Singapore Minister of Finance, Lawrence Wong has focused the 2022 budget on three initiatives:
The hope is that these three sectors will use the lessons of the last three years to help create smooth sailing ahead for all of Singapore. What does that look like for businesses specifically? While the future conditions can’t be predicted, there are a few markers in the planned course ahead that businesses should be aware of to make the most of the opportunities available. Here are my top four takeaways for businesses looking to plot ahead based on the government’s thinking.
GST Hike Delayed, but Should Not Be Ignored
While the tack towards a GST hike has been swirling for quite some time, Minister Wong understands that such a hike needs to be gradual and measured so as not to create an unnecessary burden for businesses and citizens alike. While this delay offers a short reprieve, it would be unwise to think that this is a sign that GST won’t be scrutinized greatly by the government over the coming years. The GST’s eventual hike to 9% in 2024 would likely make it the second-largest source of tax revenue for the government behind only Corporate Taxes, justifying such scrutiny.
This delay is a good-faith buffer to help the economy regain a stable keel after the pandemic. As the eventual hike from 7% to 8% on 1 January 2023 is now very much confirmed, businesses should factor this into their long-term plans.
Given the 10-month lead-in for businesses, there is still time to adjust to the increase. There will also be a SGD$40 million pool for businesses to acquire new accounting resources and point of sale adjustments to help them manage this increase. This gives companies more time and resources to review their processes and tax structures to minimize the impact on their profits. You should absolutely use this time wisely and commit resources to ensure you don’t get caught in any GST-related rough weather.
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Carbon Tax to Increase to SGD$80 per Tonne by 2030
“To move decisively to achieve our new net-zero ambition”, according to Minister Wong, the carbon tax will increase to SGD$25 per tonne in 2024, all the way up to SGD$80 per tonne in 2030. While the current tax of SGD$5 per tonne will remain until 2023, this should be a wake-up call for all industries reliant on fossil fuels.
Combined with Russia’s current weaponization of fossil fuel economics, this is a clear marker for a shift towards greener, more efficient options for most sectors. The commercial heavy-duty transport industry should accelerate plans towards electrification, or even hydrogen.
Industries in petroleum and chemicals, iron and steel, cement, and other major greenhouse gas (GHS) emitters will see more value in adopting renewable energy, electrifying their processes, and/or introducing new-energy alternatives in their operations.
The carbon taxes shouldn’t just be set aside for any old rainy day — the future of climate change is the be-all and end-all of rainy days, and they should be used exactly for that purpose. The taxes should for the most part be channeled into research and development on decarbonization and new energies to reduce greenhouse gas emissions. This is an opportunity for Singapore to be a world leader in charting the way ahead for what will undoubtedly be the race towards the next major leap forward in global energy.
Changes to Employment Visa Minimum Salaries
If it was in the stars before, it’s definitely in the charts now — Singapore employers will need to pay their foreign crew more. Most Employment Pass (EP) holders will have their minimum salaries raised from SGD$4,500 to SGD$5,000, while EP holders in the financial sector will have salaries raised from SGD$5,000 to SGD$5,500.
There is an argument that this is actually for the better — the tide has been shifting to shore up foreign worker policies as the economy recovers. Increasing the salary thresholds is good for ensuring the quality of foreign talent but the added cost may also incentivize companies to first look at locals to plug the holes in their workforces.
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SGD$500 Million Jobs and Business Support Package
As much as this budget prepares Singapore for a post-covid economy, the reality is that many businesses are still treading water and are in need of assistance. The SGD$500 million Jobs and Business Support Package will include a grant for small and medium-sized enterprises (SMEs) most affected by Covid-19 restrictions, such as those in the food and beverage (F&B), tourism and hospitality, and retail sectors. There will also be a six-month extension of the Jobs Growth Incentive to September 2022.
Selected businesses in the hard-hit sectors during the pandemic have been thrown a lifeline, albeit at a reduced significance, given that the announced $1,000 per worker or $10,000 per firm handout is lower than the Jobs Support Scheme during the course of last year.
Investing in New Capabilities
To advance Singapore’s status as a global hub for innovation and development, the Singapore Government will be investing significantly in the continued upgrading of our broadband structure, increasing its speed and stability while also preparing for the eventual development and deployment of 6G networks. Along with the new Singapore Global Enterprises initiative, the government is sending a strong signal that as we sail towards smoother seas, firms will be provided the tailored support they need to reinvent and internationalize themselves to pull through the choppy waters of the pandemic.
It is evident that businesses in Singapore will need to make some adjustments in order to stay afloat following the release of the country’s budget for 2022. Among the most significant changes are increasing GST rates, carbon taxes, and a raise in minimum salaries for foreign workers. While this wave of policies may seem daunting, there are also several measures aimed at helping businesses, including assistance for the shift in GST rates, and the SGD$500 million Jobs and Business Support Package. Hopefully, with a little ingenuity and help from the government, businesses in Singapore will be able to “chart their new way forward” and come out stronger on the other side of the Covid storm.