Entrepreneur

We Asked 5 S'pore Startups For Their Thoughts On The Change In Tax Exemption For Budget 2018

In Minister Heng Swee Keat’s Budget 2018 speech in Parliament yesterday (February 19), he announced some adjustments to two major tax schemes for startups.

  • The Startup Tax Exemption (SUTE) scheme, applicable to new startup companies, will exempt 75 per cent (instead of the current 100 per cent) on the first $100,000 of a startup’s normal chargeable income.
  • Under the revised SUTE scheme, a startup will enjoy 50 per cent exemption on the next $100,000 (instead of the current $200,000) of its normal chargeable income
  • Meanwhile, the Partial Tax Exemption (PTE) scheme is applicable to all companies, excluding those that qualify for the SUTE scheme.
  • Under PTE, while a startup still enjoys an unchanged 75 per cent exemption of the first $10,000 of normal chargeable income, its second tier of tax will be adjusted.
  • Instead of the current $290,000, its next $190,000 of chargeable income will get a 50 per cent tax exemption.

These schemes lower costs for smaller firms and startups, but do not directly help firms develop capabilities. In addition, every profitable company should pay some taxes. This is sound and equitable.

“Even with these adjustments, corporate tax will remain low for startups and smaller firms. For a taxable income of $100,000, the effective corporate tax rate is 4.3 per cent for startups and 8.1 per cent for older firms, as compared to the headline rate of 17 per cent,” he added.

Changes to both schemes will take effect on or after YA2020.

Following this announcement, we asked five local startups on their thoughts on the change in tax exemption, and they collectively agreed that the reduction in tax exemptions will have little impact on Singapore’s startup ecosystem.

Kenneth Tan, CEO of BeLive:

“It’s not gonna make a huge difference as most startups in the current Singapore ecosystem are not profitable. For example, a social media startup like us (BeLive) requires funding and is not going to be profitable as we aim to provide optimal user experiences versus milking revenue from our users.

Even with the adjustment, Singapore will continue to attract investments and encourage new startups as we still have very low corporate tax rates.” 

Darius Cheng, CEO of 99.co

“I don’t think it would make any impact as this would only affect the startups who have just turned profitable. And most startups are not profitable – plus if they are, the couple of thousand dollars won’t make a significant difference.”

Chuan Wei Zhang, Founder of Lendor

“My thoughts are that startups in general are more interested in grant announcements to tap on, rather than anything related to tax, as most of us are preparing to make a loss in the next couple of years. So just looking at the tax component, it may not impact startups much.

However, the new PSG (Productivity Solutions Grant) could be useful for companies such as ours after the Productivity and Innovation Credit scheme ended last year. We will be looking closely at this grant when more information is released come April.”

Kenneth Tan, CEO and Founder of Sproutfore

“Almost every startup requires financial assistance for continuous innovations and creativeness to remain competitive and induce growth. Although it is agreeable that 4.3% of corporate tax rate will have minimum impact for good startups that are profitable, changes in tax exemptions might however slow the process of innovation and agility for these startups.

Therefore, the impact for Singapore’s startup ecosystem will be in areas of innovation and agility. On the other end of the rope, young startups that are unprofitable or still currently working on their current proof-of-concept will have no new benefits.”

Not Entirely A Disadvantage

At the end of the day, while it is true that it will disadvantage startups that have just turned profitable, it is deemed as a necessary move for Singapore as its startup ecosystem grows and matures.

Bizfinx data (from XBRL filings) shows that most firms are in the red in their first three years anyway — which is just how long the tax exemption scheme for new start-up companies lasts.

On the brighter side, mature firms will cheer at the increase in corporate income tax rebate to 40% of tax payable.

These will be a welcome relief for more matured companies making profit of about $100,000 to $200,000; effectively saving them $15,000 in tax dollars.

Featured Image Credit: Dynamic Business

Subscribe to Vulcan Post Newsletter

Stay updated with our weekly curated news and updates.