On June 28th SPRING Singapore, a national enterprise development agency, revealed details of the long-awaited Angel Investors Tax Deduction Scheme (AITD), which was first announced in the national 2010 Budget. The new scheme offers angel investors the opportunity to offset 50 percent of their cash investment against their personal taxable income. The program is especially aimed at increasing investment into start-up firms in the high-tech and biotech industries.

Under the AITD program, angel investors are required to make a minimum personal deposit of SGD 100 000 (approx. USD 71 541) before March 15th 2015 to qualify for this tax deduction. Upon the completion of a 2 year holding period, investors will be eligible for the tax relief. Additionally, the investor is required to serve on the firm’s board of directors for the entire holding period of the investment. According to Spring Singapore, the condition will ensure that small businesses and start-up firms will benefit from the experience of its investors, thereby aiding their growth. To be eligible for the program, investors are also required to be approved by Spring Singapore. Under the AITD, angel investors must be either experienced angel investors, serial entrepreneurs, or experienced senior management executives.

The AITD also speculates that the investment-receiving firm will not undertake illegal or undesirable activities, speculative activities, hold investment assets, invest in real estate or carry out property development. The Government of Singapore has reserved the right to deem further activities unsuitable for the AITD program.

Explaining the economic benefits of the scheme at the 44th Action Community for Entrepreneurship, Tan Kai Hoe, Deputy Chief Executive of Spring Singapore, said, “…angel investors bring along their business skills, industry expertise and business contacts that are invaluable to help in the start-ups’ growth… this is what we want to achieve with the scheme – for innovative start-ups to tap the expertise and networks of the angel investors.”

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On May 18th the Asian Development Bank (ADB) released its annual Asian Capital Markets Monitor report, which investigates the performance and outlooks for the equity, bond and currency markets in emerging economies. According to the report, several factors have cumulatively increased the risk of Asian economies facing sudden high levels of investment capitals, leading potential destabilization of currency and financial markets.

Amidst worries of a continued national debt crisis in Greece and the Euro-zone, international investors have been paying greater attention to Asian economies. The interest has been further increased by the area’s swift and secure return to a positive economic condition after the international economic crisis. The ADB claims that the increased capital inflows could trigger significant upwards pressure in national currency, leading to volatility in valuation and the financial markets. Additionally, national inflation, which among emerging Asian economies is widely considered to be manageable, could be caused to increase. Cumulatively, sudden burst in overseas investment capital might lead to limitations in short and mid-term growth potential for emerging Asian economies.

The ADB recommends that Governments of vulnerable economies take action now to ensure that appropriate national policies are ready for potential investment inflows. Suggested policy considerations consisted of sound macro-economic management, flexible foreign exchange regimes, increased resilience of national financial systems, along with temporary and targeted capital controls. The suggestion of capital controls is especially aimed at nations which expect capital inflows to be transitory with significant destabilizing effects on exchange rates, and with uncertain national macro-economic policies.

Under the ADB’s classification, the emerging Asian economies consist of the People’s Republic of China, Hong Kong, India, Indonesia, the Republic of Korea, Malaysia, the Philippines, Singapore, Taipei, Thailand and Vietnam.

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On April 26th the IMF published a previously unreleased transcript of a speech given by Naoyuki Shinohara, Deputy Managing Director of the IMF, at the 14th ASEAN Finance Ministers’ Meeting, held on April 8th 2010 in Nha Trang, Vietnam. The speech focused on the key economic challenges the IMF perceives as facing ASEAN member nations. According to the Deputy Managing Director, to see strong economic growth, ASEAN members must overcome the fragile external economic environment, the potential for surges of inward capital flows, and the need to expand private domestic demand over the medium term.

Naoyuki Shinohara said that Asian nations are showing greater levels of economic recovery and fiscal stability, when compared to advanced economies. Cumulatively, the ASEAN members are projected to increase economic output by 5.5 percent over the 2010 year. Despite the positive outlook, ASEAN economies are highly reliant on external economic factors. The IMF does not expect credit conditions across the US and the Euro-Zone to normalize until 2011, and the Deputy Managing Director warned that ASEAN members need to balance this factor into the timing of their 2009 stimulus package withdrawal policies. He advised that policymakers should consider taking precautions to allow for agility in any present decisions, to cope with unforeseen economic shifts.

According to Naoyuki Shinohara, ASEAN economies face the unique challenge of possible spikes in foreign capital inflows. As the international economy recovers, it is conceivable that ASEAN nations will see higher than expected investment. In preparation for such eventualities, policymakers have been advised to tighten fiscal regulations, allow for greater flexibility in exchange rate in decision making, create macro- and micro-level policies to handle the spikes, and begin accumulating fiscal reserve to use as a safe-guard.

A warning was given to ASEAN Governments that pre-crisis fiscal policies favoring expansion of exports over the growth of local private consumer demand need to be addressed. The Director gave broad directives for ASEAN economies to instate reforms to improve private investment, raise productivity in services, and improve the overall private sector consumer demand.

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The speech delivered to the Singapore Ministry of Finance’s Committee of Supply Debate 2010 on March 9th, was intended to address the issues raised by members of the Committee on situations faced by Singapore and its Government. Among other topics, the speech sought to quell the concerns of several Members of Parliament (MPs) regarding taxation matters, citing multiple instances which showed that the Singapore Government’s taxation system had already adequately addressed the issue.

In regards to treatment of national businesses, the Finance Minister said that the measures implemented to boost expansion in 2009 have proven to be highly successful. He stated that the claims process which requires no separate application and is included within a company’s end of year filing, has ensured that all applicable businesses have been able to take advantage of the opportunity. He noted further that the Research and Development (R&D) tax deduction instated in 2008 saw R&D activity increase by 50% by the end of 2009.

Lim Hwee Hua said that the Government has no intentions of instating new tax privileges to Singapore’s social enterprises. He claimed that creating advantages will hinder self-sustainability for social endeavors, and that their relatively small size means that reductions in income tax will not have a significant impact on growth.

Addressing local issues, the Minister explained that the property tax increases seen by residents of Housing Development Board (HDB) dwellings were a product of the yearly property value revisal. Further, the Minister pointed to the fact that the Government did not raise property taxes in 2009 on account of the relatively weaker economy, in effect lessening the impact of the tax increases. He reminded the MPs that HDB property residents were still eligible for rebates intended to offset the property-tax revision, and the new progressive property-tax system which could save recipients SGD 240 (approx. USD 172) annually.

In response to concerns raised by several members of Parliament, the Finance Minister laid assurances that Singapore’s tax treatment of vehicles and fuel is already adequate to encourage eco-responsibility. He reminded the MPs that the Government has implemented volumetric taxation of petrol to discourage excessive use, and created several measures to ensure the economic competitiveness of fuel efficient cars, like the Green Vehicle Tax Rebate. He conceded that greater efforts should be made to convert all transport taxes to a volumetric basis, though did not commit to any timeframe for doing so, citing several issues like public transport and taxis as posing problems to the plan.

The speech also covered optimal method for the Government to utilize its resources and maintain efficiency; indentifying measures to assist expansion of national businesses; and, ensuring readiness for future implementation of e-Government initiatives.

Summarizing, Lim Hwee Hua reitatrated the positive state of the country’s tax system, saying: “We also use our tax regime to help promote social and economic objectives. We strive to keep our tax regime competitive to give businesses and individuals incentive for enterprise and effort.”

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On February 22nd, Tharman Shanmugaratnam, Minister of Finance of Singapore, announced that the Government has accepted the recommendations of the Economic Strategies Committee (ESC) and set a course to foster the capabilities needed to positively transform the Singaporean economy over the next decade. The new Budget revolves around growing productivity levels by 3 percent annually for the next ten years and increasing real incomes by an estimated third over current levels.

The Singapore Government has announced several critical changes in the new Budget. One of them is an expansion of the education sector, with the introduction of a Continuing Education and Training (CET) system and the Workfare Training Scheme (WTS), which aim to provide more funding and supplements for those wishing to up-skill in almost any trade or work skill. The Workfare Income Supplement (WIS) will be expanded, both in payouts and scope of eligibility. Foreign worker levies will be increased over the next three years to an extra SGD100 (approximately USD71.05).

Research and development plays a key role in the Singaporean budget, with a Productivity and Innovation Credit (PIC) being created, which will provide firms with a 250 percent tax-credit on expenditure from incurred by carrying out research and development, acquiring or registering intellectual property, automating work through technology, design work or providing training to its employees. An extra SGD1.5 billion (approximately USD1.07 billion) will be given to the National Research Fund in order to see private sector R&D spending rise to 2.5 percent of the GDP.

Further, to support business restructuring, the Government of Singapore will institute a tax allowance to cover the costs incurred through merger and acquisition activity, equal to 5 percent of the qualifying acquisition. To support access to growth finance, a new scheme will allow qualifying angel investors who commit in excess of SGD100 000 (approximately USD71 048) to claim a 50 percent tax deduction, after a two year holding period.

Additionally, the Government has earmarked SGD100 million (approximately USD71.05 million) for use on fostering relationships and scaling-up its support for business associations, and SGD45 million (approximately USD31.97 million) has been set aside for the SPRING’s Business Leaders Initiative, to nurture young entrepreneurs and future managers.

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