PSG vs PIC – Is the new grant beneficial towards SMEs?
Small and medium enterprises (SME) are at the heart of Singapore’s economy as they employ two-thirds of our workforce, accounting for approximately half of Singapore’s GDP. SMEs are the key engine of the nation’s future growth and an integral pillar to the competitiveness of the nation at a global scale.
To effect change and transformation in the economy, it is vital that the government focus their assistance and development efforts on SMEs, especially with the lack of investments for SMEs to fully embrace opportunities in this dynamic economy.
The government’s introduction of a new grant, the Productivity Solutions Grant (PSG), which comes into effect from April 1 this year will provide funding of up to 70 per cent of the cost of off-the-shelf solutions for SMEs. It includes a combination of three existing grants, with more to be added over time that aims to help smaller companies have a higher tax reduction. An initial SGD110 million would be set aside for the grant to support this new initiative covering sectors in retail, food, logistics, precision engineering, wholesale and landscaping industries. The grant will support broad-based solutions that cut across industries, such as digital customer relationship management and human resource management systems.
The popular Productivity and Innovation Credit (PIC) scheme would be phasing out this year, with PSG replacing it. PIC allowed businesses to enjoy 400% tax reductions on up to SGD400,000 of their expenditures. Eligible business could apply to convert their tax reductions into a cash payout. Although the PIC is easy to apply for, it was generally ineffective in increasing the innovative capacity of companies despite its high take-up. All in all, the PIC was simply a deduction scheme.
Compared to the PIC scheme, the PSG scheme is more targeted in how it can be used, with a visible shift towards a more specific and innovation-focused measure. With the new scheme, the government is also going with a 200 per cent tax deduction, capped at SGD100,000 on licensing payments per year. This would ensure that smaller business benefit more. As the SME landscape is complex and diverse, it is key that the government implement schemes that are targeted and tailored for specific sectors to focus on the critical needs of SMEs. The goal must be to encourage SMEs to develop their capabilities by assisting them to overcome their constraints.