Singapore's small and medium enterprises have many reasons to be grateful. Delivering the Budget Statement for the Financial Year 2014 Budget last Friday, Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam introduced several strategies to help SMEs expand and increase productivity via new incentives and enhanced funding schemes.
"The slew of small enhancements, particularly the tax-related ones that impact mainly SMEs and individuals, sends a clear signal to everyone on the direction Singapore is heading and the commitment of the government to all its people,” comments the Singapore Institute of Accredited Tax Professionals (SIATP) in a statement relased to the media.
In 2010, the Co-Investment Programme (CIP) was launched to catalyse patient growth capital for Singapore-based enterprises, through co-investing with the private sector. The government set aside $250 million for the first phase of the programme, of which approximately $160 million has been deployed. This has already catalysed over $500 million of investments from private sector players, or over three times of the government’s outlay.
In view of the good uptake to date, Singapore will launch the second phaseof the CIP this year with the government providing an additional $150 million to match private sector investments. The CIP will continue to focus on investing in growth-oriented Singapore SMEs and providing the patient capital to help SMEs that need more time to execute their expansion and internationalisation plans.
The additional capital will be allocated to two funds: SME Co-Investment Fund II and SME Mezzanine Growth Fund.
Similar to the existing SME Co-Investment Fund, the SME Co-Investment Fund II will make direct equity investments into companies alongside other private equity investors.
The SME Mezzanine Growth Fund is a new fund that aims to meet the demand from SMEs for mezzanine financing, a hybrid debt-equity instrument. It provides a more flexible financing option for SMEs that do not wish to dilute their equity but face challenges in increasing their borrowings from traditional banking sources.
Shanmugaratnam also revealed that the government will spur lending to young SMEs. SPRING Singapore will raise the government risk-share in the Micro-Loan Programme (MLP) for young SMEs (firms which have been registered for less than three years) from 50% to 70%. The enhancement is expected to catalyse an additional $32 million in loans for FY2014 and FY2015.
"Young SMEs often face financing challenges that hinder their potential growth. They lack a track record and are inherently more risky investments, making it difficult for them to obtain loans from banks," says Shanmugaratnam.
The MLP was launched in 2001, with the Government taking on some of the risk for small loans below $100,000, to encourage banks to lend to our small and young businesses.
To provide firms with stronger support for every investment that can improve productivity, Shanmugaratnam introduced “PIC+” scheme for SMEs, to help firms that are making more substantial investments to transform their businesses. Shanmugaratnam noted there was higher take-up rates for the existing Productivity and Innovation Credit (PIC) scheme. Two out of three SMEs with turnover of more than $1 million have claimed benefits.
Under the current PIC scheme, the expenditure cap is $400,000 per year for each qualifying activity and the cap can be combined to a total of $1.2 million across three years. The PIC expenditure cap will see an increase in input from the government to S$600,0000, which means SMEs will be able to claim tax deductions for up to S$1.8 million in expenditure.
“The introduction of a new PIC+ scheme only for eligible SMEs is certainly a welcome measure. SMEs now have an extended cap of up to $600,000 from YA 2015 (from the previous $400,000) for each qualifying activity up to YA 2018. Our SMEs should feel relieved that they now have access to even greater support,” says the SIATP.
Raising productivity is at the centre of Singapore's economic agenda, and SMEs are leading the progress on the ground. Mature, SME-dominated industries like precision engineering and food manufacturing are retooling and experiencing significant productivity growth, according to Shanmugaratnam.
"More companies are sharing services. Restaurants are using shared services for food preparation and dishwashing, and hotels for laundry services. And in several sectors, individual players are now introducing game-changing innovations – altogether new ways to grow their businesses," says Shanmugaratnam.
“Enhancing the PIC cap from S$400,000 to S$600,000 per year will benefit SMEs that are making significant investments to ensurethat they continue to progress in their productivity initiatives," says Tan Bin Eng, Partner, Business Incentives Advisory, Ernst & Young Solutions LLP. "The extension of the PIC by another three years is much welcomed but small companies may be disappointed that there are no changes made to the level of cash payouts available."
New Industrial Spaces to Help Lower Costs
Singapore will also create new industrial spaces that cluster companies within the same industry. SMEs will benefit from lower costs through the consolidation of operations, pooling of resources and aggregation of demand for delivery and other services.
"For instance, JTC’s Food Hub concept will feature an integrated cold room-warehouse shared facility operated by a third party provider who will also provide logistics services. This will not only lower the capital investments needed by SMEs – as they no longer need to invest in their own cold rooms – but also enable them to benefit from more efficient supply chains," explains Shanmugaratnam.
Adopting ICT to Increase Productivity
Another major thrust is to catalyse the adoption of ICT in the SME sector. Shanmugaratnam revealed the government's plans to give ICT adoption by SMEs a major push over the next three years via an ICT for Producitivity and Growth (IPG) programme, which comprises three key initiatives.
The first concerns proven ICT solutions. Shanmugaratnam noted that over the past three years, IDA has worked with trade associations and the ICT industry to develop and deploy sector-specific solutions under the iSPRINT scheme. In F&B, for example, more than 50 F&B operators have adopted a wireless integrated restaurant system that has relieved their service staff from manual and repeated tasks.
The government targets to extend the reach of these sector-specific proven solutions from the existing 500 SMEs to another 10,000 SMEs over the next three years by subsidising 70% of the costs of ICT products and services.
The third initiative involves promoting high-speed connectivity for SMEs. It is difficult for SMEs to take full advantage of cloud computing and data analytics solutions without high-speed Internet access.
"We will subsidize SMEs’ fibre broadband subscription plans of at least 100 Mbps (Megabits per second) and provide support for them to implement [email protected] services at their premises," says Shanmugaratnam.
"It is encouraging to see the Budget focus not only on helping SMEs succeed within the nation but also expand beyond our shores to seize global growth opportunities. The enhancement to internationalisation finance scheme coupled with the IPG program will empower SMEs in Singapore to develop cross-border trade, particularly critical with the regional economic integration enabled by the ASEAN Economic Community 2015 master plan," says Joshua Soh, managing director for Cisco in Singapore and Brunei.