One word stuck in my mind after listening to Budget 2014, announced by Finance Minister Tharman Shanmugaratnam: For small and medium enterprises (SMEs) and local businesses, it was a refrain of productivity, productivity and more productivity.

On the wish lists of many SMEs had been the extension of and improvements to the Productivity and Innovation Credit (PIC) scheme as well as to certain funding initiatives, not to mention increased support for internationalisation.

To a degree, these wishes have all been addressed. In addition to the three-year extension of the PIC scheme, new schemes and enhancements were introduced, targeted at SMEs. They include PIC+, an Infocomm Technologies for Productivity and Growth (IPG) Programme, the second phase of the Co-Investment Programme (CIP) and the Government taking a bigger share of the risk for micro-loans.

To qualify for PIC+, an SME would have to have an annual turnover of less than S$100 million or a workforce of no more than 200 on a group basis. So, not only businesses with local shareholdings would benefit from the PIC+, but also a company incorporated in Singapore with 100 per cent foreign ownership.

LAST WINDOW OF OPPORTUNITY

Given that the Government has maintained its stance on restricting foreign labour growth, SMEs worst hit by the foreign worker levy and quota — especially those in the service sectors such as F&B and construction — and who have not embarked on productivity gains, will now have to seriously consider the use of technology and innovation, as the PIC+ and IPG expire in three years.

This may be the last window of opportunity that the Government will offer these SMEs.

Now that the SMEs’ calls have been heard to some extent, what remains is their readiness to tap these targeted schemes and programmes. There is still a third of SMEs with turnover of at least S$1 million that have not taken advantage of the PIC scheme since its introduction in Budget 2010. I would expect the PIC+ to have a similar take-up rate, unless more is done to identify and engage these SMEs.

The Budget did not provide any help to deal with the rising costs of doing business in Singapore — something that affects SMEs significantly. The reality is that as wages and rentals continue to pick up (not forgetting an increase in the CPF contribution rate by 1 per cent and a hike in the foreign work levy), profit margins are expected to be further eroded. There will be cash-strapped SMEs with little left to invest in productivity and take advantage of the schemes.

It is also interesting that one of the conditions for enabling high-speed connectivity for businesses under the IPG Programme requires the SME not to have already subscribed for the fibre subscription plan; otherwise, it would not be able to enjoy the 50 per cent subsidy on the plan and acquisition costs of the Wireless@SG equipment.

An SME could have subscribed to the fibre subscription plan for other uses such as email and intranet usage that is not connected to Infocomm Technologies-based (ICT-based) productivity solutions. I would think that it would be easier for the fibre subscription to be automatically subsidised as long as the SME adopts a qualifying ICT-based productivity-based solution.

In short, chasing productivity is the central theme for this year’s Budget for businesses, and special attention has been given to SMEs to encourage them to grow and compete internationally.

It’s up to SMEs to rise to the occasion with aplomb and dynamism.

ABOUT THE AUTHOR:

Lennon Lee is a partner with the Corporate Tax Advisory Group of PwC Singapore.