KPMG’s Singapore Budget 2022 proposal highlights ESG, global tax and enterprise support measures to build lasting companies on a fragile planet

  • S$1b Green Energy
    Investment Fund, Green Financing Bank and laws against greenwashing among
    proposals for Singapore to be key ESG hub
  • Also proposed are measures
    to boost Singapore’s competitiveness ahead of new global tax rules
  • Other recommendations
    include supporting businesses post COVID-19, building supply chain agility
    and driving the nation’s 5G roll-out
  • These proposals are
    part of a 3C framework devised by KPMG for Singapore to “Catch the
    Sun”, “Chart New Orbits” and “Strengthen the Nation’s Core”

SINGAPORE – Media OutReach – 20 January
2022 – With several priorities
for Singapore at the fore – from economic recovery to climate change, KPMG in
Singapore proposes that Budget 2022 takes Singapore in bold directions to
become Asia’s environmental, social and governance (ESG) leader and a destination
of choice for multinational corporations amid an evolving global tax landscape.
With sustainability a top priority, we are calling for a green financing bank
to fund sustainable infrastructure projects in Singapore and Asia , more
investments into alternative sources of renewable energy and tougher laws
against greenwashing. KPMG’s ‘3C framework’ (Catching the Sun, Charting New Orbits and
Strengthening our Core)
Budget 2022 is also a response to the new global tax rules and its impact on
businesses. The proposed global tax policies aim at raising Singapore’s business
competitiveness and drive continued growth, including a refundable R&D tax credits
scheme for companies and incentive packages for those multinational corporations (MNCs) and high-growth businesses which are still
eligible to enjoy such benefits under the rules of the Organisation for Economic
Co-operation and Development’s (OECD’s) Base Erosion and Profit Shifting
(“BEPS”) Pillar Two rules.

Alongside these, supporting
enterprises in their post-pandemic efforts to transform and grow remains critical.
This includes measures to tackle immediate cash flow issues concerns, as well
as ways to boost the mergers and acquisitions (M&A) landscape and position Singapore as a place for nurturing of unicorns.
To become a resilient, purpose-driven and growth-oriented economy in the new
normal, Singapore will also need to strengthen its supply chain agility and
resilience, chart robust strategies for trade and tourism, while building on its
core strengths in wealth and asset management, and technology innovation (which
includes the 5G rollout).

Ajay Kumar Sanganeria, Partner, Head of Tax, KPMG in Singapore,
said: “Budget 2022 will need to address several
upcoming challenges. Climate change has become a top priority for countries and
companies; the impending global tax could affect multinational corporations’
decision to locate in Singapore, while supply chain concerns and border
restrictions will still be top of mind. Yet, Singapore needs to continue to
innovate to stay attractive, and it has to position itself as a choice
destination for green finance, wealth and asset management, as well as
technology. KPMG’s Budget 2022 proposal takes a practical look at all these
competing demands, suggesting both immediate incentives and longer-term
measures that Singapore’s fiscal policy could consider. In the near future of
work, Singapore’s focus will need to involve building a progressive economic
and tax structure that allows the country to take bold steps to grow, while
mitigating transition pains and ensuring that no one is left behind. This will
be the recipe for building lasting success in an economic sunrise.”

Appended, please find an executive summary of KPMG’s Budget 2022
Proposal, divided into the following sections.

Catching the Sun

1.    Advancing Singapore’s ESG agenda

2.    Harnessing global tax opportunities


Charting New Orbits

3.    Building supply chains for the future
through resilience and agility

4.    Setting a course of recovery for trade,
travel and tourism


Strengthening our Core

5.    Fuelling enterprise expansion and
attracting unicorns

6.    Singapore’s rise as a wealth and asset
management hub

7.    Driving technology innovation in a
future shaped by 5G


(1) Advancing
Singapore’s ESG agenda
(page 6 of proposal)

ESG has become a top priority among governments and
corporates around the world. Securing Singapore’s future as a leading global
ESG player will require the country to establish itself as a sustainable
finance hub in Asia, while demonstrating its determination to go net zero and
combat greenwashing.

a) Getting
tough against greenwashing

To steer
companies towards effective and reliable ESG disclosures amid increasing
stakeholder expectations, we recommend that authorities implement legislation
requiring independent assurance of ESG data that are material to investors.
This could take the form of large-scale verification processes embedded in open
digital platforms with the costs borne by the government and corporates.


b) Financing
the region’s sustainable infrastructure projects

A key lever for
becoming a sustainable finance hub in Asia is the country’s ability to provide
green finance, and for the Singapore Exchange (SGX) to become a preferred
issuer of green bonds.

KPMG recommends
that Singapore sets up a green financing bank to fund sustainable infrastructure
projects in the region. Even though most banks and multilateral agencies have started
lending with an ESG lens, it will still take a few years before their
portfolios decarbonise, given the nature of their lending to various sectors of
the old economy. To plug the gaps, a green financing bank set up can develop a
framework to identify and qualify projects to be supported. It can also develop
a research and development line of credit to help fast track innovation and
pilot use cases in emerging areas of storage, hydrogen and energy efficiency.
Finally, the green financing bank can also drive more ESG investments by facilitating
capability building and knowledge sharing across industry verticals.


The Singapore
Exchange also needs to become the preferred location for the issuance of green
bonds. Benchmarks from different issuers in Singapore could attract more
regional players here. The Singapore government can further stimulate green
lending by defraying issuance costs for green bonds for a period of 12 months
to fast-track issuance by infrastructure companies. In addition, authorities
can provide a 10 per cent concessionary rate of tax for financial institutions
on interest income from loans for acquiring and developing green properties,
coupled with tax exemptions for investors on income derived from green bonds.


c) Invest in
alternate energy sources

The recent global
energy crisis has signalled an urgency for Singapore to seek out alternate sources
of energy supply. KPMG proposes setting up a S$1 billion Green Energy
Investment Fund to drive green innovation and low carbon tech adoption through
to 2030. This will incorporate multiple initiatives in these areas to strengthen
Singapore’s energy security and help scale its net-zero ambitions.

The proposed fund
will be a step up from the S$10 million that Singapore has already pumped into
low carbon research and the S$55 million for projects in hydrogen and carbon
capture, utilisation and storage. The new S$1 billion fund could be in the form
of partnership with the government and the private sector, with strong
involvements from academic institutions and research agencies.

Encourage landlords to have green buildings with up to 200 per cent tax

To step up the
push for green buildings, we propose tax deductions of as much as 200 per cent and
loans to spur both supply and demand of green buildings. Many landlords have
been hesitant to retrofit older buildings to make them more energy efficient,
especially since the pandemic has led to cash flow concerns. With green leases
currently present in a limited capacity in the commercial and industrial
sectors, we propose a 200 per cent tax deduction on financing costs and a
property tax rebate of 30 per cent for commercial, industrial and residential
property owners if they enter into green leases with tenants, occupy green
properties or use these properties for business purposes themselves.

Other proposed measures
aimed at property owners and developers:

  • 50
    per cent exemption on taxable gains from the sale of green buildings
  • GST
    rebates on imported green related equipment and raw materials
  • 200
    per cent tax allowance on capital expenditure (including professional fees) on
    green initiatives to retrofit existing buildings
  • Extension
    of the Building Retrofit Energy Efficiency Financing scheme beyond its expiry
    in 2023

2. Harnessing global tax opportunities (page 12 of proposal)

The new
international tax rules could have a significant impact on Singapore since the
country offers a range of tax incentives, which primarily results in reduced
corporate income tax rate below the prevailing statutory corporate tax rate of
17 per cent, for a range of qualifying activities. Many MNCs also use Singapore
as a regional or global hub. There are, however, opportunities to attract MNCs
to relocate operations from other foreign jurisdictions with high-taxed profits
into Singapore so as to blend in with any pre-existing low-taxed profit pools.
This might result in simplified group structures or transaction flows, while
preserving the benefits of pre-existing Singapore tax incentives.

Separately, shoring
up on factors to attract MNCs and manufacturing giants will become more
critical. This will include developing special incentive packages targeted at
these companies with clear tax and non-tax measures. These serve to promote
Singapore as a regional headquarters of choice and a location for factories of
the future. The OECD’s BEPS Pillar 2 proposals target large multinationals and
not all businesses will be affected. Hence, Singapore should do more to lure and
anchor Asian high-growth businesses that fall below the €750 million threshold,
so as to build a new engine of growth for the country.

a) Refundable R&D tax credits, writing-down allowance for intangible assets and expanded M&A allowance scheme to boost Singapore’s competitiveness

Amid intensifying
competition in a post Covid world, businesses are unlikely to step back from
R&D and innovation efforts. Replacing the existing R&D enhanced tax
deductions with a refundable R&D Tax Credits scheme would cushion the
impact of the global tax rules while ensuring that such efforts continue.
R&D Tax Credits, which are offered in some European countries, may not have
an adverse impact on the calculation of effective tax rates. Another initiative
would be to mirror the ability to claim writing down allowances for corporate
tax purposes on a broader range of intangible assets, such as goodwill,
marketing, and other similar exclusive contractual rights.

b) Enhanced Regional HQ
incentive for MNCs

Expanding the current
range of incentives and offering new grants will ensure that MNCs see continued
benefits in locating offices in Singapore. KPMG is proposing an Enhanced
Regional HQ incentive which includes concessionary tax rates of 10 per cent for
income from regional HQ functions for businesses that still benefit from tax
incentives. With a greater use of artificial intelligence (AI) and automation,
the package should include grants for investments into regional HQ function transformation
efforts and the establishment of Centres of Excellence for core capabilities.

With hybrid work
becoming a norm, employees who may be based outside of Singapore should be considered
as full-time employees in evaluating whether a company meets the incentive
milestone commitment, as long as certain specific conditions are met.

c) Incentive
packages to attract
high-growth companies
and ‘factories of the future’

Businesses, in
considering their investment locations, will factor in the available incentives
in a country in their cost-benefit analysis. Singapore should ensure that the
financial grants and tax incentives it offers are easily communicated to
potential investors. This can take the form of specialised, targeted packages
with both tax and non-tax measures. Our proposal comprises a High-Growth
Incentive package led by the Enterprise Singapore and the Economic Development
Board for promising companies that show clear scalability for the international
market. This package includes:

tax rates of 10 per cent for qualifying income

to anchor R&D activities in Singapore

enhanced tax deductions for R&D performed outside Singapore (currently the
scheme is only available for R&D carried out here)

tax deductions for overseas marketing, promotion and set-up costs

Another package
aimed at transforming the local manufacturing scene is the “Factory of the
Future” incentive. Singapore businesses are increasingly turning towards
cutting-edge technologies to improve their processes and produce high-value
goods. Meanwhile, global tax changes are also prompting businesses to speed up
their supply chain realignments. To anchor advanced manufacturing or pilot
plants here, we propose:

  • Enhanced
    (100 per cent) investment allowances for businesses in industries that tend to
    be capital expenditure heavy. They tend to be loss-making in their early years
    and unable to benefit from concessionary tax rates.
  • Grants
    to invest in pilot plants, cutting-edge equipment, state of the art logistics
    systems and Industry 4.0 automation plants and property tax exemption for
    related capital expenditure costs incurred on such machinery
  • Land
    Intensification Allowance for investments in construction and building costs
    regardless of the industry or gross plot ratio as long as productivity
    enhancement benchmarks are met


3. Building supply chains for the future through resilience
and agility
(page 19 of proposal)

Global supply chains are
still reeling from the impact of shipment delays, container shortages and
constrained production capacity. Meanwhile, rising costs for raw material,
shipment, labour and fuel have placed increasing pressure on companies. As a
key port in the Asia Pacific, Singapore will have to take the lead in the global
recovery. Demand worldwide is likely to fluctuate as the virus situation
evolves, and Singapore will have to be armed with strategies to protect and
diversify its supply chains.

a) Setting
up Cognitive Decision Centres for supply chain visibility

Investing in Cognitive
Decision Centre that tap predictive toolsets will allow Singapore to boost its
visibility of supply chain, identify potential shortfalls and react quickly. To
incentivise global and regional companies to set up such centres here, we
propose extending grants for feasibility studies to be conducted and SkillsFuture
grant support to help them build their capabilities at the centres.


b) Accelerating digital transformation for
sectors hit by global disruptions

More support through tax incentives and dedicated programmes to nudge
companies towards accelerating supply chain digital transformation will also be
needed, alongside the need to recruit talent that can drive technological
change. Micro and small enterprises will benefit from having shared digital
platforms to boost their productivity. Meanwhile, a higher percentage of financial
support, such as enhanced tax deductions, can be offered to companies that wish
to acquire new Enterprise Resource Planning (ERP) systems as part of their
transformation. The manufacturing sector, in particular, will be looking for
the extra boost as they are among the industries most exposed to global supply
chain disruptions. A higher percentage of financial grant support and enhanced
deduction can be considered for companies most affected by the pandemic.

c) Grants and loans for companies to tap just-in-case principles in
improving supply chain agility

Historically, supply chains have relied on minimal inventory and lowest
material cost with the use of “just-in-time” methodology. But increasingly,
adopting a “just-in-case” agile methodology will be crucial to build
flexibility and resilience. This will require companies to increase their
inventory levels and source materials from more expensive locations, which
means a need for more working capital. To improve ease of access to credit and
relieve the cost pressures on businesses, we are calling for the government to
offer these companies financial grants and working capital loans.

4. Setting a course of recovery for trade, travel and
(page 24 of proposal)

Singapore is well-poised to recover from the
COVID-induced setback to hard-hit sectors such as travel, trade and tourism.
However, the acceleration towards digital adoption and seismic shifts in
consumer behaviour amid the pandemic have left some businesses in the retail
and consumer sectors behind. Many find that they are unable to deliver
omni-channel success, as significant investments in infrastructure are needed.

a) Tax incentives to spur business recovery
in hard-hit sectors; extending property tax rebate and rental support packages

As Singapore makes progress on its economic
recovery, the government can consider measures to help businesses with expenses
for international market expansion and investment development activities, such
as through enhancing the Double Tax Deduction Scheme for Internationalisation
(DTDi). The DTDi could be expanded to include (i) additional categories of
expenses, such as COVID-19 travel related costs and (ii) enhanced 400 per cent
deduction on existing qualifying expenses for businesses in trade, travel and
tourism sectors. Currently, the scheme offers a 200 per cent tax deduction on
eligible expenses. In addition, extending property tax rebate and rental
support packages will help to alleviate the cash flow concerns for badly hit


b) Enhance capital allowance and tax deduction
claims for digitalisation initiatives

To encourage businesses to step up
digitalisation efforts and expand their service offerings, the government can
alleviate their cash tax burden by enhancing the capital allowance and tax
deduction claims on such initiatives. Enabling the use of digital ecosystems
will foster resilience and set businesses on the right path to recovery. The
Singapore Tourism Board could also set up a one-stop shop online marketplace
for tourism and hospitality players to sell travel packages to tourists. This
not only helps tourists book packages easily but also helps local businesses
get more publicity and visibility.

5. Fuelling enterprise expansion and attracting unicorns
(page 27 of proposal)

In the immediate term, cash
flow will remain a focus for businesses amid increasing costs on all fronts and
manpower limitations. These factors are expected to impact businesses and their
ongoing transformation efforts to become more productive and sustainable. Despite
this, many are eager to capitalise on M&A and organic growth strategies to seize
new opportunities. It will be key to provide more targeted financial support,
with a more gradual phasing out of these measures when the economy picks up. The
recent introduction of the Singapore Exchange’s SPACs listing framework is a
positive step towards attracting fast-growing companies here. Singapore will
need to continue to support unicorns to thrive, as this will not only add vibrance
to the entrepreneurial ecosystem but also bring benefits to the economy.

a) Financial support
measures to relieve immediate cash flow issues for businesses

Financial support from the government in the
form of rent relief, cash grants, wage support and temporary bridging loans
continue to be effective measures to relieve cash flow issues. Some measures
that could help alleviate tax outlays are an extension of corporate tax rebates
with special rules allowing carry forward of unutilised credits to future years.
The government could also explore allowing tax deferral on
application by companies whose cashflow are adversely affected by the pandemic.
For example, the payment of corporate income tax may be deferred by six to 12
months, coupled with longer instalment plans.

Other measures include allowing a deferral of distribution of taxable
income by S-REITs and the carry back of tax losses to pre-COVID-19 periods.
Accelerating capital allowance claims for the next two years of assessment will
allow companies to minimise their tax liabilities during this difficult period.


b) Enhance M&A support schemes to help local enterprises grow and

In the wake of the pandemic, government agencies can play a more active
role to facilitate discussions on M&A and enable deals to take place. This
includes providing support for M&A activities in targeted sectors.
Facilitating successful M&As would enable companies to gain bigger
financial strength and capabilities to succeed locally and regionally. We are
proposing to enhance grants for M&A deal evaluation costs, including
financial, tax, legal and commercial due diligence fees as well as those for post-deal
integration costs. Tax deductions on abortive deal costs and other related
costs should also be considered. Other measures that could spur enterprises towards
expansion include allowing group relief and carry back of M&A allowances, bringing
back stamp duty reliefs on qualifying M&A transactions and enhancing fund
incentives schemes to facilitate capital investments.

c) Make Singapore the place for unicorns to
invest and set up their base through targeted grants and tax incentives

Currently, fast-growing companies in some of the
“hot sectors” may find that they do not necessarily fall within various
government programmes, incentives and schemes. Many thus face challenges in
getting the support they need. We recommend creating a closer public and
private collaboration to bridge this gap and extending these schemes to
non-Singapore companies if they contribute sufficiently to Singapore’s GDP.
Doing so will help to create employment and upskill the Singapore workforce.

The government can encourage investments in
potential unicorns through more targeted grants and consider providing tax
deductions or tax rebates for private enterprises with failed investments in
these unicorns. These will support the entrepreneurial scene and entice both
local and overseas entrepreneurs.

6. Singapore’s rise as a wealth and asset management
(page 31 of proposal)

COVID-19 has fuelled the
rise of digital ecosystems, including highly integrated apps that offer a
one-stop-shop for a range of financial services. Financial institutions will continue to
see high returns especially in wealth management and personal banking, as
digital innovation breaks down the barriers for services most often traditionally
reserved for high-net-worth individuals. At the same time, wealth managers are
benefitting from higher transaction revenues as customers look to protect their
financial investments amid COVID-19 uncertainties.

On the asset management and fund
domiciliation front, Singapore will have to continue to find ways to convince
investors and fund sponsors to shift over from established locations. One way
it can do so is through incentives to encourage the adoption of Singapore fund
vehicles other than the variable capital company (VCC).


a) Driving
growth for challenger banks

Challenger banks,
which describe new banking players that have emerged since the Global Financial
Crisis, play a crucial role in the democratisation of wealth management for
mass market. With the entrance of digital banks and continued support for
digital innovation, challenger banks will continue to shape the offering of
wealth management services. Wealth managers will look to partner these new
entrants to improve their overall client experience. Hence the government may
need to step in to regulate by building structures to ease collaboration
between challenger banks and wealth managers, while reviewing competition rules
to keep players motivated. Introducing government controls and regulations
would assist in increasing investor confidence and allow smaller providers to
gain some market share from traditional wealth managers.

b) Positioning Singapore as the
choice location for domiciling funds

Singapore is
already an established asset management hub. However, for Singapore to also
become the default go-to location for global funds to be set up here, it will
be important to find ways to convince investors and fund sponsors to shift over
from established locations. One of the biggest issues is investor familiarity.
The recent promotion of Singapore as a funds domicile has almost exclusively centred
around the launch of the VCC. While the continued process of promotion is
certainly a good thing, it is arguable that this could be expanded to include
incentives to encourage the adoption of Singapore fund vehicles other than the
VCC. This includes the limited partnership which has a largely untapped
potential as a master pooling vehicle for Singapore. Some funding could be made
to advisors based in Singapore to help with the promotion of the full suite of
Singapore fund vehicles internationally.

The continued
promotion of the VCC has increased the profile of Singapore as a place to
establish a fund. However, there is room to help both fund sponsors and
cornerstone investors defray the costs of exploring the use of Singapore
structures more generally. Currently, a fund is able to recover a significant
proportion of its establishment costs, but an investor who may incur additional
legal expenses to understand exactly what the VCC is and how it works has to
bear those costs himself. Tweaks to the existing grant scheme to include
foreign tax and legal costs incurred by a cornerstone investor will be
beneficial. The scheme could also be expanded beyond the VCC to pique interest
in new fund vehicle and could be used to encourage the adoption of the
Singapore limited partnership and even unit trusts and companies as well.

While Singapore
has had a limited partnerships law since 2009, the government should explore a
more nuanced and flexible limited partnerships law that addresses concerns that
a foreign investor may have going into these structures. These include the tax
position around a transfer of partnership interests and the relationship
between partners in questions of conflicts of interest and fiduciary

7. Driving technology innovation in a future shaped by
(page 38 of proposal)

Singapore is poised to
roll out 5G by 2025 and there is significant market opportunity to ramp up 5G
innovations with the help of both local firms as well as foreign direct
investments, along with infocomm talent across industries. These efforts should
be undergirded by a reliable and progressive network infrastructure.

Boosting network reliability by reducing mobile taxation and encouraging
network sharing between service providers

Having reliable network
infrastructure is a critical need in any country that goes digital. One way
network issues can be mitigated is via network sharing between 5G service
providers as this expands the capacity of networks while avoiding the high
costs of doing so, which would ultimately translate to better coverage and
reduced costs for users. Similar to other parts of the world, the government
can incentivise network sharing by promoting common or shared infrastructure
and incentivising applications and software development, especially in the
initial stages of deployment. Singapore could benefit from regulatory
guidelines that would encourage the adoption of this approach among telcos,
while balancing possible concerns over competition.

Mobile taxation can also
be reduced for service providers, since industry trends show that good
infrastructure availability tends to be lower in markets where operators have
to make higher tax payments. Therefore, as payments for spectrum rights and
licences are not deductible for corporate tax purposes in Singapore, KPMG hence
proposes providing tax depreciation or writing down allowances for spectrum
rights payments, which will mirror the tax treatment in other countries.
Without claimable tax deductions on such payments, there will be significant
additional costs for telcos which may also be passed on to consumers. A stable
tax regime supporting investments can help a country’s mobile infrastructure to
develop at a faster rate while encouraging investments.

Building the business case for 5G innovations and encouraging more developments
for global competitiveness

To enhance monetisation
and scalability around the 5G use cases generated within key sectors, KPMG
proposes the setup of a ‘digital community centre’ which facilitates sharing of
best practices and ideas, while measuring outcomes and targets of use cases to
strengthen the business case. The government could also explore the potential
of open-source technology applications in driving speed to market and reducing

To encourage 5G
innovation development and adoption, the government’s 5G innovation grant
administered by the Infocomm Media Development Authority can be extended to new
sectors such as healthcare, fintech and agri-tech, while being expanded to
include subsidies for talent development and skills training. Refundable
R&D tax credits can be introduced to enhance the effectiveness of the
current R&D tax incentive for smaller technology players that have yet to
generate profits. Offering refundable tax credits of up to 42.5 per cent of
qualifying R&D and innovation costs can help support these smaller
enterprises which are known for being nimble and with fresh ideas.

Greater collaboration
can be fostered in industry ecosystems with government support taking the form
of grants to set up collaborative teams or partnerships between businesses in
the technology, media and entertainment, and telecommunications sector. This could
include offsetting costs for engaging consultancy firms to provide their
expertise. While there could be difficulties in getting competitors to share
their data, the government can explore how consumers can play a greater role in
facilitating information sharing, along with the balancing of data protection,
transparency and security priorities, and an increased focus on ethics in AI.

A copy of the Singapore
Budget 2022 proposal ‘Is an economic sunrise on the horizon?‘ is

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