Economic Expansion Incentives (Relief from Income Tax) (Amendment) Bill

Order for Second Reading read.

The Minister for Trade and Industry (Trade) (Mr Lim Hng Kiang): Mdm Speaker, I beg to move, "That the Bill be now read a Second time."

The Economic Expansion Incentives (Relief from Income Tax) (Amendment) Bill 2016 puts into legal effect the income tax changes introduced in Budget 2015 as well as other amendments arising from the regular review of our tax incentive regime.

Let me draw Members' attention to the two key legislative changes contained in this Bill.

First, is to apply the maximum tax relief period for each Pioneer Certificate (PC) on the incentivised activities. The Pioneer Incentive is designed to attract and anchor new economic activities, that is, pioneer activities with significant economic benefits to Singapore and to encourage companies to acquire new technologies. The objective of the incentive is to drive the growth of high value-added or high-technology industries in Singapore.

A company can be awarded multiple PCs when it anchors different qualifying economic activities in Singapore over time. However, the Economic Expansion Incentives (Relief from Income Tax) Act (EEIA) currently only allows for each company to enjoy a maximum tax relief period of 15 years, regardless of the number of PCs awarded to the company.

To encourage all companies, including existing ones, to continue to anchor more pioneering activities in Singapore, the EEIA will be amended to make clear that the maximum tax relief period is to be applied on the incentivised pioneer activity, instead of the company as a whole.

Clauses 3, 4 and 13 amend sections 5, 6 and 17 respectively to give legislative effect to this.

The second major change is to apply the maximum tax relief period for each certificate issued for Development and Expansion Incentive (DEI) on the incentivised activities. DEI was introduced to encourage companies to expand by investing in technology as well as major upgrading of equipment and operations. Under the EEIA, the tax relief period under DEI is generally capped at 20 years and currently applied on the company, instead of the incentivised qualifying activities. As DEI similarly aims to encourage all companies engaged in high value-added manufacturing or services activities, including existing ones, to continue to expand in Singapore, the EEIA will also be amended to make clear that the maximum tax relief period will apply on the qualifying activities for DEI.

Therefore, clauses 17 and 18 amend sections 19J and 19K respectively to give legislative effect to this.

The remaining legislative changes arising from our periodic review of the income tax system are technical in nature or relate to improvements in tax administration.

Mdm Speaker, the proposed changes to the EEIA seek to encourage economic activities in Singapore. These changes also reflect the Government's commitment to monitor the effectiveness of our tax incentive regime and to keep it competitive and relevant as economic conditions change. Mdm Speaker, I beg to move.

Question proposed.

3.07 pm

Mr Louis Ng Kok Kwang (Nee Soon): Mdm Speaker, I stand in support of this Bill and I applaud the Government's support for pioneer industries and pioneer service companies and provide them with tax benefits.

However, I would like to seek some brief clarifications and also make some suggestions.

Firstly, on the selection criteria for pioneer service companies and industries. There are amendments to section 17 of the Act but not to section 17(2) specifically, which states "The Minister may, if he considers it expedient in the public interest to do so, approve the application and issue the company with a certificate subject to such terms and conditions as he thinks fit".

Can the Minister provide more clarity on the criteria for the approval of the application and consider adding such information into section 17(2)?

Can the Minister also consider this for section 4(1) which states "The Minister may, if he considers it expedient in the public interest to do so, approve an industry, which is not being carried on in Singapore on such a scale adequate to the economic needs of Singapore and for which in his opinion there are favourable prospects for development, to be a pioneer industry and any specific product of that industry to be a pioneer product."

EDB does have some of this information on its website and factors of consideration as well, but I hope we can provide more clarity in the legislation itself. We need a clear and unambiguous framework to select and admit companies which will benefit from the pioneer status.

I ask this so that companies can also better understand the considerations taken and, hence, can plan accordingly and make better plans to become pioneer industries or pioneer service companies.

With regard to the proposed amendments to section 19J(d) where the Minister decides whether the concessionary tax rate for income from a qualifying activity is either 5% or 10%, can the Minister provide more details on the criteria for receiving either 5% or 10%? This greater clarity will again allow companies to make better plans which will, ultimately, benefit Singapore.

The main aim of providing all these clarifications is so that companies have a higher chance of a successful application, resulting in fewer resources wasted through failed and repeated applications.

My second concern is how we can help more SMEs and startups benefit from these tax reliefs. Can the Minister provide details on the total number of approved pioneer industries and pioneer service companies in the past decade and, of those, how many are SMEs and startups?

SPRING Singapore is already helping the start-ups with the ACE Start-ups Grant and all companies, especially the SMEs, with the Productivity and Innovation Credit Scheme. Will EDB be doing more to help them also become pioneer industries and pioneer service companies? It does seem like a huge hurdle to overcome to become a pioneer industry and I hope we are not setting a hurdle too high for SMEs which, with a bit of help, have the potential to be global game changers and make Singapore proud.

Lastly, many companies are aware of the PIC scheme but far fewer are aware of the Economic Expansion Incentives Act. I hope we can roll out more initiatives to increase awareness and encourage more applications.

This will be in line with our overall goal of building up innovation, inspiring more creativity and driving more research and development in Singapore.

In conclusion, the Economic Expansion Incentives Act has provided important tax relief for companies in Singapore and help increase the growth of pioneer industries. I believe that with more clarity on the criteria for the approval of applications, more awareness and, with the amendments proposed in this Bill, our efforts will be further strengthened. Mdm Speaker, my request for the Government to review the above notwithstanding, I support the Bill.

Mdm Speaker: Minister Lim.

3.11 pm

Mr Lim Hng Kiang: Mdm Speaker, I thank Mr Louis Ng for supporting the Bill. Mr Ng has suggested that we provide more clarity on the qualifying criteria for the Pioneer Certificate (PC) as well as the Development and Expansion Incentive (DEI) so as to raise companies' awareness of the incentive under the Act.

Madam, we share the same intention of ensuring clarity, transparency and a level playing field. But at the same time, we also have to be flexible and responsive to the complexities and special needs of the different economic sectors as we have to deal with a very complex economic environment.

Let me start by first clarifying that the core objective of the PC and DEI is to encourage companies to undertake substantive economic activities in Singapore, thereby creating good jobs for Singaporeans and create spin-offs to our economy. The objective really is to encourage "queen bees" to set up operations here and thereby help build a cluster around them. Applications are, therefore, assessed based on the scale and the qualitative aspect of their economic contributions to Singapore. The exact level of support is thereafter calibrated to commensurate with the level of economic contributions from the company.

As Mr Ng noted, the PC and DEI are listed on EDB's website, along with the broad factors of consideration for each scheme. And within these perimeters, the Government assesses the merits of each application based on the range of criteria, including, very relevant, the fixed asset investment, total business expenditure, skilled jobs created, capabilities and technologies developed, as well as spin-offs to the rest of the economy from each proposal. The actual incentive awarded to the company will depend on the combination of these factors. And over time, in fact, they have also raised the bar and the requirements for the various criteria to ensure that only deserving companies receive the incentives. EDB keeps companies informed of the PC and DEI schemes through regular engagements and companies interested to apply for these schemes are, of course, welcome to approach the EDB for further details.

Mr Ng also asked how SMEs and startups can benefit from these schemes, especially those with the potential to become globally competitive. In addition, he has also requested for details on the total number of PCs awarded and of those awarded, how many are awarded to SMEs and start-ups.

Madam, we had awarded the PCs to a total of 239 companies over the past 10 years and, more recently, 71 companies had been awarded PCs between 2011 and 2015. And of these 71 companies, two were SMEs, of which one was a local SME. As Members can well understand, PC requires companies to commit to economic contributions of substantive scale and, therefore, it is quite natural that the bigger companies will tend to qualify.

Although the PC and DEI may not be the suitable platforms to develop our SMEs and start-ups, I would like to assure Members and Mr Ng that the Government agencies have a range of programmes in place to support the different needs of companies along their various stages of growth. For example, SPRING Singapore partners incubators to support innovative startups to scale up. SPRING also supports SMEs to innovate and raise productivity through schemes, such as the Capability Development Grant. IE Singapore helps our companies on their internationalisation efforts and EBD works closely with our local enterprises to develop our economic and various industry clusters, including partnering SMEs on capability transfer and supplier development through initiatives, such as Partnerships for Capability Transformation (PACT).

I would like to thank Mr Ng again for his comments and suggestions. The Government will continue to review our incentives on a regular basis to ensure that they remain relevant and meet the needs of the different types of companies that we have.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. – [Mr Lim Hng Kiang].

Bill considered in Committee; reported without amendment; read a Third time and passed.