Tag Archives: Land Intensification Allowance

Participants say govt should rethink Land Intensification Allowance

THE new tax allowance scheme that replaces the Industrial Building Allowance (IBA) and aims to raise land productivity is not business friendly.

In fact, restricted to too few sectors, the Land Intensification Allowance (LIA) may actually inhibit the growth of industry ecosystems and raise business costs to uncompetitive levels, participants at a post-Budget roundtable said yesterday.

Ascendas chief financial officer Chia Nam Toon said that there is a ‘need to address this very carefully’, lest the nine qualifying sectors – singled out as ones which will move Singapore manufacturing up the value-added chain – are hurt too.

As a business park developer, Ascendas looks into the clustering effect of industries – where core players are supported by small and medium sized enterprises (SMEs) that may not fall in the same sector.

The LIA’s sectoral restriction could be counterproductive if it discourages such clustering, Mr Chia said.

KPMG executive director of tax David Lee agreed that phasing out the IBA seemed contrary to the strategy of nurturing industry ecosystems.

This involves attracting MNCs, he said, and the IBA continues to be a key incentive offered by locations such as Hong Kong, which compete with Singapore for global investments.

Building costs are significant expenses forked out, said Ernst & Young international and corporate tax services partner Choo Eng Chuan, who also called for the move to be re-examined.

Those who spoke up were in favour of not abolishing the IBA entirely and relaxing restrictions on the LIA.

Among numerous other Budget measures debated at the Institute of Certified Public Accountants of Singapore (ICPAS) roundtable, was the hike in foreign worker levies.

Steering away from usual comments about its impact on the construction sector, National Volunteer and Philanthropy Centre corporate development director Chang Che Hsien asked if non-profit and healthcare sectors could be exempted.

National Kidney Foundation financial controller Ingrid The said that up to 80 per cent of nursing homes’ employees are foreign and not easily replaced, and that costs cannot be passed on to needy patients.

Mr Choo added that the levy hike was unlikely to induce productivity gain in an already overstretched healthcare workforce.

SME voices were also represented at the table. Michael Tien, CEO of Atlas Sound & Vision, spoke about the gap in training grants for basic degrees while CEO of Greenpac Susan Chong proposed that the government provide bridging loans for SMEs to embark on patenting.

Yesterday’s session was co-chaired by ICPAS president Ernest Kan and MP Jessica Tan. Ms Tan chairs the Finance and Trade & Industry government parliamentary committee and will speak in Parliament when the Budget debate begins this afternoon.

Source : Business Times – 2 Mar 2010

THE government has decided to do away with a tax allowance scheme for businesses introduced in the 1940s to encourage Singapore’s industrialisation. The axed scheme will be replaced by one designed to enhance land productivity – but only companies from nine chosen sectors will benefit from the new scheme.

Singapore should promote the intensification of industrial land use and move towards more land-efficient and higher value- added activities, Finance Minister Tharman Shanmugaratnam said yesterday.

‘The Industrial Building Allowance (IBA) has met its objective but is no longer adequate or relevant to meet our current priorities,’ he said. ‘It does not distinguish between efficient and inefficient uses of industrial land.’

In its report earlier this year, the Economic Strategies Committee said Singapore has to support the intensification of industrial land use as there are now greater demands on the country’s limited land resources.

The IBA gave tax allowances to companies for capital expenditure on the construction or purchase of an industrial building or structure.

Its replacement, the Land Intensification Allowance (LIA), similarly allows companies to claim for capital expenditure incurred to construct a qualifying building or structure.

But only companies from nine sectors – pharmaceuticals, petrochemicals, petroleum, chemicals, semiconductor-wafer fabrication, aerospace, marine and offshore engineering, solar cell manufacturing and other ’speciality’ industries – will qualify for the LIA.

These sectors have been singled out as part of the government’s long-term plans to move Singapore’s manufacturing sector up the value-added chain.

The building or structure will also have to meet the gross plot ratio (GPR) benchmark relevant to the industry sector of the building user. To encourage intensification, the benchmarks for each industry sector will be set around the 75th percentile of actual GPRs for the sector.

Qualifying firms will be granted a first-time allowance of 25 per cent, then 5 per cent each year for qualifying expenditure on the construction of buildings.

Analysts are surprised by the switch, as fewer companies will now qualify.

‘The old IBA did not restrict the benefits to only a few sectors,’ said David Lee, executive director of tax services for KPMG. ‘At the end of the day, if those (nine industry) sectors are the ones they are encouraging, they can always give them incentives instead.’

He pointed out that the new scheme means that companies in some of Singapore’s biggest industries – such as electronics manufacturing and equipment manufacturing – will be missed out.

Ernst & Young tax director Helen Bok said: ‘Many companies will be disappointed that the IBA will be phased out because this is a significant deduction for those carrying on qualifying activities. This will increase their cost of doing business in Singapore.’

But pegging the tax allowances to building plot ratios will encourage building owners to maximise land use, which is a good move for land-scarce Singapore, said Colliers managing director Dennis Yeo.

Source : Business Times – 23 Feb 2010