COS 2021: Calibrating Incentives to MNCs and SMEs

Mr Leon Perera (Aljunied): Mr Chairman, Singapore provides amongst other things tax incentives for MNCs to set up regional headquarters and other investments because they contribute towards our economy. SMEs, which are the backbone of our economy, making up 72% of employment and 44% of added nominal value in 2019, also received support. But the pandemic has given us a sobering reminder that SMEs play on an unequal footing because of their smaller balance sheets and brand value. MNC investment is often attracted by incentive packages that include tax incentives and other forms of incentivisation. These are tied to economic targets like total business spending, fixed asset investment and headcount.

As I argued in my Budget speech, can incentive packages for MNCs include an additional tier of incentive if the MNCs work with local SMEs in executing the investment project. This additional tier can be offered very selectively where there are good local SMEs that can be partners to MNCs and it should be meant as a nudge and encouragement, not mandate or dicta.

There are schemes like PACT which reward MNC and SME collaboration, just like there were schemes like LIUP in the past. But, however, SMEs really grown into regional and global players helped by these schemes.

In other countries in the region, MNCs are sometimes required to have a certain percentage of local equity. I am not advocating that at this point as it may make us too uncompetitive to attract MNCs.

Last but not least, do our economic agencies regularly audit these schemes to weigh the cost in terms of cash outlay and so on, versus the benefit in terms of job creation and economic multipliers?

Mr Leon Perera: Thank you, Mr Chairman. And I thank Minister Chan and all the MTI officeholders for their replies. I have just one more general point of clarification which I suppose I should direct to Minister Tan See Leng because he talked a lot about the take-up rate for various schemes, like the ESG and so on. So, I think that it is important for us to monitor these take up rates, like the number of firms which have availed themselves of the scheme. I would like to ask the Minister: would he agree that that is not an effort indicator? And effort indicators are important. They are useful and we should measure them. But does the Ministry also measure outcome indicators? What do I mean by “outcome indicators”? At the end of the day, how many of these local companies are achieving a certain threshold in terms of shareholder value, in terms of market share in a particular product category, in terms of absolute revenue signs or so on?

Now, I know that it is difficult to assess causation versus correlation. I know, at the end of the day, the entrepreneur is responsible for delivering outcomes. The scheme is just an enabler or facilitator. But would it not be useful for—does the Ministry actually do this to measure at the end of the day, and we have a pool of local companies who have benefited from various schemes after a certain period of time, X number of these local companies have attained these performance benchmarks and these thresholds, so that we know that we are sort of moving in the right direction, even if it is not possible to pinpoint causation?

Mr Chan Chun Sing: Mr Chairman, I thank Mr Leon Perera for that question. On behalf of Minister Tan See Leng, because this involved the whole MTI portfolio. The answer to Mr Leon Perera’s question is definitely yes. We definitely benchmark what we achieve, not just from the input perspective, but from the output and also, most importantly, from the outcome perspective. Indeed, that is my guidance to all the MTI staff and our Statutory Boards that whenever we apply a scheme to any of the enterprises that we intend to help, let us not just look at the input, not just look at the output, but look at the outcome. And, as Mr Leon Perera says – and we agree with him – that the outcome will depend on a multitude of factors. It may not be causal, but it will, at least, give us a sense of whether we are making progress. And that is why, during my speech, I mentioned that, at every point in time, MTI is constantly reviewing our schemes to make sure that we apply the finite resources to the best use in order to grow our enterprise as an eco-system. And where we need to, we will make some adjustments to the scheme. We will prune some of the schemes that are less relevant in order to redirect resources to schemes that are much more in need by the enterprises.

Ministry of Trade and Industry
2 March 2021

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