Package to boost productivity to be phased out

Package to boost productivity to be phased out

A PACKAGE of schemes introduced in 2013 to help companies become more productive will be gradually phased out to give firms time to adjust to rising costs as they restructure.

The programme, called the Transition Support Package, has three components - the Wage Credit Scheme (WCS), corporate income tax rebate and the Productivity and Innovation Credit (PIC) Bonus.

The WCS and corporate income tax rebate will be extended for two more years but at reduced support levels. The PIC Bonus will expire in the 2015 tax year.

The Transition Support Package has given out $7.5 billion over three years, far more than the original estimate of $5.3 billion.

The PIC Bonus, introduced to supplement the PIC tax credit scheme, provides eligible businesses a dollar-for-dollar matching cash bonus on top of their existing PIC tax deductions or cash payouts.

The bonus was intended as a "transitional measure" to encourage firms to take advantage of the PIC scheme, said Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam yesterday.

The bonus "has been successful in spreading the culture of productivity among SMEs (small and medium-sized enterprises)" and take-up of the PIC scheme has been robust, he added.

The Wage Credit Scheme was introduced to help firms cope with rising labour costs by co-funding 40 per cent of pay rises for Singaporean workers earning less than $4,000 a month.

The scheme was adjusted yesterday: Over the next two years, the Government will co-fund 20 per cent of wage increases given to Singaporean workers earning below $4,000 a month.

This co-funding will apply to salary hikes given next year and in 2017. In addition, if wage increases given this year are sustained next year and in 2017, employers will continue to receive co-funding at the new rate of 20 per cent.

The scheme's extension is expected to cost $1.8 billion over two years. It is intended to help businesses through restructuring and will not be retained for the long term.

A corporate income tax rebate of 30 per cent capped at $30,000 per year of assessment was granted to companies for three years in Budget 2013.

This has been extended for another two years, at the same rate of 30 per cent of tax payable but with a reduced cap of $20,000 for each year of assessment.

The lower cap will ensure that more support is focused on SMEs, Mr Tharman said.

The Temporary Employment Credit, introduced last year to help employers cope with higher Medisave contribution rates, has also been enhanced and extended.

This will help firms with labour costs and offset higher expenses from changes to the Central Provident Fund contribution regime.

NUS Business School Associate Professor of accounting Simon Poh said the removal of the PIC Bonus was disappointing as many businesses had called for the incentive to be extended.

But the "gradual phasing out" of the other two components of the Transition Support Package did offer some consolation, he added.

Ms Tan Bin Eng, business incentive advisory partner at EY, said the fact that measures under the Transition Support Package have not been completely removed "shows that (the Government) has heard companies' woes about rising business costs".

"However, the message is clear that directionally, they are not going to change and it's important for companies to keep up that momentum," added Ms Tan.

She noted the Budget has taken a more long-term focus - instead of further enhancing the PIC scheme, there were more announcements aimed at spurring innovation and overseas expansion.

The Straits Times/ Top of The News Published on Feb 24, 2015 2:45 AM

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