Ahead of Singapore’s Budget 2023 on Feb 14, KPMG announced its proposal for the government.
In its proposal, the professional services firm covered several points spanning three focus areas, sustainability, talent and digitalisation & transformation.
Under sustainability, KPMG is suggesting that the Singapore government implement a national blended finance framework to spur green financing. To them, while Singapore has taken steps on its climate commitments through its Singapore Green Plan and recently appointed a chief sustainability officer, KPMG feels that the financing of the green agenda will be a key challenge ahead.
On this, KPMG is recommending that the Singapore government implement a national framework to spur the growth of blended finance. This, says the firm, will address the trilemma of security, affordability, and sustainability.
“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,” says Ong Pang Thye, managing partner, KPMG, Singapore.
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He adds: “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.”
Singapore can also lead the way in developing and implementing asset recycling frameworks to refinance brownfield infrastructure, suggests KPMG’s Ajay Kumar Sanganeria, head of tax at KPMG Singapore.
“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,” he explains. “An Energy Transition Mechanism involving early retirement of coal-fired power projects is one area with high potential and impact.”
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Also under the sustainability pillar, KPMG is suggesting that the government set frameworks for analysing a project’s qualification for green investments. This includes 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,” says the firm.
In terms of attracting talent to the country, KPMG’s Sanganeria suggests that the country 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,” he says.
The Singapore government should also look into an Asean-wide framework as more Singapore businesses leverage talents from overseas to grow. The framework will address tax issues that may arise for Singapore companies with remote workers in another country. In its proposal, KPMG has suggested that the government include the creation of a permanent establishment in an overseas jurisdiction and the taxing rights over the salaries and related remuneration of remote workers.
“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,” says Sanganeria.
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In addition, the government should explore the possibility of catalysing private and public capital for social spending “through innovative blended finance structures and social bonds – as already seen in several Asia Pacific countries,” says KPMG.
“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,” the firm adds.
Digitalisation & transformation
In its last pillar, KPMG explains that 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,” it adds.
On this, it has put out six suggestions including tax rebates and incentives to cope with the rising costs.
“Amid concerns over inflation and rising costs, enterprises will benefit from support as they strive to be more innovative and future ready,” says KPMG. The firm is recommending a one-off 10% corporate income tax rebate and an increase in the number of instalments that companies can take to pay their income tax liabilities. Other suggestions include expanding the coverage of the enhanced R&D tax deduction to include costs incurred for overseas R&D activities, increasing the Enterprise Development Grant support for overseas mergers and acquisition activities, as well as helping businesses invest in the local talent pool with an additional 100% deduction on training expenses. In addition, KPMG suggests that the government provide up to 80% of funding support under the Productivity Solutions Grant for companies to adopt advanced manufacturing solutions, along with a two-year extension of the 100% investment allowance to encourage the sector to shift towards automation.
Also under the final pillar, KPMG is suggesting that the government implement “decisive measures” such that the country will remain attractive to multinational corporations (MNCs).
“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,” says Sanganeria.
He adds: “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.”
Other suggestions under the digitalisation & transformation pillar include targeted grants for GST-registered businesses, providing certainty on wealth taxes, as well as enabling businesses to transform their supply chains and embed environmental, social and governance (ESG) practices.
On the last point, KPMG’s managing partner, Ong, says: “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.”