Budget 2015: Dear SME Owners, Are You Getting Screwed?

budget 2015 sme business

It takes a lot of guts to be an entrepreneur. You have a great idea and think it’ll make you money. You put your life savings on the line, enter courageously into a cutthroat world that is just waiting to see you fail. And I discovered all that just by watching Shark Tank. So when Mr Tharman’s Budget speech talks about “sharpening support” for business? I’m a little concerned. But I’m not an SME owner. Here are the changes that were announced. You tell me if my concern is unfounded.


1. Wage Credit Scheme

The Wage Credit Scheme is supposed to encourage employers to increase wages for Singaporeans. In the past, if employees earned $4000 or less a month, 40% of the wage increases would be co-funded by the government. Moving forward, that amount will now only be 20%.

What does this mean for you as an employer?

We don’t want to bore you with the numbers, but basically you can’t be randomly inflating your employees wages anymore.

Say, at the start of every year, you raise your employees’ wages by $100. Before 2016, the government would co-fund 40% of your raise. That’s $40 a month or $480 a year. You would only be paying $60 a month or $720 a year.

For example, say in 2013, your employee’s salary was $2000.

In 2014, you raised it by $100 to $2100. You pay $60 more a month (compared to 2013), the government pays $40 a month, saving you $720 for that year.

In 2015, you raise salaries by another $100 to $2200. You’re now paying $120 more a month (compared to 2013), the government is paying $80 a month, saving you $1440 this year.

However, come 2016, the government will only subsidise 20% of that wage increase.

That means, in 2016, when you raise your employees’ wages by $100 to $2300, the government will only be subsidising you with $40 a month, or $720 for that year. That means you’re now paying $260 more a month (compared to 2013).

So in other words, the cost for raising an employee’s wage by $100 each year has gone from $60 in Year 1, to $120 in Year 2, to $260 in Year 3.

What will happen once the Wage Credit Scheme is phased out altogether?

True, the Wage Credit Scheme was originally supposed to end in 2015, so this extension IS a bonus. But even with the smaller subsidies trickling down next year, I expect you, as an employer, will find it harder to give your employees generous wage increases.

You need to be honest with yourself and your employees if their current salary is sustainable without the government’s help. If it is not, then it’s probably time to have a meeting with them this year (while the 40% Wage Credit Scheme is still in effect) and tell them that it might not be a good idea to buy a new car at this time, no matter how “low” the COE has gotten.


2. Corporate Income Tax Rebate

Like the Wage Credit Scheme, the Corporate Income Tax Rebate has also been extended for two more years. Like the Wage Credit Scheme, the Rebate will also be reduced. While the government is still committed to subsidising up to 30% of your Corporate Income Tax, the amount cap is lower.

Since 2013, the rebate was capped at $30,000. For Year of Assessment 2016 and 2017, that rebate will now be capped at $20,000.

What does this mean for you as an employer?

Right now the Corporate Income Tax is 17% of chargeable income. That means that if your company’s chargeable income (after partial tax exemption) is $500,000 for that year, your gross tax payable would be 17% or $85,000. The Corporate Income Tax Rebate of 30% would be $25,500.

In 2015, that would mean that your net tax payable is $59,500, since the rebate amount is below the $30,000 cap.

In 2016, the changes mean you pay $5,500 more than the previous year!


3. Temporary Employment Credit

Before the announcement in the increase in employer CPF contributions, the Budget Speech first talked about the enhancements to the Temporary Employment Credit. It’s like cupping a person’s face lovingly before slapping the teeth out of their jaw.

Temporary Employment Credit was originally meant to offset the increase in Medisave contribution rates. This time it’s extended and enhanced, in order to offset the increase in CPF contribution rates for employees whose salary is more than $5,000, as well as older workers.

According to Mr Tharman, this should offset two-thirds of your costs as employers in 2016 and one-third in 2017. Or, in other words, you will still be contributing more CPF, just not as much, just yet.

What does this mean for you as an SME employer?

In 2015, if your employee is earning $6,000, your CPF contribution is $850. Of that, $50 will now be subsidised by the government. So you end up paying $800.

In 2016, if your employee is earning $6,000, you end up paying $960 and so on until you collapse in tears.


4. Special Employment Credit

Because CPF Contributions have also been raised for older workers, Mr Tharman announced that the Special Employment Credit would also be enhanced. This allows for a wage subsidy of up to 11.5% for older workers.

But before you start raiding retirement homes, do take note that the maximum of 11.5% is only eligible for those aged 65 and above AND earning $3,000 and below.

For those aged between 50 and 65, they will still receive the SEC of up to 8.5%.

What does this mean for you as an SME employer?

It means that you’ll still end up paying more in 2016 for employees aged 50 to 65. The extra Special Employment Credit introduced in this year’s Budget does not apply to these.

In other words, if you have employees above 50, there is only the Temporary Employment Credit to help you pay the higher employer contribution rate in 2016.


5. Foreign Worker Levies

In another deferment exercise, the announced increase in foreign worker levies will not occur until 2016. If you’re in the manufacturing sector, levies will not be increased till 2017.

However, if you’re in the construction sector, you’re being strongly encouraged to upgrade your workers. The levy for higher skilled workers will be reduced, while the levy for “unskilled” workers will be increased. Did I say “strongly encouraged”? I meant “strong-armed”.


So, at the end of the day…

As an SME employer, you know labour costs are crucial. Even the slightest increase in costs could tip your company over the edge and cause it to spiral into ruin. If you’ve become over-reliant on the government’s subsidies over the past three years, then you’ve fortunately been given a little time to start making some urgent changes.


Are you an SME employer? How do you feel about the changes announced in this year’s budget? We want to hear from you.

Image Credits:
Joshua Sosrosaputro