Home
Singapore’s Budget 2026 was delivered on 12 February by Prime Minister Lawrence Wong, under the theme “Securing Our Future Together in a Changed World.” AI was a big focus of the Budget 2026 announcement. There were also several other updates mentioned that will directly affect how you run payroll this year and into 2027.
Here are the 6 key points from the Budget 2026 announcement that will matter most to you as an employer.
1. Corporate Income Tax Rebate – Cash in Your Pocket for YA 2026
This one is straightforward and worth knowing about.
For the Year of Assessment (YA) 2026, your company will receive a 40% rebate on corporate income tax payable, capped at S$30,000. If your company didn’t turn a profit this year but employed at least one local worker in 2025, you’re still eligible for a minimum cash grant of S$1,500.
You don’t need to apply. Eligible companies will receive the benefit automatically from Q2 2026 when taxes are filed.
What this means for you: It’s a useful buffer against rising operational costs. For lean SMEs, even the minimum S$1,500 helps – and it’s one less thing to chase.
2. Local Qualifying Salary Increases to S$1,800 – Effective 1 July 2026
If you hire foreign workers under the Fair Consideration Framework, this change applies to you directly.
The Local Qualifying Salary (LQS) will rise from S$1,600 to S$1,800 per month for full-time employees, effective 1 July 2026. For part-time workers, the minimum rises to S$10.50 per hour.
The LQS is the minimum salary you need to pay local full-time employees to maintain your foreign worker quota entitlement. If your local employees are currently earning between S$1,600 and S$1,799, you’ll need to adjust their salaries before July.
What this means for you: Review your local headcount now and flag anyone whose pay sits below the new threshold. This is a payroll update that needs to happen before 1 July – not after.
3. Progressive Wage Credit Scheme: Government Co-Funding Goes Up to 30%
If you’ve been gradually raising wages for lower-income workers, the government will now co-fund a larger share of that increase.
The Progressive Wage Credit Scheme (PWCS) provides transitional support to help employers manage the cost of wage increases. For 2026, co-funding has been raised from 20% to 30% for qualifying wage increases. The scheme runs through to 2028.
To qualify, the employee must have average gross monthly wages of up to S$4,000 after the wage increase, and the wage increase must be at least S$100 per month in each qualifying year.
From 2027, that minimum qualifying increase rises to S$200 – so if you’re planning increments, it’s worth structuring them with that in mind.
What this means for you: If you’re planning to raise pay for junior or support staff this year, do it in a way that captures the PWCS co-funding. A payroll system that tracks wage movements across years makes this significantly easier to manage.
4. CPF Changes: What’s Already in Effect, and What’s Coming in 2027
There are two separate CPF changes to be aware of, and it’s easy to confuse them.
Already in effect from 1 January 2026: The CPF Ordinary Wage (OW) ceiling has increased from S$7,400 to S$8,000 per month. This means employees earning above S$7,400 will now have CPF contributions calculated on a higher base. If you have employees in this salary range, your employer CPF contributions have already gone up. Your payroll system should have captured this – but it’s worth verifying.
Coming from 1 January 2027: CPF contribution rates for senior workers aged above 55 to 65 will increase. Total rates rise by 1.5 percentage points for the 55–60 age group, and 1.0 percentage point for the 60–65 age group. Employer contributions go up by 0.5 percentage points for both groups.
To soften the impact, the government will provide a CPF Transition Offset equivalent to half of the increase in employer contributions for 2027. This will be given automatically – no application needed.
What this means for you: If you have senior staff in these age brackets, update your 2027 payroll forecasts now. The offset helps, but the net cost increase is still real and should be budgeted for.
5. SkillsFuture Enterprise Credit – Extended to 30 June 2027
If you haven’t yet used your SkillsFuture Enterprise Credit (SFEC), you now have more time. The deadline has been extended to 30 June 2027, and credits can offset up to 90% of out-of-pocket costs for qualifying workforce training programmes.
What this means for you: If your team is due for an HR system upgrade or a compliance training investment, SFEC can help offset the cost. Check your remaining credit balance on the Business Grants Portal.
6. AI – Budget 2026 Makes Adoption More Affordable for SMEs
AI wasn’t just a side note in Budget 2026. It was a central theme, and there are several practical incentives for SMEs worth knowing about.
Enterprise Innovation Scheme (EIS) – New AI Category
The EIS is being enhanced for YA 2027 and 2028. Businesses can already claim 400% tax deductions on qualifying R&D, IP registration, and training expenditure. Budget 2026 adds a new specific category for AI-related spending. You can now claim 400% tax deductions on up to S$50,000 of qualifying AI expenditure per year – a potential S$200,000 in deductions annually if you max out the limit.
One thing to note: unlike other EIS categories, AI expenditure cannot be converted into a direct cash payout. IRAS will release more details by mid-2026.
Productivity Solutions Grant (PSG) – More AI Tools Covered
The PSG, which helps SMEs adopt pre-approved IT solutions to improve productivity, is being expanded to cover a wider range of digital and AI-enabled solutions. More off-the-shelf AI tools will be subsidized, making it easier for businesses to implement without doing all the legwork themselves. The Ministry of Digital Development and Information (MDDI) will confirm which solutions qualify at the Committee of Supply 2026 debates.
AI Skills Training for Your Team
For staff development, the government is expanding the TechSkills Accelerator (TeSA) to focus on AI skills in non-tech, cross-sector roles – not just IT departments. Fields like accountancy are among the first to receive structured AI training frameworks, developed in partnership with professional bodies.
There’s also an incentive for individuals: employees who complete selected AI training courses will receive six months of free access to premium AI tools (think tools in the range of ChatGPT Plus). MOM will share details on qualifying courses at the Committee of Supply debates.
What this means for you: If you’ve been thinking about adopting AI tools for HR processes – whether that’s automating leave management, payroll reporting, or workforce analytics – Budget 2026 has lowered the financial barrier significantly. The EIS deduction and PSG expansion together make a meaningful difference to the cost equation. Keep an eye on IRAS and MDDI announcements in mid-2026 for the specifics.
The Bigger Picture
Budget 2026 isn’t a dramatic overhaul – it’s a continuation of Singapore’s steady push toward higher wages, stronger retirement savings, tighter foreign workforce standards, and now, broader AI adoption. For SME employers, that means consistent upward pressure on payroll costs over the next two to three years, alongside real opportunities to reduce manual workload through technology.
The businesses that handle this best won’t be the ones scrambling to adjust every time a policy takes effect. They’ll be the ones with clean payroll records, a clear view of their headcount costs, and a system that flags compliance changes before they become filing problems.
If Budget 2026 has surfaced questions about your current payroll setup – whether that’s the LQS adjustment, CPF rate changes, PWCS tracking, or what AI tools could actually help your HR team – we’re happy to walk you through it.
