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R&D scheme should stay as firms innovate

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Companies here plan for long-term growth amidst short-term pressures, says KRMG

Business sentiment on the ground in Singapore is chilly - worse than during the 2008 global financial crisis, a new survey has found.

But even as firms face intense short-term pressures, they are preparing long-term growth plans.

KPMG's pre-Singapore Budget 2017 report, released yesterday, found that 70 per cent of firms interviewed cited global economic volatility as their top business concern.

Mr Chiu Wu Hong, KPMG head of tax in Singapore, said it was a spike from last year, when 50 per cent of firms rated it a top concern.

In all, 123 firms were interviewed: 27 multinationals, 39 small and medium-sized enterprises and 57 large Singapore companies.

Association of Small and Medium Enterprises president Kurt Wee said at a briefing that sentiment on the ground is worse than during the 2008 crisis.

According to Mr Wee, firms face upcoming interest rate hikes that will increase the cost of funds, as well as slower 
L-shaped growth.

"Whenever we were hit by a downturn over the last decade, businesses bounced back within nine and 12 months.

"What they are confronting this time is that a substantial portion of demand has disappeared, and there is no sight of recovery or stimulus," he said.

The silver lining is that 45 per cent of companies polled said they are looking at internationalisation.


Mr Wee said more companies have gone overseas in the last 18 months, and are also reviewing their business models.

He cited a successful Singapore business that trades in game consoles, which is rationalising its business because of the growth of Internet and mobile gaming.

On KPMG's Budget wish list is the extension of the Productivity and Innovation Credit (PIC) scheme, which is set to expire at the end of the year.

Under the PIC scheme, firms can claim benefits for research and development (R&D), such as salaries for in-house staff and fees paid to an institute for creating a novel product.

KPMG experts said without the PIC scheme, R&D tax incentives here would lag behind those of other countries.

Mr Harvey Koenig, a tax partner at KPMG, said most companies used the PIC scheme for productivity gains.

"Now, at a time when companies begin to realise they need to invest more in innovation, it's going to end. Is that premature?"

He said that while the spotlight had been put on abuse of the PIC scheme, it has been successful in helping businesses.

Mr Koenig said the PIC scheme had helped to improve local businesses' behavioural patterns by offering best practices for how to upgrade.

KPMG also proposed changing the R&D tax incentive from a tax deduction to an innovation tax credit scheme, so that even unprofitable companies not paying tax could benefit if they carried out R&D.