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

Order for Second Reading read.

2.06 pm

The Minister of State for Trade and Industry (Ms Low Yen Ling): Mr Speaker, on behalf of the Minister for Trade and Industry, I beg to move, "That the Bill be now read a Second time."

The Economic Expansion Incentives (Relief from Income Tax) (Amendment) Bill 2022 amends the Act to provide for tax incentive changes which were introduced in Budget 2021. It also enables the Minister for Trade and Industry to assign various functions and powers to public bodies for the administration of tax incentives under the Act. Let me elaborate on the two key legislative changes contained in the Bill.

The enhancement of the "Investment Allowance for Energy Efficiency" scheme, which is now renamed "Investment Allowance for Emissions Reduction" ("IA-ER"), was announced at Budget 2021. The scheme currently supports companies in improving their energy efficiency. This Bill expands the scope of support to also include investments in equipment that result in measurable and verifiable reductions in greenhouse gas emissions.

Specifically, the IA-ER grants a tax allowance on the qualifying fixed capital expenditure incurred within the qualifying period, which can be used to offset the company's taxable income. The scheme's validity period has also been extended from 31 March 2021 to 31 December 2026, to support companies adapting and transiting to a low-carbon economy. This proposed change is in response to industry feedback on how such investment allowances will help them reduce their carbon footprint, especially for manufacturing companies and data centre operators. To give legislative effect to these changes, clauses 3 and 4 of the Bill amend sections 41 and 43 of the Act respectively.

The second change concerns the internal administration of tax incentives. Clause 2 of the Bill inserts a new section 3A into the Act, which allows the Minister for Trade and Industry to assign to public bodies various functions and powers of the administration of tax incentives under the Act. This amendment arises from our periodic review of the income tax system to improve tax administration and is aligned with the Income Tax Act. There is no change in policy intent and no impact on tax incentive recipients. Mr Speaker, I beg to move.

Question proposed.

2.10 pm

Mr Don Wee (Chua Chu Kang): Mr Speaker, Sir, I would like to comment on the amendment to expand the scope for the Investment Allowance for Energy Efficiency (IA-EE) tax incentive scheme to include projects which reduce greenhouse gas emissions with effect from 1 April 2021 and to extend the validity period of the scheme from 31 March 2021 to 31 December 2026.

Instead of granting approval to a company in respect of a project for improving energy efficiency for just this period, would the Ministry consider extending it to 31 December 2030, so as to be aligned with the Singapore Green Plan 2030? How will the Government direct its R&D funding to achieve Singapore Green Plan outcomes? High upfront capital costs, long pay-back periods and the uncertainty of long-term investments are major challenges facing companies, especially SMEs, seeking to reduce greenhouse gas emissions. This amendment will definitely help reduce the barriers and encourage more green investments. I hope that in the upcoming Budget, there will be more such incentives announced, so that we can look forward to another set of similar amendments a year from now.

I am certain that the resultant investments will contribute to Singapore's economy, advance our capabilities and create good jobs for Singaporeans. I appeal for additional support for SMEs to develop their sustainability capabilities and improve their energy efficiency, for example, ESG's Enterprise Sustainability Programme and NEA's Energy Efficiency Technology Centre. Mr Speaker, Sir, in Mandarin.

(In Mandarin): [Please refer to Vernacular Speech.] We need new incentives for both pioneer industries and pioneer service firms to provide investors more certainty of a long-term tax incentive in Singapore so that we boost energy efficiency and also achieve our "30 by 30" goal.

I also urge the Government to provide greater certainty for investments on space use, which is particularly necessary to catalyse the transformation of our urban farming and aquaculture sector. The COVID-19 pandemic has highlighted the vulnerabilities of global trade. We cannot be dependent on other countries' policies and export limitations, particularly for essentials such as food. With this imminent urgency, it is our inescapable duty to every generation of our people to increase our local production ─ it is a heavy responsibility for the long haul. How is the Government helping our industries to build up capabilities and capacities to achieve the "30 by 30" goal?

(In English): I would like to conclude with my support for the Bill.

2.13 pm

Assoc Prof Jamus Jerome Lim (Sengkang): Mr Speaker, the proposed amendments to the Economic Expansion Incentives (Relief from Income Tax) Act currently tabled are almost entirely of an operational nature. The bulk of the amendments concerns two elements: clause 2 inserts a new section that will allow the Minister to vest, unto a public body, functions or powers afforded by the Act to the Minister. Clauses 3 and 4, then introduce new definitions of greenhouse gas into the Act's tax incentive schemes, which aligns with this Government's Green Plan as well as the amendments to the Environmental Protection and Management Act, passed last year in this House.

I do not oppose the Bill, but I will offer two additional points for consideration, consistent with both of these primary modifications. The Workers' Party sees little that is objectionable to providing stronger incentives to businesses for incorporating emissions-reducing projects into their capital expenditure plans. Indeed, in my speech for the Motion on Transition to a Low Carbon Society last month, I had suggested that Government agencies should look for opportunities to weave green elements into their capital expenditure projects. Providing analogous tax breaks for the private sector when they do so is entirely consistent with such a whole-of-society effort to address the climate emergency and I am heartened that such efforts are being weaved into our existing legislation.

But if I may say, we should not only look at the tax instrument to effect favourable shifts in corporate behaviour. Subsidies must surely play a part too. And the effects of such positive incentives are even further amplified when they are simultaneously financed by taxes to discourage emissions-generating activity.

In their contributions to the Motion last month, my friends in this House spoke about various ways subsidies can be applied to enhance both the economic and political palatability of the green transition. The Member for Aljunied, Mr Gerald Giam, spoke about putting in place incentives for households to install solar generation capacity in their private homes by subsidising such installation before recovering the cost of the subsidies from the excess electricity produced by these homes. In a similar spirit, the Member for Hougang, Mr Dennis Tan, reiterated how carbon taxes could be channelled to ensure a just transition, especially among lower-income households and workers who may be displaced by moves toward a more environmentally sustainable economy.

In the context of moving beyond tax breaks, I, therefore, wish to ask how the Government plans to continue its financing of economic incentives for firms that adopt environmentally sustainable initiatives. Would these follow the model for existing programmes, such as NEA's Energy Efficiency Fund or BCA's Green Mark Incentive Scheme, via Budget line items, or will there be a more dedicated development fund that is established for this purpose?

Sir, the second point I wish to touch on is how delegation could give rise to a loss of ownership and responsibility. More specifically, the danger I perceive is that after roles are transferred, the sense of responsibility unforturnately fails to follow. This gives rise to the risk – common even among large private-sector organisations – and what this means for public agencies and functionaries could be a loss of ownership and control.

Of course, I understand that the Minister retains full and final de jure responsibility over any vested powers. Even so, as humans, it is often easy, too easy perhaps, for this buck to be passed. The last thing we want is a situation where one party appeals to the so-called Richard Nixon defence, where they did not do anything, since it was executed by an underling and they were unaware, while the other claims the Nuremberg defence, famously presented by Adolf Eichmann and his collaborators in justifying their actions during World War II, which is that they were ordered and they did not have any agency in the matter.

Moreover, it would not surprise anyone in this House that politicians and bureaucrats are held accountable in a different manner: the former by voters during election time and the latter by their peers and colleagues or the public at large. As a consequence, the two face rather different incentives. Politicians are often motivated by the service to the voters that they represent, which in turn influence their re-election prospects. Bureaucrats, in contrast, are guided more by careerist ambitions; if they excel, they can improve their chances for professional advancement, or prospects in the private sector after they exit the Public Service.

This divergence between accountability structures and, in turn, behavioural outcomes, means that policy may actually be more optimally executed by one group or the other, depending on the nature of the task at hand. In particular, research has suggested that complex tasks – premised on ability rather than effort – are better performed when delegated to bureaucrats. Politicians, conversely, are preferable if flexibility over our understanding of society's preferences is important, and this is especially so when there is a need to compensate potential losers arising from any associated policy reform.

Let me put this into more concrete terms using two examples.

The first has to do with monetary policy, which is rather topical, in light of our nation's recent challenges with high inflation. The simple framework I have described suggests that the inflation target – say, keeping core inflation just under 2% per annum – should be chosen by politicians, while the more technically challenging task of choosing the appropriate interest rate, size of balance sheet and the specific exchange rate level would fall under the ambit of our central bankers within the Monetary Authority of Singapore.

As another example, consider efforts to address income and wealth inequality. Here, my argument is that it should fall on elected representatives to determine how much inequality society can tolerate, which redistributive goals would be fair and just, and what types of taxes we should accommodate. The technicalities of getting us there – adjusting specific marginal tax rates, executing efficient expenditures and ensuring a balanced budget – these should then fall back into the laps of professionals in MOF.

Turning back to the Bill in question, I am left to wonder whether there are specific conditions that should be fulfilled, such as when the matter is explicitly technical in nature and when normative decision-making would not be asked for or required before the Minister would then allow for such delegation. And what mechanisms are there in place to ensure that both de facto as well as de jure ownership of decisions remain with the respective Minister?

Mr Speaker: Minister of State Low Yen Ling.

2.21 pm

Ms Low Yen Ling: Mr Speaker, Sir, I want to thank the two Members, Mr Don Wee and Assoc Prof Jamus Lim, for their support of the Bill and also for the opportunity to make some clarifications.

During Assoc Prof Jamus Lim's remarks, he alluded to the question about the amendments. Allow me to clarify that these amendments would affect the applications for the investment allowance for emission reductions (IA-ER) that are received between 1 April 2021 and the time that the legislative amendments are passed.

I want to assure the two Members that MTI, MOF and the agencies routinely review the effectiveness of our incentives to make necessary adjustments, such as extending the validity of the scheme or to adjust the scheme parameters. These are typically announced by the Minister for Finance at Budget, following which, agencies would then work with AGC to draft the legislative amendments.

Incentive applications during the intervening period may be awarded retrospectively if the legislative amendments are backdated to the announced start date. In this instance, the amendments are being backdated to 1 April 2021, which was the previously announced start date of the IA-ER.

With the expanded scope of the IA-ER and the increased attention that companies are placing on their own carbon footprint, we expect great interest in the scheme going forward.

Mr Don Wee spoke passionately in English and Mandarin about whether the IA-ER scheme could be extended to 2030 to align with the Singapore Green Plan 2030. He also asked how the incentives could further help our SMEs or businesses fulfil the aims of Singapore Green Plan 2030 and whether additional support could be provided.

Allow me to assure Mr Don Wee and also Assoc Prof Jamus Lim that the IA-ER is part of a comprehensive suite of measures to support our industries and our companies based in Singapore in their decarbonisation journey and also to better position themselves to seize the opportunities in the green economy. Other incentives and schemes include ─ and I think some Members would have read about it, but allow me to recap ─ the Resource Efficiency Grant for Energy, the Energy Efficiency Fund, the $180 million Enterprise Sustainability Programme (ESP) that was mentioned by Mr Don Wee, launched by ESG on 1 October last year, and the Low-carbon Energy Research Funding initiative.

Like I have mentioned, many of these programmes have been recently launched. MTI, ESG, and not just within the MTI family, I want to assure the two Members that we are taking a whole-of-Government approach. We will work with the various Ministries, including MSE, MOF and so on, and the relevant agencies to monitor their progress and review them regularly to ensure that, collectively, they remain relevant and effective in supporting our industries, our companies' decarbonisation journey and also Singapore's climate goals.

We will similarly review the IA-ER scheme at an appropriate juncture to determine whether to extend it further or to adjust the scheme's parameters.

Mr Don Wee also asked in his remarks how the Government is helping our industries to build their capabilities to meet our "30 by 30" goal. And Assoc Prof Jamus Lim, in his earlier remarks, recapped a list of recommendations and proposals, including those to encourage households to reduce their carbon footprint. Allow me to share with both Members that MSE will provide an update at next month's Committee of Supply debate.

I believe Assoc Prof Jamus Lim also asked about the introduction of the new section 3A of the Bill that allows the Minister for Trade and Industry to assign to public bodies various functions and powers of the administration of tax incentives under the Act. I want to assure Assoc Prof Jamus Lim and every Member in this House that when we talk about the public bodies, as far as this Bill is concerned, it refers to Government agencies, such as EDB and ESG. These two are the economic agencies within the entire family charged with the mandate to incur key investment promotions in Singapore and to support SMEs' development. So, these bodies refer to both EDB and ESG which administer economic expansion-related tax incentives.

I want to assure Assoc Prof Jamus Lim that MTI also shares his wish to make sure that we remain pro-business when administering the tax incentive and that is really why we are introducing this amendment which would then provide EDB and ESG with more autonomy and agility to anchor key business investments and projects expediently. This is also in line with the existing practice where public bodies administer tax incentives via delegation made under the Interpretation Act.

I want to thank Mr Don Wee and Assoc Prof Jamus Lim for their questions and also support.

Mr Speaker, Sir, the Government is committed to fostering a business-friendly environment in Singapore. We will continue to review and sharpen our tools to help our businesses move towards a low-carbon future and we look forward to the continued support of this House in that endeavour.

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. – [Ms Low Yen Ling].

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