The Productivity and Credit (PIC) scheme was set up by the government to help Singapore companies boost their productivity. Under the scheme, a company can claim up to 400% tax allowance or receive a 60% cash rebate on qualifying expenditure.
One example of qualifying expenditure is training for staff.
While I think that the PIC is a good idea in principle, one problem with these kinds of schemes is that it can be easily abused, as reported in the Straits Times last month:
Some firms abusing productivity grants (Straits Times)
The government has further implemented an extra PIC Bonus this year, which I think will lead to an increase in the abuse of the PIC scheme.
The PIC Bonus gives businesses a dollar-for-dollar matching cash bonus for YAs 2013 to 2015, subject to an overall cap of $15,000 for all 3 YAs combined.
If you add up the PIC scheme and bonus, a company can spend $15,000 on training for its staff (or certain IT equipment) and claim back $24,000 in cash (160%) from the government. Why would any company not want to spend $15,000 when it can get back $24,000?
To me, any scheme that pays a company more than what it spends is a bad idea as it will attract all sorts of people trying to exploit the system.
All these could be done using legitimate ways, illegal ways or unclear ways stretched to the legal limit.
Case in point.
The other day, I was at a franchising conference. At the exhibition, there was a particular company that was trying to sell their franchise for an online retail store system.
The pitch by their sales person is that I do not need to pay a single cent and can even make money just by signing up for their franchise. How?
Pay $10,000 for their system, then claim back $16,000 from the government using the PIC scheme.
How is this possible? The master-stroke is that if we sign up, we will actually be paying $10,000 for a training course that teaches us how to use the system. And training is one of the items covered under the PIC scheme.
Of course, there are certain criteria that must be met in order to get the dollar for dollar matching:
- incurred at least $5,000 in PIC-qualifying expenditure during the basis period for the YA in which a PIC Bonus is claimed;
- active business operations in Singapore; and
- at least 3 local employees (Singapore citizens or Singapore permanent residents with CPF contributions) excluding sole-proprietors, partners under contract for service and shareholders who are directors of the company.
I am not so sure how the government enforces the criteria but I think one simple way of making the criteria tighter is to restrict it to companies that have been existence for a certain number of years. This will stop people from setting up shell businesses to make fraudulent PIC claims.
In the meantime, training providers stand to benefit greatly in the next few years as a result of the PIC scheme.
