New scheme to maximise land use in Singapore

Uma Shankari, Business Times 23 Feb 10;

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.