20 February 2024

On Friday, the 16th of February, Deputy Prime Minister and Finance Minister Lawrence Wong delivered the Budget Statement for FY2024 and introduced the supply bill. 

The budget named “Forward Singapore”, presents the governmental financial plan for 2024 with the aims to tackle the challenges for households and businesses, strengthening the national economy, and better positioning Singapore for future changes, such as BEPS 2.0. 

In this article, we will specifically discuss the announcements made in Budget 2024 related to R&D and innovation. For the complete list of announcements, please refer to the full budget statement.

The Path to Renewed Growth

In Budget 2023, DPM Lawrence Wong announced an ambitious innovation support measure with the enhancement of the tax incentive scheme through the Enterprise Innovation Scheme

While Budget 2023 was delivered after a steady growth of 3.6% in 2022, Budget 2024 takes place in a less favorable environment. Real GDP in Singapore grew by just 1% in 2023, affected by the state of the global economy and rising operating costs. 

Moreover, recent economic data points to the lowest unemployment rate of Singapore economy in 2023. In Budget 2024, the following fiscal policies can effect the aggregate supply of the economy to achieve higher real growth in the long term. 

Hence, the government is confident that, by focusing on innovation and productivity, Singapore could get back on the path to stable growth of 2 to 3% a year for the next decade. This strategy for increasing companies’ capacity for innovation and productivity is based on the following three pillars: 

  1. Attracting High-Value Foreign Investments 
  2. Leverage on the sectors where a competitive advantage prevails 
  3. Strengthening the SME business ecosystem 

Here are the details of the measures that are part of this strategy for the 2024 budget:

Refundable Investment Credit (RIC)

Amidst the implementation of BEPS 2.0 and its impact on the traditional schemes Singapore has been using to attract FDI for the past decade, the government has announced the introduction of a new Refundable Investment Credit

From investment in new productive capacity, expansion of scope of activities, establishment of headquarters, to carrying out R&D and innovation activities, and adoption of decarbonization solutions, the RIC promises to be the government’s next key measure for attracting and driving investment to the island. 

In view of the wide range of activities supported, this “Swiss army knife” will provide funding of up to 50% of the company’s expenditure through a tax credit, of which any unutilized credits will be refunded to the company in cash within four years. 

This new promising scheme is designed to be the BEPS 2.0-compliant replacement for the current Research Innovation Scheme for Companies (RIS(C)) and Development and Expansion Incentive (DEI).  

Further details about this scheme and its strong correlation with the implementation of the Global Minimum Tax will be discussed in a future article.

National Productivity Fund Topped up by $2 billion

Singapore’s National Productivity Fund (NPF) was established in 2010 with the aim of providing grants and scholarships for programs related to productivity enhancement and continuing education. 

From 2018 to 2022, the NPF disbursed more than $1 billion across 47 government projects, including initiatives such as the Construction Productivity and Capability Fund or the SkillsFuture Enterprise Credit scheme. 

In Budget 2023, the government announced the consolidation of the NPF with a top-up of $4 billion and an expansion of its scope to include investment promotion. 

The new announcement to increase the NPF’s budget by a further $2 billion in Budget 2024 is driven by the same strategy as the introduction of the Refundable Investment Credit: maintaining Singapore as a stable and trusted policy environment where it is conducive to invest.

Financial Sector Development Fund (FSDF) Topped up by $2 billion

The FSDF was set up in 1999 to support the development of Singapore as a financial center. It is controlled and administered by the MAS. Since then, the scope has expanded to include: 

  • Promote Singapore as a financial center 
  • Develop and upgrade skills and expertise required by the financial services sector 
  • Develop and support educational and research institutions, research and development programs and projects relating to the financial services sector 
  • Develop infrastructure to support the financial services sector in Singapore. 

During FY 2022, the FSDF awarded $235 million in the form of grants to incentivize financial sector players in talent development, technology and innovation, and financial sector activities. 

For companies, this announcement translates into programs such as the Financial Sector Technology and Innovation Scheme (FSTI 3.0), which remains open until March 2026.

$3 billion Investment in RIE2025

Defined every 5 years since 2011, the Research Innovation and Enterprise (RIE) remains a cornerstone of Singapore’s development into a knowledge-based, innovation-driven economy and society. Managed by the National Research Foundation (NRF), the RIE2025 was initially financed at $25 billion across five pillars: 

  • Mission-oriented research: $6.5B to support the expanded missions of RIE domains 
  • Core capabilities in universities and A*STAR Research Institutes: $7.3B to strengthen our core capabilities in universities and A*STAR Research Institutes 
  • Dedicated Innovation & Enterprise activities: $5.2B to establish new I&E platforms, strengthen enterprise innovation capabilities, and develop entrepreneurial talent 
  • Talent development: $2.2B for postgraduate programs, I&E talent development 
  • White Space: $3.75B set aside for agility; support new programs to respond to future needs and emerging opportunities 

Depending on which pillars this additional $3 billion is invested in, it will determine whether it aims for the private, public, or institutional sector.

More than $1 billion Investment in AI computing, talent, and industry development to support the Singapore National AI Strategy 2.0

In 2019, Singapore was one of the first countries to introduce a National AI Strategy. This first step supported the funding of 150 teams working on R&D and 900 start-ups. 

In light of this result,in Budget 2023, the government promoted its continuation of programs through the Singapore National AI Strategy 2.0 (NAIS 2.0). The goal of the strategy is to: 

  • Selectively develop peaks of excellence in AI, to advance the field and maximize value creation. 
  • Raise up individuals, businesses, and communities to use AI with confidence, discernment, and trust. 

Nonetheless, the Singapore National AI Strategy 2.0 does not seem to have its own budget but rather depends on other programs such as the RIE2025. It is also unclear if the $1 billion announced by the government will be directed affected to the NAIS 2.0. We eagerly await further details on the concrete opportunities this will generate for companies in the sector.

Enhanced Partnerships for Capability Transformation scheme (PACT)

Supporting partnerships in capability training, internationalization, and corporate venturing. 

The Partnerships for Capability Transformation (PACT) Scheme was introduced in 2010 to defray part of the costs – such as on equipment, materials, testing, and professional services – incurred by original equipment manufacturers (OEMs) and their suppliers to validate that suppliers’ procedures comply with the OEM’s requirements. 

Since 2010, the Government has set aside S$150 million to support these initiatives, which have benefited more than 2,000 Singapore-based firms. 

In 2020, the government had already increased the support rates for qualifying costs up to 70% for some expenditure categories. 

With this new announcement made in Budget 2024, the PACT scheme will be enlarged to include more activities such as capability training, internationalization, and corporate venturing.

Innovation Strategy: RIC and BEPS

Looking at all these measures aimed at R&D and innovation, we can see a clear strategy coming from the Singaporean government. This approach consists of using innovation as a means of value creation and a vector of growth for the coming decade.

The strategy is built on a balance between measures to encourage quality foreign investment and the development of the local SME network, with a gradual increase in skills. The implementation of BEPS 2.0 could have challenged this first pillar of Singapore’s strategy, but the creation of the Refundable Investment Credit (RIC) is an effective response to this global change.

Therefore, of all the measures announced, the one that seems to us to be the most significant and which will have a major impact, both in terms of steering investments for the government, but also for businesses in terms of the opportunities created, is the Refundable Investment Credit (RIC), for which we eagerly await full details by September 30, 2024.