The G spot – on PIC

In Money, News Reports on March 3, 2015 at 4:49 am

Some people want it to be permanent. Some want it tracked more closely to prevent abuse. Some people think it hasn’t achieved its aim at all. I’m talking about PIC or the Productivity and Innovation Credit introduced in 2011. Actually, it looks like a windfall for companies which want to restructure or innovate.

Who doesn’t want a 400% tax deduction or 60% cash payment on up to $400,000 expenditure per year? All you need is to spend some money on IT and automation equipment, employee training, intellectual property, R&D, and design projects. In fact, a whole consulting business sprouted up advising businesses on how to make PIC claims.

Then, in 2013, the G boosted PIC by raising the expenditure limit to $600,000. It also announced the PIC Bonus scheme gave businesses a dollar-for-dollar matching cash bonus for year of assesment 2013 to 2015, subject to an overall cap of $15,000. The G announced in Budget 2015 that PIC Bonus is no more.

So how much has been claimed by businesses? One figure reported was $1.8b as of August last year. Last year, 54,000 companies made PIC claims. Construction businesses were big claimants, but the sector achieved productivity improvements of only 0.8 per cent annually from 2009 to 2013.

If PIC is intended to spur productivity, it doesn’t seem to have worked. Labour productivity, which measures the amount that each worker produces, grew by 11.6% in 2010. Then it started falling: by 2.2% in 2011, then by 1.4% in 2012 and fell a further 0.2% in 2013. Last year, labour productivity rose by 0.8% in the first quarter, and then fell by 1.4% and 0.8% in the next two quarters. (Of course, the flip side is that the figures might have been worse without PIC)

One academic who looked at data from the Inland Revenue Authority of Singapore (Iras), which administers PIC, thinks that only about 3 per cent of PIC claims are related to innovation, such as licensing and registration of intellectual property rights, and investments in design or R&D.

So what have businesses been doing with the money? Buying handphones for all its employees? Buying machines which don’t seem either to have cut labour numbers or at least make them more productive? I can foresee the G saying that no one can draw a straight line between PIC and productivity and there are many other support structures that would have a role. Even people agree, that is not a reason not to give a sectoral breakdown of PIC claimants.

The tax claims or rather, the cash payouts, make it a magnet for abuse. Three companies have been hauled up to court for  making fraudulent claims. Anecdotal evidence seems to suggest that abuse is rather more widespread than that.

Here’s another point from a poster regarding PIC eligibility rules, which say employers have to declare that they have at least three Singaporean employees:   Most have conveniently picked their relatives, neighbours, Tom Dick and Harry. But, there is no corresponding productivity increase ! Can MOF publish how many companies who used the PIC are actually profitable and productivity has gone up ?

While the PIC Bonus scheme has ended, PIC will go on till 2018. Clearly, people expect a more robust monitoring of PIC.

Here’s what another poster said about productivity. I think he makes eminent sense which is why I am producing it in full. I hope an MP takes up the point although I wonder how the G can coerce companies into sharing productivity gains. Isn’t this something for the National Wages Council and the NTUC?

One reason why productivity is not gaining speed is the overtime pay structure of low wage/ workers. As productivity is at the expense of overtime, low wage workers will not embrace productivity as it will mean substantial cut in their monthly take home salaries. Unless we make changes to the labor law to revamp the overtime pay structure, workers who are entitled to over time pay will have no incentives to improve their productivity. 

So my question to the G: how can we strike a balance between over time pay and productivity at the same time if the workers are not rewarded for productivity? Workers’ goals are short term, they will not look at the long term competitiveness of companies for achieving better productivity. Workers care more about their takehome salaries with overtime allowances to ensure that they have enough cash to pay their bills. Not many companies would share their productivity gains with their workers as the companies need to invest in capital expenditure to buy more machines and the companies need the productivity savings to justify the return of investment.

Finally, to all MPs, here’s to a fruitful debate in Parliament!

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