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back to index backASIAtalk January,  2017


Singapore: Need to review R&D tax incentive scheme to boost innovation

With the advancements in technology, innovation in all industries will accelerate. Singapore has long foreseen the need to embrace innovation in all forms, but it is not alone in gearing up to be an innovative economy. Developed countries such as the United Kingdom, Australia and Ireland have long histories of promoting innovation. Closer to home, China has also made a strong focus and push towards innovation.

In its Global Innovation Index 2016, the World Intellectual Property Organisation (WIPO) says that innovation requires continual government investment. Key policy levers for governments to support innovation are a combination of direct subsidies and tax incentives (such as R&D credits).

The combination of direct subsidies (which are more targeted) and tax incentives (which are broad based) recognises that while certain types of innovation can be targeted, there is need for a broader policy to "let a hundred flowers bloom". Studies have shown that productivity and innovation capacity across all industries matter more than developing a few innovation champions, and a broad-based policy approach is therefore critical.

We offer another reason for broad-based policies: it is just impossible to predict new innovations that will come out next, so targeted measures risk missing out on the next big thing. Businesses, instead of policymakers, should therefore decide on the areas of innovation as they have better knowledge of market needs. These policies will not only enhance capabilities of domestic businesses, but also attract high value-adding Foreign Direct Investment (FDI).

Singapore offers a combination of targeted and broad-based policy tools to promote innovation. The broad-based policy tool is in the form of the research and development (R&D) tax incentive, which was later part of the Productivity and Innovation Credit (PIC). With the expiry of PIC in YA2018, the R&D tax incentive will continue, but with significantly reduced benefits and scope. There is an urgent need to review the R&D tax incentive.

To read entire article, please click here.

Source: KPMG Singapore - GAI






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