Key Takeaways from Budget 2022 to help SMEs prepare for 2023

Budget 2022 Blog Image

During the Singapore Budget announced on 18 February 2022 in particular, Deputy Prime Minister and Finance Minister, Lawrence Wong, shared various measures to support small and medium enterprises (SMEs) amidst the current macroeconomic uncertainty. This article will provide key takeaways from the Budget 2022 to help SMEs prepare for 2023.

According to the Singapore Business Federation’s National Business Survey 2021/2022, manpower cost and availability are key challenges that businesses face, along with demand uncertainty, travel restrictions, and the changing regulatory environment. In light of these fluctuations, SMEs need to map out their next steps in order to stay in and ahead of the competition. 

Here are six key measures that will shape 2023 for an SME.

Budget 2022 table

Human Resources

1. Higher employer CPF contribution for senior workers to be partially offset

What is this?

The CPF contribution rates for workers aged 55 to 70 will increase by 1.5 to 2% in 2023, and they will see a total increase of 3 to 4 percentage points in their CPF contribution rates over 2023 and 2024.

To ease the transition, the Singapore government will provide employers with a one-year CPF Transition Offset equivalent to half of the increase in employer CPF contributions. 

How does it affect SMEs?

Despite the partial offset by the government, the increased CPF contribution rates are still an increased cost that firms need to take note of. SMEs have to include this increased human resource costs in their forecast for 2023.

2. Progressive wage model expanded to more sectors

What is this?

A Progressive Wage Mark will be launched to accredit companies paying progressive wages and local qualifying salary. From March 2023, the Singapore government will require all eligible suppliers to be accredited with the Progressive Wage Mark when contracted.

The progressive wage model will be extended to the retail, food services, and waste management sectors. This scheme will also be extended to in-house cleaners, security officers, landscape workers, administrators and drivers across all sectors.

One key aspect to note is that companies employing foreign workers will be required to pay all their local employees at least the Local Qualifying Salary of S$1,400 per month.

How does it affect SMEs?

Depending on the sector that your business is in, eligible suppliers will need to get the Progressive Wage Mark from March 2023. Since the scheme is gradually rolled out to various sectors, do keep a lookout on the news for further announcements to help you plan ahead.

Under this scheme, SMEs with local employees need to pay them at least $1,400 per month. If there are any local employees earning below this amount, there is a need to revise the employment terms and remuneration accordingly.

3. SMEs can claim Skillsfuture Enterprise Credit

What is this?

The SkillsFuture Enterprise Credit (SFEC) encourages employers, including SMEs, to invest in enterprise transformation and the work capabilities of staff members.

The Skills Development Levy (SDL) requirement was waived for the qualifying period from 1 January to 31 December 2022 to allow small and micro businesses to use their SkillsFuture Enterprise Credit.

How does it affect SMEs?

The deadline to claim this credit has been extended to 30 June 2024. While the deadline is not approaching soon, businesses should avoid delays and claim it within 2023.

Given that support for human capital development rose to be among the top 3 areas of business support needed in 2022, and that 7 in 10 Singapore SMEs need more support in upskilling employees, SMEs can take this opportunity to explore the various courses available to upgrade their staff at a subsidised rate. Some ways to begin this dialogue with employees is by discussing their desired scope of work and industry.

Considering the global trend for employees to perform cross-functional roles, businesses can work with their HR department closely to explore cross-functional upskilling as well.

Business expense management

4. Higher GST Rates From 2023

What is this?

The 1% increase in GST will be implemented on 1 January 2023, bringing the goods and services tax to a total of 8%. In fact, the rates will be raised to 9% a year later on 1 January 2024.

How does it affect SMEs?

The GST increase impacts SMEs in two ways.

  • SMEs with over $1 million annual turnover in the past 12 months

Depending on the type of goods sold, B2C businesses may face the problem of an increase in selling price. However, SMEs can try to secure orders within 2023 to avoid the increase in GST.

For B2B SMEs, however, the GST increase may not have as significant of an impact because some of their clients can claim the GST paid out.

  • Increase in cost of supplies purchased by SMEs

An increased GST rate would result in a corresponding rise in business expenses. To mitigate the impact, eligible businesses can consider applying to be GST-registered on a voluntary basis, even if they are not required to do so under the GST rules. This enables SMEs to claim the GST paid out for supplies.

In the event that SMEs are unsure of how to navigate past the GST increase in 2023, a trusted professional tax advisor is a helpful resource to optimise business expenses.

5. Higher Carbon Tax

What is this?

Singapore is aiming for net zero emissions by 2050. In line with this goal, the carbon tax will be raised from the current $5 per tonne to $25 per tonne in 2024 and 2025. Subsequently, it will be raised again to $45 in 2026 and 2027 with the view of reaching $50 to $80 per tonne by 2030.

There will be no additional carbon tax on the use of petrol, diesel and compressed natural gas.

How does it affect SMEs?

SMEs that produce carbon emissions in their course of business need to keep their eyes peeled for government announcements to instil a sense of certainty for their business. They need to prepare for the 5x increase in carbon tax in 2024 by relooking at their end-to-end operations and business strategy.

6. Extended loans

What is this?

To help companies access capital, the Singapore government extended both the Temporary Bridging Loan Programme (TBLP) and the enhanced Trade Loan Scheme by six months to September 2022. These measures smoothen the cash flow of SMEs affected by the rise in inflation.

How does it affect SMEs?

While these loan programmes have ended in September, the need for funds may still persist in 2023. This sentiment is echoed in the National Business Survey 2021/2022 by the Singapore Business Federation, as nearly half of all businesses face credit issues, with cashflow being one of the main problems. As such, firms can explore various financing measures to tide them through difficult times.

Take charge of 2023

As the saying goes, “By failing to prepare, you are preparing to fail.”

Indeed, preparing a sound business roadmap for 2023 can help SMEs stay focussed in steering the company forward. In today’s competitive business landscape, SMEs need to consider both macro and microeconomic factors, not just limited to the Budget announcements, when charting their growth.

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