Taxation PIC Scheme of Singapore

Question: Describe about the Taxation for PIC Scheme of Singapore. Answer: (a) The productivity and innovation credit (PIC) scheme provides for 400% deduction for income tax purposes to the tax payers carrying on business. This 400% deduction is available on the expenditure incurred on the six prescribed activities which are regarded as the qualifying activities. Further, there is a maximum cap on this allowance which restricts the maximum deduction for each qualifying activity to $400,000 per annum (IRAS, 2016). One of the six qualifying activities is the acquisition and leasing of the IT and automation equipment. Thus, the expenditure incurred by the businessmen or business entity on acquiring the IT and automation equipment is allowed for 400% deduction under PIC scheme for the income tax purposes. However, it is worthwhile to note in this regard that all the IT and automation equipments are not allowed for deduction, these are only the IT and automation equipments which are prescribed by the income tax authorities. Further, it is also provided that if a particular IT and automation equipment is not prescribed by the income tax authority, the tax payer may apply to the ministry or comptroller of income tax for approval of such equipment (IRAS, 2016). In regard to the advertisement given by Poh Choo, it has been observed that the claims made therein are not correct. The advertisement pamphlet claims that the hardware, software, and related costs incurred are eligible for 100% PIC claims, which is not true. From the provisions of PIC scheme, it is quite clear that only approved expenditure on the IT and automation equipments is allowable for deduction under PIC. The approved list of IT and automation equipments includes facsimile, optical character reader, laser printer, computers, office system software etc (IRAS, 2016). Further, the deduction is not restricted to 100%; rather it is allowable up to 400% of the expenditure incurred. (b) As per the provisions of income tax and PIC scheme, the relevant calculations for the company have been shown in the tables presented below: Tax Deduction Year-1 Year-2 Year-3 Total Adjusted profit of the business 100,000.00 100,000.00 100,000.00 Add: Expected increase @40% 40,000.00 40,000.00 A. Total 100,000.00 140,000.00 140,000.00 Qualifying expenditure for PIC Claims Cost of software and automated equipment 25,000.00 - - Website 8,000.00 - - B. Total 33,000.00 - - C. PIC claim (400%*B) 132,000.00 - - D. Income/loss (A-C) (32,000.00) 140,000.00 140,000.00 Less: Maintenance 850.00 850.00 850.00 E. Taxable income - 139,150.00 139,150.00 F. Brought forward losses set off (32,000.00) G. Net Taxable income - 107,150.00 139,150.00 H. Tax @17% (IRAS, 2016) - 18,215.50 23,655.50 41,871.00 The table presented above shows the net cash payout of the company when it opts for PIC deduction in place of cash payout plan. It could be observed that if the company opts for PIC deductions, then its net cash payout will be $41,871.00 in the form of income tax paid. However, there is an alternative available to the company in which it can opt for cash payout instead of PIC deductions. Calculations in this connection are shown in the table given below: PIC Cash Payout Year-1 Year-2 Year-3 Adjusted profit of the business 100,000.00 100,000.00 100,000.00 Add: Expected increase @40% 40,000.00 40,000.00 A. Total 100,000.00 140,000.00 140,000.00 B. Normal Deductions 33,000.00 - - C. Maintenance 850.00 850.00 850.00 D. Taxable income (A-B-C) 66,150.00 139,150.00 139,150.00 E. Tax @17% (IRAS, 2016) 11,245.50 23,655.50 23,655.50 58,556.50 F. PIC cash payout (60%*33000) 19,800.00 - - 19,800.00 G. Net cash payout (E-F) 38,756.50 In order to claim cash payout under PIC scheme, the taxpayer should have at least three local employees falling under CPF contribution provisions. In the current case, the company has three employees which fall under the CPF contribution provisions; thus, it is eligible to claim cash payout under PIC scheme (IRAS, 2016). It could be observed from the table that net cash payout of the company under this alternative is $38,756.50. The net cash payout of the company is lower in this alternative as compared to the previous one. Therefore, it is advised that the company chooses PIC cash payout plan in place of PIC deduction plan. Reference IRAS. 2016. Productivity and Innovation Credit (PIC) Scheme. [Online]. Available at: https://www.iras.gov.sg/irashome/uploadedFiles/IRASHome/Businesses/PIC%20Seminar%20for%20Medical%20Practitioner.pdf [Accessed on: 30 November 2016]. IRAS. 2016. Overview of PIC IT and Automation Equipment. [Online]. Available at: https://www.iras.gov.sg/irashome/Schemes/Businesses/Productivity-and-Innovation-Credit-Scheme/Six-Qualifying-Activities-under-PIC/Acquisition-and-Leasing-of-PIC-IT-and-Automation-Equipment/ [Accessed on: 30 November 2016]. IRAS. 2016. Corporate Tax Rates, Corporate Income Tax Rebates, Tax Exemption Schemes and SME Cash Grant. [Online]. Available at: https://www.iras.gov.sg/irashome/Businesses/Companies/Learning-the-basics-of-Corporate-Income-Tax/Corporate-Tax-Rates--Corporate-Income-Tax-Rebates--Tax-Exemption-Schemes-and-SME-Cash-Grant/ [Accessed on: 30 November 2016].