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Singapore Budget 2020: Credit Highlights

Timothy Ang  |   19 Feb 2020  |    232 views

The Singapore Budget 2020 focuses on grappling with the coronavirus outbreak and cultivating long-term economic development for the country.

 

It provides relief to the 5 sectors battered by the coronavirus outbreak; the tourism, aviation, retail, food services, and point-to-point transport services industries.

 

The budget comprises of several packages. Firstly, a $4 billion package supporting firms with issues of cash flow and worker retention. Secondly, a $6 billion package to cushion the impact of a future goods and services tax (GST) increase. Lastly, a $8.3 billion package for growing and transforming the economy over the next three years.

 

Below, we examine highlights of the budget and their influence on our local bond issuers.

 

Property tax rebates

The government will grant a 30% property tax rebate for selected commercial properties for 2020. These properties include accommodation and function room components of licensed hotels and serviced apartments, as well as Meetings, Incentives, Conventions, and Exhibitions (MICE) venues (Suntec Convention, Singapore Expo, Changi Exhibition Centre).

 

This rebate will help cash flows and profitability for Suntec REIT, Frasers Hospitality Trust, and Ascott Residence Trust.

 

There will also be a 15% property tax rebate for retail and F&B properties. These properties reside in hotel buildings, serviced apartment buildings, and MICE venues (stated previously). This will benefit Capitaland Mall Trust, Frasers Centrepoint Trust, Mapletree Commercial Trust, Starhill Global, SPH REIT.

 

However, at this point, we are uncertain of the benefits to the REITs. This is because of the government urging property owners to pass these savings down to tenants in the form of lower rentals. 

 

Aviation sector rebates

100% parking charge rebates and landing charge rebates between 10% to 100% for the airline and cargo industry will support airlines such as Singapore Airlines.

 

Corporate Income Tax (CIT) rebates

All Singapore companies will enjoy a 25% corporate tax rebate for 2020, capped at S$15,000. 

 

Also, corporate taxpayers will be given the option to accelerate the write-off of capital expenditure on plant and machinery (P&M). If this option is exercised, it will be irrevocable, and will allow the companies to write-off 75% of the cost of acquiring the P&M in the first year (FY2020) and 25% in the second year (FY2021).

 

Delay in foreign worker levy rates

The government delayed Foreign worker levy rates increases this year. The levy rates were tipped to increase for the Marine Shipyard and Process sector in July 2017, but have been delayed since. The delay bodes well for companies including Keppel Corp, Sembcorp Marine, ASL Marine.

 

Extension of Land Intensification Allowance (LIA) scheme

To encourage the intensification of industrial land use, the government extended the land intensification allowance (LIA) scheme from 31 June 2020 to 31 December 2025. This scheme provides an allowance of 25% for qualifying Capex incurred on construction/renovation/extension of an approved LIA building and will promote intensification of industrial land use as Singapore’s land depletes. This benefits industrial REITs such as Mapletree Industrial REIT, Aims APAC REIT, and Ascendas REIT.

 

Other highlights include:

A rebate of up to 45 per cent on the additional registration fee for those buying fully electric cars and taxis was introduced to encourage early adoption of electric vehicles (EVs). This will start from January next year, for three years. EVs and some hybrid vehicles will also be taxed less, with a revision in tax methodology for cars from next January. By 2030, the Government aims to deploy up to 28,000 public charging points for EVs, up from 1,600 currently. There will also be a lump-sum tax built into the road tax schedule for EVs, while technology to tax by distance is being developed.

 

And lastly, the increase in the GST rate by two percentage points from 7 per cent to 9 per cent will not be implemented in 2021. However, the Finance Minister stated that it will need to be increased by the year 2025.

 

 

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