PIC grants or Productivity and Innovation Credit grants were introduced by the Singapore government, which aims as a breather to the SMEs and startups that find it difficult to invest in productivity and communication tools which are essential to their growth. This was first introduced in 2011, to be in practice till 2015, and then extended till 2018, for the startups to save on the basic investment till they are able to establish in the market. This was a novel initiative by the Singapore Government to encourage the startup IT establishments and to cover their initial establishment costs till they complete the start-up phase. Under this option, the IT establishments can either enjoy up to 60% tax deduction or up to 40% cash payout on the qualifying activities as identified by the IRAS. Similarly, the ICV is the Innovation and Capability Voucher scheme aims at providing a $5000 voucher scheme which the SMEs can use to upgrade in the fields of Innovation, Human Resources, Productivity and Finance Management and to implement integrated business solutions that improve business process in terms of hardware, design or renovation. All establishments located in Singapore, having at least 30% local shareholding, with annual sales less than S$100 and with employees less than 200 can benefit from ICV.
How do the SMEs benefit from PIC Grant?
PIC Grant is meant to cover the establishment expenses of startups so that they can move forward with Innovative ideas to improve Productivity and thereby become successful. PIC grant can be utilized in the implementation of automation equipment, acquiring intellectual property & its registration, for R&D in selected fields, for employee training to improve productivity, the web & mobile design and development, to establish an e-commerce portal, for CRM and CMS. The firms can claim the PIC Grant by way of Tax Deductions or Cash Payouts as specified by the IRAS. For different YAs, the scheme announced is different and hence, the firms have to comply with the requirements for each period as specified by the IRAS. The organizations can gain up to 400% tax deduction upon its expenditure under the Qualifying Expenses as recognized by the IRAS. PIC has their own expert panels of web and mobile designers who help the industries by creating attractive design interfaces and also in developing a platform for showcasing their products and services. This can boost the business to a great extent and hence PIC is providing the required guidance and support. E-Commerce has revolutionized the global market and PIC ensures that Singapore firms also benefit from the revolution by joining the global market. PIC provides extended support for the Singapore-based qualifying firms to start an e-Commerce portal thereby entering the global market. PIC also provides support for CRM and CMS to constantly engage with the customers and thereby building up brand recognition in the global market.
Conditions for PIC Grant Eligibility
PIC Grant can be availed only by those organizations carrying out specific businesses as directly by IRAS and located in Singapore. Further, these firms should employ at least 3 Singapore citizens or Permanent Residents of Singapore to be eligible for PIC. They have to purchase and put the IT and automation equipment to use during the particular YA or Year of Assessment as regulated by IRAS from 2016 onwards.
Reduction of PIC Grant from 60% to 40%
Of late, the PIC Grant has been misused by certain individuals and groups who try to make it a successful business. To curb this tendency, IRAS has recently reduced the PIC Grant from 60% to 40% of the expenses incurred on qualifying activities. The IRAS had initially intended to make the PIC Grant available till 2015 only. It was then extended till 2018 and this reduction is one of the ways the Government plans to continue to support the startups to keep improving their technology and productivity to be able to survive in the highly competitive global market and thereby succeed. For every $100000 spent on qualifying activities, the firms can avail a 60% cash payout till 31st July 2016 and then onwards 40%.
The SMEs that have not yet availed the PIC Grant can take advantage of the situation as the government is allowing them to apply for PIC Grant on backdated expenses also. Any establishment that comes under the eligibility criteria for PIC Grant can apply for the same this year and claim the previous year’s eligible expenses and continue to enjoy the privileges till 2018.
Disadvantages of reducing the PIC Grant & How to overcome them
A 20% cut in the PIC Grant is definitely a big blow to the SMEs using this facility since its inception. But the scheme which was planned to be in effect till 2015 has been extended till 2018 and hence the SMEs can enjoy the tax deductions and cash payouts for another 3 years which is definitely an added advantage. With the added support of PIC for establishing e-commerce portal, the web and mobile development and in CRM and CMS, the SMEs can make full use of technology and PIC support to reach out to a bigger audience across the globe and thereby targeting a higher revenue. Since the reduction will be in effect for expenses incurred after April 1, 2016, the SMEs can take preventive measure to cost-control. The enhanced tax rebates for the SMEs will be a relief to the reduction of PIC Grant.
Action against PIC Grant abuse
To discourage and stop the fraudulent and abusive use of PIC Grant, the IRAS have introduced strict laws against the offenders. The offenders will have to pay a penalty up to four times the PCI Grant fraudulently availed and an additional fine of $50,000 and / or imprisonment up to 5 years. The law is applicable to the offenders as well as those who willfully assist the offenders in obtaining the grant.