5 Takeaways for Investors from Singapore Budget 2017February 23, 2017
How might it affect you and the stock market?
It is that time of the year again when Singapore market participants are paying attention to what the Finance Minister will say and his policies. Each year, the national budget is prepared and comes into effect on 1 April and ends on 31 March of the next calendar year. It includes government revenue and expenditure projections and policies changes that may affect certain industries. The markets showed little reaction, opening at 3106.81 and closing lower at 3096.69 as of yesterday. This is Mr. Heng Swee Kiat’s first major policy speech since recovering from his stroke last year. There were many insights shared, of which I will list what are most important to me in the short term for retail investors.
1) Foreign Worker Levy
Due to continued cyclical weaknesses in the Marine and Process Sectors, the foreign worker levy increase will be deferred. This levy is a pricing mechanism to regulate the number of foreign workers in Singapore. It comes into effect the day the employee’s work permit is issued and employers are required to pay a levy for such permit holders.
The Marine Sector consists of building, repairing and manufacturing of ships, tankers and ocean-going vessels. The Process Sector consists of plants in the manufacturing of petroleum, petrochemical and pharmaceutical products. Some offshore and gas companies are involved with such sectors and employ foreign workers. Levies can range from $300 to $750 depending on the basic or higher level of skills and are subject to man-year entitlement.
2) Corporate income Tax (CIT) rebate
The CIT rebate was enhanced from 30% to 50% of tax payable last year, capped at $20k. This year, the cap is being raised from $20k to $25k for YA 2017 with the rebate remaining at 50% of tax payable. This rebate is given to companies (including registered business trusts) to help them deal with rising business expenses and does not apply to income derived from non-resident companies.
3) Public Sector Infrastructure projects
There will be S$700 million worth of public sector infrastructure projects starting in FY2017 and FY2018. These include the upgrading of community clubs and sports facilities. This may provide more business opportunities for small-mid cap construction sector companies, especially those with government contracts (e.g. Lian Beng Group, Hock Lian Seng, Wee Hur Group). Construction firms will usually bid for and participate in these projects. Other companies such as ISOteam (an estate upgrading company) may benefit indirectly as well.
4) Diesel Taxes
There was a restructuring of diesel taxes, following in the footsteps of Athens, Madrid and Paris. These taxes will change from a lump sum tax to a volume-based duty at $0.10/litre. This change may impact taxi drivers and diesel vehicles as taxing them according to usage will reduce their diesel consumption. At the same time, annual special tax on diesel cars/taxis will be reduced by $100 and $850 respectively. This is to partially or fully offset the increase in diesel costs. One company that might be affected by such a policy would be ComfortDelgro.
About the author
Sky Kwah Wen Yao
Sky Kwah is part of the POEMS Equity Dealing Team that provides dealing services to over 28,000 trading account customers. Sky gives talks in tertiary institutions like NTU & SIM and he often conducts seminars on Fundamental Analysis, most recent was at the Investfair 2016. He particularly focuses on value stocks in Singapore and the US with a top-down macro approach. He is frequently interviewed by MediaCorp News 938Live radio station or 联合早报 as a market commenter and he hopes to help clients become better stewards of wealth and believes in succeeding in what truly matters – the fullness of life. Sky holds a Bachelor Degree of Commerce with a triple major in Financial Accounting, Investment Finance, and Corporate Finance, from the University of Western Australia.