The Productivity And Innovation Credit Problems And Their Improvements

Our site www.pic-scheme.com works on the PIC scheme that was started by the government of Singapore to encourage the investments in productivity and innovation. The businesses make investments and enjoy a 400% in allowance and tax deductions and get 60% cash payouts for their investments and help in productivity improvements. Your business can also get back a 400% on allowances and tax deductions while current rules allow for 100% allowance and deductions but filing under the PIC scheme; you would get 4 times as much. If your business is eligible you can convert $100,000 of your total expenses into cash payouts without any taxes. That is expenditure for each year and all of the 6 qualifying activities. That means under the PIC scheme, more you invest in productivity and innovation,, more you will get back into your pocket. 

A PIC start up package consist of website development items, Search engine optimization (SEO), photocopier, social medial marketing; this package costs around $18, 750.

The consultants are marketing the package to help people to start the business who have just initiated it.

This is perfectly legal to work on it, making one surprised about the quality of startup emerging from such packages. PIC funds are used to create jobs in Singapore companies and provide a small company, a photocopier at a little expense. At the PIC startup firm does its homework these basic things are known as productivity or innovation expenditures.

There are many issues with the PIC scheme and suggestions about the practical ways to improving its implementation.

The Productivity and Innovation Credit has been created to provide incentives for Singapore companies to make their investment in productivity improving technology. It is being administered by IRAS with detailed information. The most positive part of the PIC is a tax deduction of 400% when any company qualifies the expenses. The option for conversion of expenses into a cash payout of 60% could not be settled but it’s a good way to help the firms in managing their cash flow and risks related to it are also managed.

For many tax payers of 2013 to 2015, a condition was added know as PIC Bonus. The PIC Bonus gives many businesses dollar for dollar matching cash bonus for YAs 2013 to 2015 subject to cap of $15000 for 3 YAs combined. YA stand for “Year of assessment”.

The PIC Bonus enables the “SGD 24,000 of PIC Benefits” which have been mentioned above: Spending $15,000 on qualifying expenditure, getting a 60% cash payout ($9,000) and a $15,000 dollar-for-dollar match. It is not making sense that there is such a substantial surplus of 60%.

PIC Bonus Singapore has also made same efforts to establish new companies.

The writers on the issue expressed shock at the surplus amount, expecting the bonus to be limited at 40% not covered by cash payout of PIC Scheme. Unluckily the IRAS response failed to address that. The intention for cash payouts was to help companies manage their own cash flow which might become a hurdle to improve their productivity expenses because there are no flexible schemes available. The payouts reproduce a 400% tax deduction at 15% tax rate. 

The benefits are being shared between joined parties. This is not an imaginary idea. Rather a common fraud is made due to issuance of invoices by anyone and PIC cash payout option turn invoices into currency.These invoices are very difficult to audit for fraud declaration. A substantial effort is required to sort out frauds. There is another risk of companies who make playful expenses because it is cheap than any other option. As claimants have no risk of their own money in this act. Tax payer money is poorly spent and goes towards inspiring the vendors and claimants they buy from. The payout of 160% arising from PIC bonus is already a fraud that gets huge.

The intention behind the PIC Scheme is very good. Giving up some tax revenue each year is a logical trade to increase productivity in the following years. There should be few measures to reduce the fraud and abuse during its application. These measures are independently followed. One is having a light track while other two are more involved. 

The challenge here is to separate the real cases from fakes. One has to observe a costly signal from the applicants; that is cheap for genuine cases and expensive from others. By using this idea, fakes would be suspended by the cost of generating the signals while genuine cases would be able to do so.

During a simple ratio test; “Real” companies possess real revenue and real operating expenses. Such companies can make a detailed record of their expenses in their accounts. The low footprint screening procedure would be able to obtain revenue and operating expense numbers and also judge the ratio of claims to revenue and the ratio of claims to operating expense.

If one is both ratios became higher; then they should set out an inspection why that happened. In some cases, IRAS might choose the acceptance and processing of the claim, while in others IRAS might ask for more information. This is a low cost measure that should be implemented.

Productivity and innovation expenditures always promote productivity and innovation. It is understood that basic business expenses should not qualify. For example website development, photocopiers, furniture, advertising are the parts of productivity and innovation expenditure. Computers, lie in a grey area. This has a low footprint and should be implemented soon.

The cost of the items falls into ranges. All applicants are required to categorize the expenditure and use this information for inspection. That could be a strong step against fraud. This is a cost estimation effort. 

Alternative rather than cash payments to Manage Cash Flow is a way for the Government to make an agreement with banks to facilitate short term loans at a low interest rate (3% per annum or even less than this); while government would pay that interest for 6 months if that expenditure has been approved. In this way companies may upgrade their operations and get large tax deduction. The PIC scheme is well intentioned and has full potential to help the business genuinely.