What entrepreneurs should know about Singapore Budget 2012

Yesterday, Singapore’s finance minister, Tharman Shanmugaratnam, unveiled the Singapore Budget 2012, which he calls the “budget for the future”.

As prosperous as the nation is, Singapore is under pressure.

Abroad, Singapore’s cautiously optimistic economic outlook this year is tempered by the uncertainty of global events, which include a recovering but weak US economy, a debt-ridden Europe, and an Iran that is threatening to blockade the Strait of Hormuz, a move that would send oil prices soaring.

Locally, the government is facing pressure to revamp its economic model, by cutting its addiction to cheap foreign labor and raising the productivity level of its workers. It also faces political pressure to help lower-income families and the disadvantaged.

Entrepreneurs play a vital role in the Singapore government’s attempt to meet these headwinds, which is why the finance ministry has introduced a slew of new of measures in the latest Budget to help SMEs, as well as enhance existing policies.

SMEs will receive a one-off cash payout, capped at S$5,000, to help offset higher business costs.

As long as you company is making CPF contributions to at least one employee, your firm will receive a cash grant of 5% of total revenues for 2012, capped at S$5,000 (US$4,000). That employee, however, cannot be a shareholder of the company. So if you’re a start-up with only two co-founders and no full-time Singaporean staff, you can’t claim the benefit.

The problem with the “employee with no shareholder” clause is that it would exclude a lot of startups who give equity to employees to attract them to join the company. Without equity, they might otherwise have chosen to work in a bigger firm. Startups are also the ones that are most vulnerable to fluctuations in business costs.

Detailed information on cash grant at IRAS website.

Firms can claim even more expenditure costs from the government when renovating or refurbishing their premises.

First introduced in 2008, the Renovation and Refurbishment Deduction Scheme allows companies in the service sector to claim up to S$150,000 (US$120,000) to refresh their premises, like a showroom display or restaurant décor. The amount will soon be doubled to S$300,000, and will become a permanent feature of the tax system.

Retail and food entrepreneurs, however, note that this scheme does not address a common problem plaguing their businesses — exorbitant rentals. From 2011 to this year, many big bookstores have closed partly because of risen rental costs. Smaller indie operations are especially vulnerable to the landlord’s whims.

Food businesses like cafes and restaurants are being squeezed too. Without the economies of scale large enterprises like Starbucks enjoy, smaller companies face tight profit margins that are extremely sensitive to rising food prices and fluctuating rental rates.

Companies will have to reduce dependency on foreign workers due to tightening quotas.