Wee Hoon Tan
Facing an economy deteriorating at a faster pace than anticipated, the Singapore Government announced a supplementary Resilience Budget of SGD484 Billion on 26 March 2020 to support the economy. As Covid19 infection rates worsened in the following weeks, the Singapore Government promptly responded with a second supplementary Solidarity Budget of SGD5.1 Billion on 6 April 2020 before implementing a Mandatory Workplace Closure on 7 April 2020.
Budgeted Expenditures in Response to Covid19 Outbreak (SGD*)
|
Unity Budget (the annual Budget) |
6.4 |
|
Resilience Budget (1st Supplementary Budget) |
48.4 |
|
Solidarity Budget (2nd Supplementary Budget) |
5.1 |
|
Extension of Solidarity Budget (3rd Supplementary Budget)** |
3.8 |
|
Total |
63.7 |
* - in Billions
** - this is an extension of the Solidarity Budget when the Mandatory Workplace Closure was extended by 4 weeks from 5 May 2020.
To put these in perspective, national Gross Domestic Product and Gross Tax Revenues in FY2019 was SGD593.8 Billion and SGD52.4 Billion respectively.
Amongst others, the raft of financial measures include:
- Jobs Support Scheme;
- Property tax rebates to commercial property owners; and
- Temporary suspension of contractual obligations.
(i) Jobs Support Scheme
This is a scheme where the Government funds gross wage payments of up to SGD4,600 to each local employee (Singapore Citizens and Singapore Permanent Residents) at a rate of 25% to 75%., by way of cash payments to companies and businesses in Singapore. The funding is over a 9 month period from April 2020 to December 2020 and aims to help companies and businesses retain local employees.
|
Funding available to companies and businesses in: |
SGD |
|
(a) aviation and tourism sectors |
75% |
|
(b) food services sector |
50% |
|
(c) all other sectors |
25% |
During the Mandatory Workplace Closure period from 7 April 2020 to 1 June 2020, funding for all companies and businesses is increased to 75%.
(ii) Property Tax Rebates to Commercial Property Owners
Rent is a significant expense for many companies and businesses in Singapore. Property tax is ordinarily levied at 10% of the Annual Value of commercial properties. Annual Value is the estimated gross annual rent that the commercial properties fetch in the open market.
The percentage of property tax refunded by the Singapore Tax Authority is dependent on the use of the commercial property:
|
Rebates applicable to commercial properties utilised in: |
% Rebate |
|
(a) the aviation and tourism and retail and food and beverage sectors |
100% |
|
(b) the gaming sector |
60% |
|
(c) all other sectors |
30% |
The effect of property tax rebate at 100% is a reduction of just over one month of rent expense for tenants.
The property tax rebates were introduced in the Resilience Budget with the stated objective of property owners passing these cost savings to tenants. When it became apparent there was a significant number of property owners who were reluctant to pass on these cost savings, the Singapore Government introduced laws (as part of the Solidarity Budget) to require commercial property owners to pass these cost savings to tenants.
(iii) Temporary Suspension of Contractual Obligations
The Covid-19 (Temporary Measures) Act passed on 20 April 2020 allows for suspension of legal contractual obligations for a period of 6 months from April 2020 to Oct 2020, with an option for these measures to be extended by another 6 months after.
This is to allow companies and businesses to restructure their contractual obligations and avoid litigation or bankruptcy.
These provisions apply to contracts to be performed on or after 1 February 2020 and contracts entered before 25 March 2020. These cover contracts for commercial rents, construction and supply contracts, certain secured loan facilities, contracts for events and tourism, and certain hire purchase contracts.
Bankruptcy and insolvency thresholds are increased temporarily during this period. Corporate insolvency thresholds are temporarily increased from SGD10,000 to SGD100,000.
Differentiated Measures for Specific Sectors
Recognising the significantly larger impact of the pandemic on certain sectors reliant on high human traffic where social distancing measures exact a high financial cost, companies and businesses in the tourism and aviation and retail and food and beverage sectors receive significantly higher levels of wage payments support and property tax rebates. Companies and businesses in these sectors now also receive extended wage funding of up to 6 months (previously 3 months) in redeployment of employees.
Other sectors receive less in part due to the extensive availability of telecommuting options at the workplace in sectors such as financial and professional services, and in part due to low density of employees at the workplace in other sectors such as pharmaceutical manufacturing.
High Cost of Mandatory Workplace Closure
The expenditure of SGD8.9 Billion to support the economy during the Mandatory Workplace Closure over 8 weeks is expected to slow but unlikely to stem the tide of retrenchments in the coming months.
Given the high financial cost of these measures, Singapore is now looking to allow gradual resumption of business activities, and complement this with other measures in the form of new social norms, larger and more flexible capacities for both acute and step-down healthcare, and increased and regular testing while the global race for a vaccine continues.
XLNC ARCHIVE | 12 May 2020