategy for many companies to acquire scale, attract talent and compete effectively overseas.

To encourage local SMEs to continue to expand and grow through acquisitions, the government has increased the M&A allowance rate five times from 5% to 25% while maintaining the deduction cap at S$5m (ie based on an acquisition expenditure cap of S$20m).

The change is reflective of smaller-sized acquisitions commonly undertaken by Singapore SMEs and is a big helping hand in assisting these SMEs build scale for the future, especially with the expected economic integration in the ASEAN Economic Community. In addition, the shareholding eligibility threshold has been reduced to 20% from 50%. This will enable SMEs to expand via entering into alliances with other companies without necessarily obtaining a controlling stake in the other party, which normally makes the deal more difficult to execute.

Enhancing progressivity 

While Singapore has made remarkable economic progress since achieving independence in 1965, income inequality has also risen significantly in the past decade. Singapore’s income gap, as measured by the Gini coefficient for income, is currently one of the widest among developed countries, although it came down in 2013 – the first time in four years.

In this regard, two measures stand out among the many that were announced in the Golden Jubilee Budget to cater for inclusive growth.

The first, SkillsFuture, is a new initiative that seeks to tackle one of the root causes of income inequality by enhancing social mobility through education. It represents a major investment in human capital by cultivating lifelong learning. Support is given to Singaporeans throughout their life, starting from their formative schooling years until they reach mid-career in their 40s.

A notable feature of SkillsFuture is the SkillsFuture Credit, which provides every Singaporean who is 25 and over with an initial credit of S$500 from 2016 to use for education and training, with further top-ups in the future at regular intervals. To make the scheme more effective, eligible courses may have to be accredited or pre-approved. Employers should also play their part by considering granting time off to employees who attend such courses. 

Next, the government, for the first time since 1966, raised the top marginal personal income tax rate for income year 2016 onwards by two percentage points, from 20% to 22% for individuals with a chargeable income above S$320,000.

This is expected to affect only the top 5% of income earners in Singapore and, as such, should not impact the majority of Singaporeans. In fact, most should be better off with the increase in the Central Provident Fund contribution cap to S$6,000, which in turn provides for greater income tax relief, not forgetting that this boosts retirement adequacy as well. 

Nonetheless, this is a bold move by the government, coming amidst a global backdrop of falling tax rates and intense competition for talent. It is also a calculated move, as beyond the redistributive effect of wealth through higher income taxes on the more well-off, the government has also recognised the need to generate additional funding to ensure the future sustainability of various schemes introduced to enhance the country’s social safety net. It remains to be seen if this move will work out well in the long term.


Overall, the Golden Jubilee Budget encapsulates the government’s vision for Singapore in the years to come, with the finance minister elegantly summing up that the nation must become a place where meritocracy of skills matters more than a hierarchy of grades earned early in life. 

Daniel Ho is director of taxes, and Chua Kong Ping is senior tax manager, at Deloitte Singapore.