Singapore fiscal incentives for eco-friendly business suggested: PwC

PwC favours carrots for Singapore's green push
Matthew Phan and Chen Huifen, Business Times 12 Feb 08;

It suggests slew of fiscal incentives for eco-friendly business measures

(SINGAPORE) High on the Budget 2008 wish list from PricewaterhouseCoopers (PwC) this year is an item that wasn't there just a few years ago, but which should not be unexpected today.

'Tax and the Environment', it reads.

The first wish is for the creation of a National Fund to promote and finance 'green' initiatives, with donors rewarded by tax deductions. The other 15 bullet points suggest how Singapore could encourage environment-friendly behaviour.

Some are obvious and generic, like encouraging business and individuals to adopt energy-efficient practices, or subsidies or clean energy research.

Others are technical and more targeted.

For example, the government might want to consider 'on an immediate basis,' having zero rating of GST for the procurement of energy-saving devices, said Abhijit Ghosh, tax partner at PwC Singapore.

Or it might give enhanced capital allowances, say 125 per cent of cost, on energy-efficient equipment used by business.

A capital allowance refers to a deduction granted to firms that purchase fixed assets for use in their business. Only certain assets qualify, such as machinery, furniture or electrical equipment.

PwC also suggested giving tax deductions for approved programmes for carbon offsetting - for example, where a firm buys carbon credits to offset the greenhouse gases emitted when its executives fly overseas.

Generally, the 'carrot' approach, or giving companies incentives to change their behaviour, are more effective than the 'stick', said Mr Ghosh.

New Zealand wanted to adopt the 'stick' approach last year with a carbon tax, but is now reconsidering and thinking of fiscal measures that would be fair to everyone, he said.

Further, a group of British Columbian economists has argued that poor people will disproportionately bear the burden of a carbon tax, because it is essentially a flat tax on an essential resource, he said.

'The well-off will be able to buy their way out of any responsibility and continue to buy Hummers and 5,000 sq ft homes,' the economists said, according to Mr Ghosh.

A 'carrot' approach would thus be more equitable, if the Singapore government is considering any fiscal measures, he said.

While the government has recently introduced non-fiscal initiatives, 'we believe that fiscal measures should also be considered as early as possible, provided the government is prepared to use tax policy to address this issue', he said.

Some businesses here appear to be echoing the same tone. According to Phillip Overmyer, chief executive of the Singapore International Chamber of Commerce, one of the top items on his association's Budget wish list is a package of incentives that 'will encourage corporate participation in eco-friendly initiatives'.

'For example, the provision of investment allowances in certain kinds of energy equipment,' he said. 'So you might allow someone to take a tax deduction for some portion of a new (energy-efficient) equipment that they put in place. Or, we could provide deduction against tax for architectural and engineering fees that are directly related to building a building that meets global standards for energy savings.'

The Budget wish list of the Singapore Indian Chamber of Commerce and Industry (SICCI) includes a further cut in the corporate tax rate to bring it closer to 15-16 per cent, reduction in personal income taxes, as well as the abolition of estate duty.

Although the latter two will not have a direct impact on companies, SICCI executive director Pradeep Menon said they will help alleviate cost pressures indirectly.

'Companies are hoping that there will be a significant cut in personal taxes to help employees manage rising costs,' explained Mr Menon. 'If they can make some savings on that front, it will then indirectly lead to less pressure on wage push.'

As for estate duty, he reckons eliminating it will have a long-term impact on Singapore's business environment, as it continues to draw more people to start and retain their businesses and families here.

'It's also a part of wealth management as we try to attract more people to bring in their wealth and manage it out of Singapore,' he added. 'As they build up their wealth, there's always this concern about the fact that they have to pay estate duty, when they pass it on.'