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

Order for Second Reading read.

1.34 pm

The Minister of State for Trade and Industry (Mr Alvin Tan) (for the Deputy Prime Minister and Minister for Trade and Industry): Mr Speaker, Sir, on behalf of the Deputy Prime Minister and the Minister for Trade and Industry, I beg to move, "That the Bill be now read a Second time".

Sir, the Economic Expansion Incentives (Relief from Income Tax) (Amendment) Bill amends the Act to implement some tax incentive changes that were introduced in Budget 2024. There are three sets of legislative changes contained in the Bill.

The first set of amendments introduces an additional concessionary tax rate tier of 15% for the Development and Expansion Incentive (DEI). This DEI scheme, which was introduced in 1997, is intended to encourage companies to grow capabilities and conduct new or expanded activities in Singapore. It currently offers two concessionary tax rate tiers of 5% and 10%.

Clause 2 introduces a new concessionary tax rate tier of 15% under the DEI and provides for other features of the DEI to be applied to the new 15% tax rate tier. This arises from our periodic review to ensure that our tax incentives remain relevant to companies with different circumstances and needs. For instance, a company affected by the global minimum effective tax rate of 15% might find the new 15% tax rate tier sufficient for its needs.

The second set of amendments expands the scope of companies eligible for a DEI award tenure of up to 40 years to include non-headquarter service companies. Today, this feature is only available to headquarter companies. The inclusion of non-headquarter service companies will provide flexibility for our economic agencies to support deserving companies that make long-term plans to develop capabilities and improve their service offerings from Singapore. Some examples of companies that could benefit from this expansion are those that provide payment technologies and solutions or artificial intelligence (AI) solutions and aircraft maintenance, repair and overhaul services.

Then, clause 3 expands the scope of companies eligible for a DEI award tenure of up to 40 years and extends this sub-scheme up to 31 December 2028.

Sir, the third set of amendments provides the Government with greater flexibility to respond to the fast-changing economic landscape. Today, adjusting the qualifying project types under the Investment Allowance Scheme requires amending the main EEIA legislation. Clauses 4 to 6 provide for the qualifying project types to be introduced, updated or removed via subsidiary legislation. Mr Speaker, I beg to move.

Question proposed.

Mr Speaker: Mr Saktiandi Supaat.

1.37 pm

Mr Saktiandi Supaat (Bishan-Toa Payoh): Mr Speaker, Sir, at the last Sitting in October, Members on both sides of the House supported the need for us to enhance our investment toolkit as we implement the minimum effective corporate tax we have committed to under Base Erosion and Profit Shifting (BEPS) 2.0.

The multilateral commitment to impose a 15% floor on effective tax rates for large multinational enterprises (MNEs), groups with annual group revenue of $750 million or more in at least two of the four preceding financial years, will restrict tax competition and reshape the manner in which countries will have to compete for foreign direct investment (FDI), and the jobs and stimulus that come with FDI. One of the two main changes in the amendment Bill relates to the DEI.

The DEI allows businesses engaging in high value-added goods or services to apply for a certificate entitling them to a concessionary tax rate for the income from one or more qualifying activities stated in the certificate. Currently, the concessionary tax rates on qualifying income may be 5% or 10%.

May I ask the Minister what are the criteria applied to determine whether a business will be granted a 5% or 10% concessionary tax rate in respect of its qualifying activity? What number and proportion of applications under the DEI have been granted a 5% concessionary tax rate and what number and proportion of applications have been granted a 10% concessionary tax rate?

The amendment Bill will also introduce a new tier where a 15% concessionary tax rate can be granted in the certificate. Is this change in light of the 15% floor on minimum effective tax rates under Pillar Two of BEPS 2.0? If so, am I correct to understand that the entities belonging to large MNE groups caught under Pillar Two will no longer be granted 5% or 10% concessionary tax rates under the DEI going forward? And what is the number and percentage of successful DEI applicants that such entities account for?

Considering that a 15% concessionary tax rate, even putting aside the prescribed 0.5% step-up during the tax relief period, is not too far from our statutory corporate income tax rate of 17%, is it necessary to create this new tier, as opposed to simply excluding all entities caught by Pillar Two from the DEI?

On the flip side, does that mean that applicants who are not entities caught under Pillar Two, such as small and medium enterprises (SMEs) and smaller MNEs, can still expect to be granted the 5% and 10% concessionary tax rates as a norm?

Mr Speaker, the amendment Bill will also extend the DEI for another five years until the end of December 2028. May I ask also the Minister, what metrics has the Government used to measure the efficacy of the DEI relative to the costs to the Government over the two years? And how much corporate tax have we effectively forgone from corporates through the DEI?

The other main change under this amendment Bill relates to the Investment Allowance Scheme, under which businesses can enjoy a tax exemption of up to 100% of fixed capital expenditure incurred. While the qualifying fixed capital expenditure has so far been defined by reference to clearly circumscribed types of projects under the principal Act, the amendment Bill now seeks to add a sweep-up category of any project and related capital expenditure as may be prescribed. May I ask the Minister also, what is the intent of adding such a sweep-up category now when it was not necessary before?

What is the amount of capital expenditure investment allowance that has been granted thus far and how are they broken down by project type and by expenditure categories? Will there be a broader exercise to review the list of qualifying project types against our strategic national priorities today, such as our green economy and the push to make it more AI- and data-centric?

Mr Speaker, beyond the specific tweaks contemplated in this amendment Bill, I wonder if we are due to relook our whole investment attraction toolkit in the Economic Expansion Incentives (Relief from Income Tax) Act 1967 as a whole, given the significant change in landscape brought about by the Multinational Enterprise and Minimum Tax Act passed last month.

From time to time, we have been amending and tweaking the Act to modify, add or remove the various incentives led by our agencies such as the Economic Development Board and Enterprise Singapore. However, with Pillar Two of BEPS 2.0, there is now much less room for below-the-line tax incentives such as concessionary tax rates or deductions that potentially reduces a company's effective tax rate.

This is not even taking into account the potential impact of Pillar One, which has not been implemented yet. From a more macro level, how should we look to redesign our investment incentives and toolkit in this post-BEPS 2.0 world? Given the involvement of various different Ministries and agencies, who would take the lead in this regard?

I would be grateful for the Minister's insights on how we are going to do this and to assure Singaporeans that we will still be able to attract good companies to anchor themselves in Singapore and create good jobs and flow-on opportunities as a result. Instead of a piecemeal adaptation of the Act, should we expect an overhaul in the form of a new, consolidated Act in the near future?

Mr Speaker, Sir, it is well accepted that to secure our future in the world, we must continue to maintain Singapore's advantages in having a stable political climate, reliable infrastructure, strong legal framework and a highly educated workforce. But in business, you ultimately cannot ignore the dollars and cents. It is imperative that we navigate how to give businesses the right monetary incentives while remaining true to our international commitments. Notwithstanding the clarification sought, I support the Bill.

Mr Speaker: Assoc Prof Jamus Lim.

1.43 pm

Assoc Prof Jamus Jerome Lim (Sengkang): Sir, this Bill is a reprise of the theme of making our corporate tax environment more competitive in the aftermath of the roll-out of BEPS 2.0, which was debated last month in Parliament. I spoke on the joint debate on the Multinational Enterprise (Minimum Tax) Bill and associated Income Tax (Amendment) Bill then, as did my Sengkang teammate, Louis Chua. But I will offer some additional thoughts here. In particular, I will speak about the nature of incentives for corporations and more generally, about the principle of effective taxes on businesses.

The overarching economic objective of incentives offered via tax breaks is to encourage firms to expand their investments and scale up their operations. In Singapore, this is targeted at high value-added products and services, and the pathway begins with, initially, schemes such as the Pioneer Certificate Incentive or Start-Up Tax Exemptions, which offer a tax holiday of three to five years.

When this expires, it may be followed by the DEI, which grants a concessionary tax rate of between 5% and 15%, at least today, based on earnings that exceed the average of the prior three years. Schemes such as these have allowed Singapore to keep its effective tax rates (ETRs) relatively competitive.

The rates that companies actually pay, rather than what on the face they owe, of course, are different, and in the case of the statutory tax rate, it has been in place at the 17% rate since 2010. Businesses, on average, however, paid less than a third of that: 5.1% in that year and an even lower 4.3% in 2019.

This need not be a bad thing per se. Economists know that low taxes on capital promotes investment from both domestic and foreign sources, which, in turn, can drive growth. But it is worth reflecting a little on why we accept this trade-off. After all, we do not willy-nilly grant tax relief to income on labour or land, believing that workers and landowners, rich and poor, should pay their fair share, at least in paying for the public goods that we all enjoy.

Here, at least, we must be convinced that such tax reliefs generate benefits of additional investment that will lead to new jobs or create new competitive industries or yield greater opportunities for other companies that exceed the costs of the forgone tax revenue, which could have been directed to myriad other purposes.

Whether these tax rates do so, however, is far from established. To be fair, the Government does require that a certain number of jobs be created as qualifying conditions for these schemes, but it is not known whether these jobs would have been created anyway. Nor do we know if, in the absence of these incentives, there may have been some gaming of the criteria with temporary or ghost positions created to meet the conditions, only to be extinguished thereafter.

I would be curious to know if the Ministry of Trade and Industry (MTI), or Ministry of Finance (MOF) for that matter, has ever conducted rigorous studies that show how low ETRs are causally linked to job creation or spillover effects and, if so, if they would be willing to share them with this House and the public.

Sir, regardless of what one thinks about the efficacy of keeping effective taxes low, the reality is that the global roll-out of BEPS 2.0 threatens to upend this comfortable arrangement, at least for larger corporates here. New legislation being passed around the world, such as our own Multinational Enterprise (Minimum Tax) Bill just passed last month, will now allow top-up taxes to be levied by other jurisdictions, should they view our effective taxes as unjustifiably low. The stipulations of BEPS, of course, only apply to the largest MNEs. This offers some leeway for us to marginally improve the corporate tax environment for the corporations that are not among the largest. This is where the present Bill plays an important role. Still, in my view, some aspects merit deeper questioning.

First, the amendments to section 22 propose to limit the favourable tax treatment to five years, through to the end of 2028. This sort of built-in deadlines to tax holidays, often referred to as sunset clauses, are now standard fare in public policy surrounding corporate tax incentives.

Indeed, even special economic zones, the traditional preserve of tax freedom worldwide, have now begun to routinely incorporate sunset provisions. However, it is crucial that sunset clauses not be prolonged indefinitely, because doing so could give rise to opportunities for politicking and quid pro quo rent-seeking, as firms lobby for extensions of special treatment.

I will note that in the Bill, in clause 2J, it seems to suggest that DEIs have been in place since 2012. It will be useful for this House to understand if there might yet again be an extension of the DEI for qualifying firms, or if the Government will, indeed, commit to adhering to the 2028 date as a genuine sunset.

Second, the proposed amendments to section 41 include, under the definition of fixed capital expenditure, in Part 4A2, the "acquisition of know-how or patent rights". While I understand the motivation behind why one might wish to include such expenses as part of fixed capital, the immediate concern is that this could be used as a loophole to creatively transfer existing intangible assets from one corporate entity to another as a means of reducing taxable income.

This sort of potential abuse in transfer pricing was, after all, one of the motivating drivers of the BEPS project to begin with. It would be ironic if our laws inadvertently provided yet another reason for countries to accuse us of seeking a role as a tax haven, albeit on the smaller scale than the MNEs covered by BEPS.

Third, I observe that there is a distinctive treatment of the conditions associated with accessing concessionary tax rates when it comes to manufacturing versus services, at least as documented in the existing DEI literature. For example, to qualify for a tax rate of 5% in the former, a firm must expend an additional $13 million in fixed asset investment and employ an additional 30 skilled employees by the fifth year.

In contrast, while the equivalent qualifying expenditures for the latter group are the same in the fifth year, it adds further requirements that $8 million be invested and 18 skilled employees be hired by the third year. It will be helpful to understand the justification between this disparate treatment of the two sectors.

Mr Speaker, the end result of this Bill will be, I believe, a better lock on the balance of taxation between the ETRs paid by our largest companies relative to our smaller ones. To be clear, the Minister for Finance had, in response to Parliamentary Questions filed by my hon friend, Louis Chua, previously stated that the ETR for SMEs over the past decade runs between 4% and 5%, while that for larger corporations amounted to between 10% and 11%.

While one may take issue with the precise way that this calculation is made, my sense is that the combination of BEPS-related stipulations embedded in last month's Bills, alongside the Bill that we are debating today, will go a significant way towards redressing any residual bias in favour of granting large corporations excessively generous tax relief.

This is welcome because, as I shared last month, we really should be weaning ourselves off a growth model that is excessively reliant on foreign capitals and MNEs and moving towards one that is conducive to entrepreneurship and supporting the development of homegrown SMEs as much as possible.

After all, MNEs benefit disproportionately more than SMEs from the public goods provided by the taxpayer, our favourable business environment, safe domestic market for skilled labour and stable political climate and have the necessary resources to contribute back towards sustaining the system that they have benefited so much from. We need not fear making these companies pay their fair share, given how their location decisions are driven primarily by the availability of skilled workers, open economic borders, high quality transportation infrastructure and a sound institutional environment, and only secondarily by low taxes on corporate income.

By the same token, we need to help our small firms which are struggling under the burden of high and rising costs, especially as rising rental costs on land snuff out affordable factory facilities and office spaces. And when the high costs of living are eventually transmitted into durable increases in real wages, these firms will also need to manage their ongoing costs of running their businesses amidst a small, cost-conscious domestic consumer market. Tax relief will give them a genuine shot at growing and perhaps flourishing in the long run.

That is an outcome that I am certain all of us in this House would look forward to seeing and for this reason, I support the Bill.

Mr Speaker: Mr Neil Parekh.

1.54 pm

Mr Neil Parekh Nimil Rajnikant (Nominated Member): Mr Speaker, Sir, thank you for allowing me to speak on this Bill. The amendments to the Bill not only align Singapore's tax policies with global trends, but also reinforce our status as a competitive business hub amidst shifting international standards.

As jurisdictions worldwide compete for investments through tax incentives, we must ensure our policies remain competitive and compliant with international norms, such as the Organisation for Economic Cooperation and Development's guidelines fostering both economic resilience and sustainable growth.

Sir, by introducing a new 15% concessionary tax rate and extending the DEI, this Bill strengthens our appeal to high-value investments in advanced manufacturing, AI and green technology. The amendments also encourage foreign investment supporting economic growth through favourable tax incentives for strategic industries, such as finance and logistics.

The amendments support companies involved in regional operations qualifying development projects and capital investments through targeted tax relief. Furthermore, clause 3 of the Bill also extends tax relief periods for eligible projects up to the end of 2028, ensuring sustained support for businesses expanding in Singapore.

I also applaud provisions in the Bill supporting innovation and infrastructure growth with amendments to the capital expenditure allowance which will encourage businesses to invest in new technologies, infrastructure and high-tech industries by widening the scope of eligible activities. In turn, this allows Singapore to position itself as a global leader in high-tech industries.

Also, by streamlining tax relief frameworks, these amendments provide legal clarity and ease of planning, empowering businesses to pursue growth with confidence.

Sir, I have some clarifications for the Minister of State. First, will companies benefiting from existing incentives need to reapply under the new framework or will their current exemptions automatically continue? Second, since BEPS 2.0 primarily targets large multinational enterprises, what specific benefits will SMEs gain from these amended tax incentives and how will they remain competitive in this new environment? Third, under clause 2 of the Bill, are specific thresholds in place for qualifying for the 15% tax rate, particularly for companies managing regional operations? Fourth, how will the new amendments align with Singapore's international tax treaties to prevent double taxation and support cross-border activities? Fifth, what penalties will be imposed for non-compliance with milestone-based relief provisions and will there be an appeals process for this?

Mr Speaker, Sir, notwithstanding these clarifications, I fully support this Bill.

Mr Speaker: Mr Mark Lee.

1.57 pm

Mr Mark Lee (Nominated Member): Mr Speaker, Sir, previously, I highlighted the need for Singapore to continually refine tax incentive strategies and strengthen non-tax benefits to maintain our competitive advantage amidst evolving global tax trends. This is particularly pressing as the global minimum tax rules take place in various jurisdictions, including Singapore.

The proposed Economic Expansion Incentives Bill introduces enhancements to Singapore's tax framework, specifically targeting the DEI and Investment Allowances for eligible companies. These refinements aim to drive economic growth by supporting business development, innovation and investment, ultimately strengthening resilience and competitiveness in a shifting global landscape.

The Bill introduces an additional 15% concessionary tax rate for certain qualifying income, alongside existing 5% and 10% rates for the DEI. This is applicable to qualifying income derived on or after 1 January 2024.

It is encouraging to see the Government respond very proactively by introducing changes to existing suite of tax incentives to ensure their relevance as part of the overall economic support package to attract foreign investments. I would like to commend Government agencies like the Economic Development Board, which has helpfully published the required economic commitments to be awarded the new 15% concessionary tax rate (CTR) under the DEI. This is useful as it provides certainty to businesses and allows them to plan their operations and apply for the tier of incentive tax rate which is most suitable for their business.

The amendment also allows companies to switch between the 5%, 10% and 15% base rates and their corresponding stepped-up rates, subject to eligibility criteria, thus allowing flexibility to these companies in managing their tax burden over the tax relief period. This flexibility is commendable as it acknowledges the financial volatility that businesses may face. However, I recommend clear guidance be issued as to the process or application timeline for such rate substitutions as it would ensure that the system operates smoothly and avoids potential confusion among businesses.

Tax relief periods for DEI recipients may now be extended up to 31 December 2028, potentially benefiting companies with longer project timelines. I would like to suggest that the Ministry could periodically review these timelines against the evolving economic conditions to ensure that they remain relevant and beneficial.

For the Investment Allowance scheme, or IA, the amendments enable the Minister to prescribe projects in relation to which the IA may be given in regulations. This means that there is greater upfront clarity as to whether a particular project can qualify for the IA. This is welcomed by businesses. However, while broadening the eligibility scope is positive, can the Ministry clarify the timeline and criteria for such inclusions? This will allow companies greater certainty when planning investments in sectors not traditionally supported by investment allowances.

In conclusion, these amendments aim to secure Singapore's attractiveness by providing flexibility of choice in our incentive regimes to cater to companies in different stages of growth and support sustainable business development. By providing flexible and targeted tax incentives, we can continue to attract diverse businesses that contribute to Singapore's economic dynamism. Notwithstanding my questions and recommendations, I support the Bill.

Mr Speaker: Mr Sharael Taha.

2.02 pm

Mr Sharael Taha (Pasir Ris-Punggol): Mr Speaker, I wish to declare my interest as, in my professional capacity, I am involved in developing and expanding aerospace and aircraft maintenance, repair and overall capabilities in Singapore.

Singapore's attractiveness for FDIs is underpinned by our robust legal framework, skilled workforce, political stability, excellent transportation system and world-class infrastructure, just to name a few. Our tax incentive frameworks, including the Pioneer Incentive and DEI, give us a competitive edge to attract companies looking to build capabilities globally.

Last month, in this Chamber, during the debate on the Income Tax Bill and Multinational Enterprise (Minimum Tax) Bill, we extensively discussed the increasing global competition to attract investments, the minimum effective tax rates, the importance of continued investments in Singapore and ensuring that MNEs comply with BEPS 2.0 requirements.

This Economic Expansion Incentive Bill further strengthens our investment toolkit by introducing significant enhancements to Singapore's tax incentive framework, something which has also been mentioned by Member Mr Saktiandi Supaat.

Key enhancements include an additional layer of concessionary tax rates aligned with global tax standards introduced by BEPS 2.0; extended tax relief; a revised definition of fixed asset investment; and an expanded scope of qualifying activities under DEI.

First, in clauses 2 and 3, the amendments to section 21 add an additional layer of concessionary tax rates, which is a welcome enhancement. Depending on the structure, companies may not find the current two tax tiers of 5% or 10% useful. Thus, some companies affected by the minimum ETR may still find the 15% rate valuable in developing their capabilities in Singapore.

Second, clause 4 amends sections 41 and 43 on investment allowances, broadening the definition of fixed capital expenditure to support companies developing and expanding capabilities in Singapore. When building new capabilities, the required infrastructure has become increasingly specialised, especially when requirements for particulate control, flatness of building and temperature and humidity regulation are required in the project.

The rising building costs in Singapore, which has increased by over 30% in some cases post-COVID-19, has exacerbated these challenges. Therefore, the inclusion of capital expenditure on structures specially designed for carrying out the project as a qualifying expense is much appreciated.

Expanding the definition of fixed capital expenditure to include the acquisition of know-how or patent rights, can also attract projects where commercialisation or industrialisation builds on acquired intellectual properties (IPs). For example, this will attract companies developing industrialised solutions for additive manufacturing of exotic metals, like titanium, for the medical and aerospace industries or creating quantum computing solutions based on acquired IPs.

Including productive equipment to be used outside of Singapore within the investment framework also reflects the realities of today's supply chains, where value streams often span multiple jurisdictions. This provision allows labour-intensive work in partner countries, while Singapore focuses on higher-value tasks, benefiting our workforce through upskilling and creating high-value jobs. That said, I have several points of clarification.

What criteria will overseas investments need to meet to qualify as allowable fixed capital expenditure? Additionally, what are the asset retention requirements? The Bill also grants the Minister authority to define the list of qualifying business activities. What are the criteria for determining these qualifying activities and how often will this list be reviewed? Mr Speaker, notwithstanding these clarifications, I stand in support of the Bill.

Mr Speaker: Minister of State Alvin Tan.

2.07 pm

Mr Alvin Tan: Mr Speaker, Sir, I thank Mr Saktiandi Supaat, Mr Neil Parekh, Mr Mark Lee and Mr Sharael Taha and, of course, Assoc Prof Jamus Lim, for their strong support of the Bill. They spoke about the DEI and Investment Allowance schemes, and on the need for a holistic review of our investment attraction toolkit to ensure Singapore remains attractive to global investors in a post-BEPS world.

Allow me to start, first, with the DEI scheme. The first set of questions relate to the DEI's new 15% concessionary tax rate tier. The questions surround whether we need this when it is not too far from our current corporate income tax rate of 17% or if this responds to the 15% minimum ETR under Pillar Two of BEPS 2.0 and how will SMEs or the awards of existing in-scope DEI recipients be affected?

Mr Saktiandi Supaat rightly noted that the in-scope MNE groups will be subject to the minimum ETR of 15% under Pillar Two of BEPS 2.0 and that the difference between the new 15% DEI concessionary tax rate and our statutory corporate income tax rate of 17% is, in fact, narrow. We made these changes as part of our periodic review to ensure our incentives continue to remain relevant.

Notwithstanding the narrow differences in the tax rates, we have received industry feedback, for instance, that a company affected by the global minimum ETR of 15% under Pillar Two of BEPS 2.0 might find the new 15% tier sufficient for their needs. The new 15% tier may also be useful to other companies, which may only be able to make economic commitments at a level commensurate with this new 15% concessionary tax rate.

Mr Sakthiandi Supaat also asked if SMEs and smaller MNEs could still expect to be granted the DEI of 5% and the 10% concessionary tax rates as a norm. The short answer is yes. The DEI 5% and DEI 10% concessionary tax rate tier will be available to all eligible companies, regardless of their country of origin, the size of the company or whether they are in scope of Pillar Two. This also applies to the new DEI of 15% concessionary tax rate tier.

Mr Neil Parekh asked if companies benefiting from the existing incentives need to re-apply under this new framework. The answer is no. In fact, in line with upholding Singapore's reputation as a trusted and transparent business hub and as a general principle, the Government will not unilaterally amend a company's concessionary tax rate if it continues to meet its incentive outcome.

The second set of questions relate to the use of DEI. What criteria or thresholds are applied to determine whether a business is granted a 5%, 10% or 15% tier, and what are the number and proportion of DEI recipients enjoying the 5% and 10% concessionary tiers?

Our economic philosophy, Mr Speaker, has always been to support all companies that can bring value to Singapore and to have the incentivised companies commit to generating economic contributions to Singapore that are commensurate with the incentive benefit that they enjoy. This is regardless of where they come from, their country of origin or their size.

We systematically assess each application for a new DEI award or the amendment to an existing award considering the merits of each and every case. To be eligible for DEI, the company must engage in high-value-added activities in Singapore, either through a new set-up or if they decide to expand existing activities in Singapore.

Economic agencies will then assess the new or updated project, based on the scale of the project and the projected quantitative and qualitative economic benefits. Quantitative economic benefits include skilled employment, fixed asset investment and total business expenditure committed under the project. Qualitative benefits include the generation of spin-offs for the economy, the quality of jobs created from the project and the commitment to grow capabilities in technology, skillsets and know-how in Singapore.

Based on projected economic commitments by the company, we will then grant the DEI recipient a commensurate concessionary tax rate in respect of its qualifying activities. The take-up of DEI fluctuates from year to year. There is a good mix of both DEI 5% and DEI 10%, with DEI 10% making the bulk of this mix.

Of course, because the new concessionary tax rate tier is new, we will not yet be able to assess the expected take-up rate of this new DEI 15% concessionary tax rate tier. But we are introducing this new tier to continue to anchor new investment commitments amid the tight global competition for investments.

The third set of questions relate to the governance of the DEI awards. Mr Mark Lee suggested having clear guidance on the process or an application timeline for rate substitution to ensure its smooth implementation. In fact, this practice of rate substitution is not new.

Existing DEI recipients can approach economic agencies to discuss any changes in their circumstances and also the impact on their incentive award. For instance, where there are changes in the global business landscape or climate, or if there were shifts in industry trends or corporate restructuring, a company may then need to make changes to their project deliverables. This is over the course of doing business.

This may warrant then a reexamination of the tax incentive and the conditions tied to the tax incentives, which may involve a change in the concessionary tax rate to ensure, again, that the tax benefits remain commensurate with the scale and the impact of the incentivised project. Mr Saktiandi and Mr Mark Lee also mentioned the extension of the DEI scheme until the end of 2028, also a point that Assoc Prof Jamus Lim mentioned. Mr Mark Lee suggested periodically reviewing the sunset dates to ensure the incentive remains relevant. Mr Saktiandi Supaat asked how the Government measures DEI efficacy and the corporate tax, which we have forgone through DEI. Assoc Prof Jamus Lim also asked about this forgone tax.

The extension of the DEI for another five years to 31 December 2028 is, in fact, in reference to the limited scope of DEI that allows for a DEI tenure of up to 40 years for headquarter and non-headquarter service companies. We are amending the sunset date to align with the rest of the DEI scheme in general, which is already 31 December 2028. So, I would like to assure Members who have asked this question that we review our incentives periodically to ensure that they remain relevant. But this is a point to ensure that these are aligned to the existing 31 December 2028 dates.

Sir, we consider a range of factors when we assess whether to extend an incentive scheme such as DEI. This includes the estimated incremental value-add that the scheme is projected to create and the incremental economic commitments such as skilled employment, fixed asset investments and business expenditure that the supported projects can anchor here in Singapore.

To Mr Saktiandi Supaat's question on corporate tax income "forgone" under DEI, a point that Assoc Prof Jamus Lim also raised, we consider any tax forgone by the award of the tax incentives to be notional in nature. DEI is not automatically granted to all companies looking to invest in Singapore. Instead, it is offered judiciously, only if our economic agencies assess that the incentive is crucial to land the investment here and that the investment will generate a net benefit for Singapore's economy. In other words, we assess how effective the tax incentive is based on benefits brought forth by the project, for example, the number of good jobs created, and if not for the incentives, whether the investment may land here in the first place.

Mr Neil Parekh asked about penalties that will be imposed for non-compliance with milestone-based relief provisions and if there is an appeals process. I wanted to assure Members that the Government maintains a high bar in terms of the commitments we expect from recipients of these incentives. Where there is a breach of incentive conditions, we will give the company an opportunity to show cause and explain reasons for the breach. And if there are no strong justifications and the intended economic benefits are not realised, we will hold the incentive recipients accountable and not hesitate to either amend or withdraw the incentive, including clawing back the benefits enjoyed.

To Mr Neil Parekh's question on aligning our amendments to Singapore's international tax treaties to prevent double taxation and cross-border activities, I wish to affirm that the proposed amendments do not affect the application of the Avoidance of Double Taxation Agreements that Singapore has signed with other countries. Singapore has been and will continue to be committed to fulfilling our international commitments. This trust factor is a key value proposition for companies investing in Singapore.

Let me now move on to questions by Members relating to the Investment Allowance scheme. Mr Sharael Taha sought clarification on the criteria for an overseas investment to qualify as allowable fixed capital expenditure and the asset retention requirements. Typically, the productive equipment that is incentivised under the Investment Allowance scheme is to be used in Singapore. That could be a plant, for example, or productive equipment. The only exceptions to this are space satellite and submarine cable systems, as these need to be obviously deployed outside of Singapore. To qualify for Investment Allowance, the company must hold onto the incentivised equipment for a period of time.

Sir, Mr Mark Lee asked about the timeline and criteria for including a new qualifying project under the Investment Allowance scheme, so companies will have greater certainty when planning investments in sectors not traditionally supported by Investment Allowances.

Mr Saktiandi Supaat asked if we will review the list of qualifying project types against our current strategic national priorities, such as our green economy, data as well as our AI ambitions. Sir, I would like to assure Members that we are periodically reviewing the list of qualifying activities under the Investment Allowance scheme to ensure that these qualifying activities align with our strategic national priorities and are relevant to Singapore's next phase of economic development.

And as Members suggest, given that we have plans to use AI to transform our economy and also our push for a green economy, we are happy and open to consider the Investment Allowance scheme as a potential incentive. MTI will evaluate Members' suggestions more thoroughly. So, I thank Members for their suggestions.

Sir, but when considering the activities we want to continue to qualify for the Investment Allowance scheme or not to include under the scheme, we assess them based on their potential, as I mentioned earlier on for other incentives, to create high economic value-add and positive spin-offs to the rest of the economy. Again, this could be in the form of jobs created or new partnerships with local suppliers.

Sir, Mr Saktiandi Supaat also asked about the rationale to allow the Minister to prescribe categories of qualifying projects now and why it was not necessary before. The short answer is we are doing so to give the Government greater flexibility to respond to the rapidly changing economic landscape by providing for qualifying project types to be introduced, updated or removed via subsidiary legislation. It allows for the Minister to move quicker in a rapidly evolving space.

Mr Saktiandi Supaat also asked about the amount of capital expenditure investment allowance we have granted thus far and the breakdown by project type and by expenditure categories. Similar to the DEI, the Investment Allowance is offered judiciously and we consider any taxable income forgone by the Investment Allowance award to be notional in nature, as I mentioned earlier on.

Sir, we have awarded the Investment Allowance for a variety of projects and sectors, from manufacturing to specialised engineering and technical services like aircraft maintenance, repair and overhaul. The value of the capital expenditure Investment Allowance that has been awarded is a fraction of the total projected value of investments.

I will now address Members' questions on the need for a holistic review of our investment attraction toolkit to ensure Singapore remains attractive to global investments in a post-BEPS world.

Mr Saktiandi Supaat rightly pointed out that the implementation of Pillar Two of BEPS 2.0 would reduce the effectiveness of certain tax incentives, since MNEs with consolidated annual revenues of at least €750 million will be subject to a minimum effective tax rate of 15% wherever they operate. Although BEPS 2.0's Pillar Two may reduce the room for tax competition amongst countries, it does not reduce competition for investment. The global economic landscape has become even more competitive, with major economies like the US, Germany and Japan rolling out generous incentives to attract investments.

Therefore, to ensure our incentive schemes remain relevant and competitive, both MTI and MOF have been continuously refreshing our incentive toolkits and updating legislations under our purview as required. The new Refundable Investment Credit scheme, which was debated last month here in Parliament, is one recent example. We have no plans currently to overhaul the EEIA at the moment, but I note the Member's feedback to consider a new consolidated Act.

Let me just look through some other questions.

Sir, Assoc Prof Jamus Lim had a question on the sunset clause provision. I think I addressed that already. This is one arrow in our quiver, in our toolkit, to ensure that our incentives have enough levers and to ensure Singapore's continued economic relevance. Having this sunset clause introduces discipline. There is a definite end date. It is a process to ensure that we, as the economic agencies and the Government, will review our incentive schemes periodically. It also sends a message to the businesses to not take for granted that the incentives will continue perpetually. So, I think that is very useful. The alignment to other DEI schemes in general is important for us to do that. It also reduces uncertainty.

The question on the difference in incentives criteria for both manufacturing and services is a good one. Manufacturing, as the Member would know, and services are very different. Our incentive design takes into consideration the competitive landscape we face and the gestation periods of the respective project types.

If you think about manufacturing, a manufacturing company typically takes years to set up a plant, to qualify and to hire relevant workers and also to train their workers for these relevant skills, and then, later on, to ramp up operations. The level of commitment required also recognises, in part, the competition that Singapore faces. That is on manufacturing. And I think, in MTI, we open many of these plants. We know that there is a gestation period and these companies need to hire workers, train them and make sure that the plant is operational. You compare this with the manufacturing sector, for example, to our global headquarters as well as the services sector, the typical project gestation period is much shorter, because you do not need to have those plants. It is not as sticky in that regard. And our incentive requirements must therefore also reflect the differences between manufacturing as well as the services sector.

Finally, Assoc Prof Jamus Lim asked whether the Minister's ability to add new qualifying categories will encourage companies to abuse the incentives by shifting the assets abroad or around, without generating new economic incrementals or benefits. I want to ensure the Member that the Investment Allowance is given with respect to new substantive projects that our economic agencies have assessed to be in line with our economic priorities. Purely shifting assets around would not pass muster with our robust assessment framework.

Sir, we will continue to do more. Singapore's attractiveness as an investment location does not only depend on tax factors or incentives to anchor investments. The Government will continue to invest in our non-tax, non-incentive advantages such as a highly educated workforce and talent pool, our robust infrastructure, our excellent connectivity, a well-established legal system and a well-developed financial system. These advantages took decades to build and strengthen and are the result of consistent efforts by the Government working alongside businesses and our tripartite partners to create a vibrant and competitive economy for our people.

Sir, I just wanted to take a bigger picture and to share with Members that again, as Minister Vivian Balakrishnan mentioned earlier on, the world is becoming more uncertain, the world in becoming more volatile. There has been fragmentation, there has been fractures of what we knew as the trading system, and just because of all of these factors, the global competition for talent, the global competition for investments is heating up, if it is not already at very intense levels.

Singapore is small. We have very limited resources, we have constraints, land, labour, carbon and, for all the strengths that we have – a well-connected financial system, highly educated workforce and the likes – which I mentioned earlier on, these are things that are important strengths and levers that we have.

But, at the same time, we cannot take for granted, because we are small, that MNCs which have a choice to invest their plants or their services or to situate their headquarters anywhere in the world, will choose Singapore. That is why we must be on the forward footing, we must continuously be agile-minded and agile-footed and amend, change, and be flexible with our suite of tools that are available to us to attract these investments into Singapore and to create good jobs for Singaporeans.

With that, Mr Speaker, I thank Members for their strong support for this Bill and Sir, I beg to move.

Mr Speaker: Any clarifications? Assoc Prof Jamus Lim.

2.28 pm

Assoc Prof Jamus Jerome Lim: Thank you, Speaker, and I thank Minister of State Alvin Tan for his comprehensive responses. Two quick clarifications on my part. The first, if I could verify that the DEI is in fact not automatically granted to any company that commits to meet the qualifying conditions, for example, for the 5% bar, S$13 million additional foreign asset investment and 30 additional skilled workers, but actually is subject to clearance by staff at MTI?

And if so, and if it is possible, to share the success rate of applicants to the DEI in the past or relatedly, how many successful applicants have subsequently experienced termination of the incentive for not meeting the terms of their letter of agreement (LOA) commitments? Or perhaps, if I should file a Parliamentary Question if these numbers are not immediately available?

Mr Alvin Tan: Sir, I thank Assoc Prof Lim for his questions. For the DEI, as I mentioned, the economic agencies will assess that based on all of the different commitments and it has to be commensurate to those commitments under the qualifying activities.

And again, the whole Bill was meant to ensure flexibility, so that, for example, if there are changes to the external environment, changes to the investment climate, the economic climate, it gives the economic agencies as well as the company itself, scope to negotiate and say, "Well, I am at this tier now, I can do more". Then, you adjust it, commensurate to the incentive.

Or the company can say, "Oh, it's a bit challenging, I need more time". Then, you can tier up as well. So, that flexibility gives companies some certainty and it also allows for economic agencies to work closely with companies to invest in Singapore.

2.30 pm

Mr Speaker: Any more clarifications for Minister of State Alvin Tan? I do not see any.

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 Alvin Tan].

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