SINGAPORE: Despite the announcement of lower tax exemptions in Budget 2018, start-up founders here are not worried, with some noting that the adjustment will likely have “minimal” impact.
This is because the tax change, which is due to take effect in two years’ time, will be affecting start-ups that have turned profitable in their initial years and these remain a minority in Singapore, according to experts and local entrepreneurs.
Besides, there are other Government initiatives and grants to tap on for support, they told Channel NewsAsia. In his Budget statement delivered on Monday (Feb 19), Finance Minister Heng Swee Keat said the Start-up Exemption Tax (SUTE), which was introduced in Year of Assessment 2005 to support entrepreneurship, will be revised and restricted to the first S$200,000 of a start-up’s chargeable income. The current cap is S$300,000.
Other changes include a reduced exemption on the first S$100,000 taxable income from 100 per cent to 75 per cent. The next S$100,000 chargeable income will enjoy 50 per cent exemption.
The broad-based Partial Tax Exemption will also be adjusted to restrict the tax break to the first S$200,000 taxable income. These changes will take effect on or after Year of Assessment 2020.
Start-ups that Channel NewsAsia spoke to echoed the same sentiment.
Majority of the start-ups in Singapore are in the early stages and the strong emphasis on growth means that start-ups tend to put any profit back into the business during the early years, said MatchMove CEO Shailesh Naik.
Using his fintech start-up as an example, Mr Naik said Matchmove is unprofitable and will be “for a while more” as it continues to re-direct all of its funds into product development and market expansion. The homegrown start-up, founded in 2014, has since established presence in seven countries.
“Most do not focus on profits at least for the first five to seven years. Any surplus will be reinvested so that there can be quick growth without borrowing, and that’s a standard operating model for high-growth start-ups.”
Hence, Mr Naik reckoned that reduced tax exemptions will likely affect young start-ups that are making profits, given that the SUTE exemption applies to a start-up’s first three Years of Assessment. Those “getting close to an initial public offering (IPO)” and will have to maintain themselves in the black may also feel some pain, he added.
Mr Khoo Kar Kiat, who founded food delivery start-up Fastbee.sg about two years ago, agreed.
“Most start-ups in the tech space are not profitable in the early stages as our initial objectives are typically to build a good product and focus on growing customer base. As such, the impact should be minimal.”
