FNCE201 Corporate Finance For Tax Policies on Budgeting

t (Chen and Lee, 2011p.79). The government of Singapore chose to provide a personal income tax rebate of 20% of all tax payable for the income earned in the financial year 2016 (Bielefeld and Schneider, 2014p.36).  One thing that is common about the budgets of  2015, 2016 and 2017 is that they face a challenge in implementation. 

The National Budget is a very important tool that allows the country to impove the economic welfare of the people, redistribution of income and fiscal surplus to achieve its objectives (Chen and Lee, 2011p.69). In all these three years, the budgets aim at improving the economic growth of the country, and also addressing some social challenges for the country (Chen and Lee, 2011p.70).

These fiscal incentives only seek to stimulate those economic activities that, due to their characteristics or their importance for the integral economic development of the country (Bielefeld and Schneider, 2014p.36). In Singapore, these changes in the budgets for the three years have been introduced to encourage individuals both resident and nonresident to invest in the country so that the government can generate more income (Bielefeld and Schneider, 2014p.46).

Changes in tax policies impacting on individuals

Singapore has been changing its tax policies to attract foreign talent and investments from individuals(Bielefeld and Schneider, 2014p.89). In 2010 when tax rates were lowered and capped at 18% from the 20% tax that individual were paying before this period (Bielefeld and Schneider, 2014p.36). For non residents, the personal tax rate is set at a flat rate of between 15% to 22%. The following changes were announced by Mr. Heng Swee Keat, the Minister for Finance in the 2017 financial year budget (Bielefeld and Schneider, 2014p.16). One of the tax change in the current year, was granting personal income tax rebate for individual taxpayers who are resident.

The government of Singapore chose to provide a personal income tax rebate of 20% of all tax payable for the income earned in the financial year. However, the rebate will be capped at $500 per person. The second change announced during the budget speechis withdrawing the GST tourist refund scheme for the tourists who are using international cruise for departure (Engdahl, 2011p.59). This change has been informed by the low transaction volume at the cruise terminals for tourist refunds.The withdrawal for GST TRS will be done for the tourists departing by international cruise on or after 1^st July 2017 (Engdahl, 2011p.49)

Changes in Tax Policies Affecting Business

For the year 2017, the tax changes include;

Enhancing and extending income tax for corporates rebates( CIT) Rebate

This is to help a company handle the challenging economic environment and the contined restructuring of the business rebates(Engdahl, 2011p.9). In FY 2017, the tax rebate has been increased from $20,000 to $ 25,000. There will be an extension in the FY 2018 and reduced to 20% while being capped at $10,000 dollars(Weltman, 2004p.36)..

Withdrawal of tax deduction imposed on computer donations for business

This is however short lived as it will be withdrawn after 20^th February 2017 after the strategy has been effected(Engdahl, 2011p.49).

For the financial sector the following tax changes will be effected

Finance and the treasury centre ( FTC) financing refining scheme In may 2017, the Ebd will refine the tax scheme and will ease the compliance

To fiscal reform, one of the strong points of the Singapore Administration so far of the legislature has begun to apply in 2015(Engdahl, 2011p.49). Its great novelties have been the reduction of sections and types in the IRPF, imposed that the current Executive rose in 2011, and the reduction of the type of companies from 30% to 25%((Engdahl, 2011p.49).

Introduction of  IP regime to protect the intellectual property  that encourages  the exploitation of intellectual properties from research and development ( R&D) activities of the business taxpayer(Askari, 2006p.27).

What about SMEs and self-employed? How does the reform affect 99% of the Singapore business fabric (Arup, 2006p.212). Experts and major business associations point out that the effective tax burden on small businesses has hardly been reduced. On the contrary: some relevant deductions have been eliminated (McConnell and Brue, 2005p.44). They also consider that it could have gone further on some issues, both in the fall of the nominal type of societies and in the correction of taxes such as GST (Askari, 2013p.217).

Singapore tax regime is a cornerstone to any fiscal policy affecting the businesses(Kenyon, Langley and Paquin, 2012p.34).. In this regard it serves at least four objectives which are; to promote development of economic policy, raise government policies, fulfillment of international tax objectives and the support of social welfare objectives(McConnell and Brue, 2005p.113).v. It relies on mostly the direct and indirect tax systems to support the government expenditure and this is heavily relied on business(Bielefeld and Schneider, 2014p.16).

Introduction of indirect taxes such as Goods and Services Tax( GST) has broadened the tax base of the government. This reduces volatility of revenue and enhances sustainability of fiscal policy(McConnell and Brue, 2005p.43)..

Challenges to the budget in the financial years 2015,2016,2017

In FY2015/2016, direct taxes accounted to 60% of government revenues while the remaining 40% was the indirect taxes from the businesses(Kenyon, Langley and Paquin, 2012p.96). GST contributed close to 23% of the total revenue while about 18% was personal taxation on incomes(McConnell and Brue, 2005p.23)..

Its progressive tax system has led to nurturing of a competitive business environment therefore attracting business substantively and hence creating millions of jobs(Kenyon, Langley and Paquin, 2012p.95-96).. Economic restructuring efforts in Singapore led to introduction of tax deductions regimes that encouraged businesses that led to businesses investing in innovation and productivity(McConnell and Brue, 2005p.53).. Corporate tax regimes are efficient in Singapore which has made it as the most efficient country in doing business in the world according to PwC tax index (Kenyon, Langley and Paquin, 2012p.86).

Taxation agreements with other countries have led to minimization of double taxation on businesses operating in Singapore on cross border activities. It leads to minimal tax evasion and less corruption cases(Kenyon, Langley and Paquin, 2012p.122).

Changes in comparisons in 2015,2016,2017

The retention of self-employed workers has been reduced from 21% to 19%, which will remain at 18% from 2016..GST, which has not been modified in this reform, rose in 2015 by 13 percentage points for some sectors(McConnell and Brue, 2005).. One of the big demands of small business owners is to stop having to advance the payment of this tax before collecting invoices(McConnell and Brue, 2005p.44).

It is necessary to give a return to the GST box to increase its effectiveness and avoid the position of strength of large companies with respect to their suppliers (Cordes, Ebel and Gravelle, 2005pg. 13). If this system were not used, it would certainly provide more liquidity to self-employed and SMEs, (Cordes, Ebel and Gravelle, 2005pg. 13) . For González, the conditions required to delay the payment of GST should be changed to exclusively serve the purpose of supporting the SMEs , since they are the ones that have the most difficulties to advance the payment(Askari, 2013p.16).

Recommendations of tax policies on Budgeting

For the year 2015

Tax policies are usually aimed at financing of public expenditure. There should be a broad tax policy to reform the overall mix in tax(Askari, 2013p.16). For a country like Singapore which fairs very well in tax burden to its people as the more they reduce the tax burden and incentives and rebate the higher is the tax (Cordes, Ebel and Gravelle, 2005pg. 13).

For the year 2016:

In 2016, tax benefits for companies, such as tax deferral (tax consolidation), deductions, special regimes, exemptions, among others, cost the government alot, according to the latest report of fiscal expenses of the Ministry of Treasury of 2014, 2015 and 2016 (Cordes, Ebel and Gravelle, 2005pg. 103). This year, public finances will have the access to the changes approved to the Income Tax Law (Askari, 2013p.16).With the reform that comes into force this year, this scheme is replaced by the so-called Optional Scheme for Groups of Companies, which allows deferring taxes only for three years (Askari, 2013p.16)

The companies that will most suffer the elimination of the tax preferences are the large ones another blow is the case of the approved collection of a 10% tax on profits obtained from financial transactions (Weltman, 2004p.36).

On the other hand, the immediate deduction in fixed assets was eliminated, as well as the linear deduction of investments in special machinery and equipment (McConnell and Brue, 2005p.55). The expense to the tax authorities for allowing this deduction was about (Weltman, 2004p.46).

As SMEs, the latest tax changes will affect the individuals, to a greater or lesser extent, but they will. So that you can find out about the main changes that affect your company we have prepared this info graphic so that you can be informed in a simple way about the changes that the reform entails(Weltman, 2004p.55).The tax changes that come into effect this year do away with that and other benefits that companies had (Askari, 2013p.23).

For te year 2017

Particularly contested was the Government's decision not to reduce the type of companies to SMEs(Weltman, 2004pg.22). They should continue to pay 25%, although formulas are enabled so that the invoice ends up representing 20.25% (Weltman, 2004p.56). The nominal rate affecting small firms should have been between 15% and 25% I think that it is not yet sufficiently aware that Singapore should be a priority for SMEs and self-employed (Arup, 2006p.27).. There is still no equity in the fiscal effort among the taxpayers, elimination of deductions, a ball of oxygen in fiscal terms that resorted to smaller companies, has not been well(Weltman, 2004p.56).

Recommendations for future budget

There are various reccomenadtions for future budgets in Singapore. First, future budgets will have to look at the business environments in order to set policies that favour the business environment(Weltman, 2004p.55).. Other tax recommendations for the future budget is that it must be implementable and easy to understand. The policy makers should make sure that the tax policies favour the business and individual employability terms(Weltman, 2004p.55).

Reasons for recommendations

The reason for recommendation is to make Singapore a country that attracts investors which can in return provide employment to the population (Askari, 2013p.26). Although it is a high income country Singapore is required to attract high number of investors so that it can be a place of better investment opportunities for organizations willing to make investment (Askari, 2013p.16).

Conclusions

The issue was not to eliminate deductions, but to modify them so that they had a greater impact in the field of small and medium-sized enterprises(Weltman, 2004p.55).. Nor is the investment in vocational training or the internationalization of the company encouraged, while the reduction of 20% on net return for maintenance or creation of employment is withdrawn(McConnell and Brue, 2005p.44). The employer considers that the reform also violates legal certainty (Weltman, 2004p.55).

The elimination and limitation of deductions, bonuses and tax reductions that favor the investments already made by SMEs can substantially alter the profitability of projects already initiated(McConnell and Brue, 2005p.44). Many other issues remain (Weltman, 2004p.106). We miss strong measures in relation to the submerged economy, such as the inclusion of tax deductions for the contracting of professional services to encourage the demand for bills by individuals(Askari, 2013p.86).

Unfortunately for the public treasuries, this transaction was exempt from the payment of taxes(McConnell and Brue, 2005p 27). The circumstances for the tax would have been very different if the division had been made this year(Arup, 2006p.33).

References

Arup, C. (2006). Labour law and labour market regulation. Sydney: Federation Press.

Askari, H., Cummings, J. and Glover, M. (2013). Taxation and tax policies in the Middle East. Burlington: Elsevier Science.

Bielefeld, B. and Schneider, R. (2014). Budgeting. Basel: Birkha?user.

Cambridge, Mass(2013).: Lincoln Institute of Land Policy.

Chen, C. and Lee, L. (2011). Stochastic simulation optimization. Singapore: World Scientific.

Cordes, J., Ebel, R. and Gravelle, J. (2005). The encyclopedia of taxation & tax policy. Washington: Urban Institute Press.

Customs.gov.sg. (2017). Home. [online] Available at: https://www.customs.gov.sg/ [Accessed 9 Sep. 2017].

Engdahl, S. (2011). Taxation. Farmington Hills, MI: Greenhaven Press.

McConnell, C. and Brue, S. (2005). Microeconomics. Boston: McGraw-Hill/Irwin.

Mof.gov.sg. (2017). Ministry of Finance Singapore (MOF). [online] Available at: https://www.mof.gov.sg/ [Accessed 9 Sep. 2017].

Websites

Weltman, B. (2004). J.K. Lasser's Finance & Tax for Your Family Business. New York, NY: John Wiley & Sons.