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

Order for Second Reading read.

1.42 pm

The Senior Minister of State for Trade and Industry (Mr Chee Hong Tat) (for the Minister for Trade and Industry): Mr Speaker, on behalf of 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 2020 puts into legal effect amendments arising from the regular review of our tax incentives, as well as a change introduced in Budget 2018. Let me elaborate on the three key legislative changes contained in the Bill.

The first change relates to the transfer of awards between companies. The Pioneer Industry award and Pioneer Service award are granted to companies to encourage them to locate “pioneering” products or activities that introduce advanced technology, skills or know-how to Singapore. Meanwhile, the Development and Expansion award encourages companies to grow capabilities and conduct new or expanded activities in Singapore.

As companies amalgamate, merge or undergo corporate restructuring, there may be a need to transfer their existing awards to the new entity. Clause 4 of this Bill introduces a new Part IV to the Act for the transfer of the Pioneer Industry award, Pioneer Service award and Development and Expansion award between companies. Under this framework, such award granted to the transferee will be treated as a continuation of the award granted to the transferor.

The second change extends the Investment Allowance scheme, or IA for short, to corporate partnerships. A corporate partnership refers to a partnership, limited liability partnership or limited partnership comprising solely of partners that are companies.

The IA scheme encourages companies to carry out projects with economic, technical or other merits, by providing an allowance granted at a specified percentage of qualifying fixed capital expenditure incurred on an approved project. However, the IA currently can only be awarded to a company, but not a corporate partnership.

We know that companies increasingly co-own assets with other companies, including through corporate partnerships. There are sound business reasons for having these partnership arrangements, such as co-sharing of equipment to reduce expenses and to optimise usage.

To better cater to the evolving business environment, clauses 6 and 7 of the Bill amend section 66 and introduce a new section 66A of the Act, respectively. This is to extend the IA scheme to include corporate partnerships. Details to enable implementation will be prescribed in subsidiary legislation.

Lastly, to encourage companies to invest in submarine cable systems landing in Singapore, the Minister for Finance announced in Budget 2018 that the IA for productive equipment would be extended to include capital expenditure incurred on newly-constructed submarine cable systems landing in Singapore approved by the Minister. This will help strengthen Singapore’s position as a leading digital connectivity node.

Clauses 6 and 8 of the Bill amend sections 66 and 67 of the Act, respectively, to give legislative effect to this inclusion. Mr Speaker, I beg to move.

Question proposed.

2.00 pm

Ms Anthea Ong (Nominated Member): Mr Speaker, since our Independence, the Economic Expansion Incentives Act or EEIA has helped to incentivise the investments and innovation that brought us good jobs and economic prosperity.

However, we are entering a new era of increasing volatility and disruption. We are in the throes of the COVID-19 pandemic as we speak but I fear the climate crisis will unleash chaos and food supply disruptions that dwarf what we have seen. Yet there exists enormous growth opportunities for technologies that the world needs to exit the climate crisis and enter a world of peace and stability.

Is the EEIA able to attract the kind of investments and innovation that will allow Singapore to demonstrate climate leadership and ride on the low-carbon wave? There are two parts to this question that I hope the Minister can address.

EEIA provides tax relief for pioneering economic activities as well as a wide range of capital investments. My first point, Mr Speaker, relates to whether the EEIA extends incentives to high-carbon activities so that the tax relief may end up as a subsidy to the fossil fuel industry.

Senior Minister Teo Chee Hean recently announced Singapore's goal of achieving net zero emissions "as soon as viable in the second half of the century". Senior Minister Teo himself admitted that this goal is "very challenging". Yet even this goal falls short of the target of net zero by 2050 that IPCC estimates would limit warming to 1.5 degrees Celsius and avert the worst impacts of climate change.

To have even the slightest hope of meeting this target, we have to stop incentivising investments that will lock in decades of high carbon emissions.

Prime Minister Lee Hsien Loong in his National Day Rally last year announced we would probably need $100 billion to protect ourselves against rising sea levels. This year’s Budget has already allocated $5 billion to the Coastal and Flood Protection Fund. It would be unthinkable if we gave out tax relief to the same activities that will force us to spend more on coastal and flood protection. I would imagine this would give Deputy Prime Minister Heng a bit of a headache trying to balance the Budget.

Could the Minister clarify whether the qualifying criteria for tax relief under the EEIA considers the long-term impacts on Singapore? In particular, is there consideration for whether the activity would lead to an increase in carbon emissions?

EDB has published its assessment criteria for pioneer certificate incentives under the EEIA, which includes employment created and spin-off to the economy. For high-carbon sectors, even such economic benefits are not assured. In 2015, when oil prices fell below US$50 per barrel, the oil and gas sector cut an estimated 15,000 jobs. With oil prices bottoming out again this year, ExxonMobil has said it will make significant cuts to spending.

As climate action accelerates across the world, demand for fossil fuel products may reduce sharply. For example, with countries around the world, including Singapore, moving towards full electrification of their land transport system, demand for diesel and petrol is expected to drop. Researchers from Columbia University forecasted that passenger vehicle oil demand would decline beyond 2025. For the lowest low-carbon scenario in their 2019 study, oil demand in this sector would decline from about 25 million barrels per day today to 10 million barrels per day in 2040.

Investments in fossil fuel assets which underestimate the downside risk of disruptions from low-carbon technology, energy efficiency and climate policy could lead to stranded assets. A study published in 2018 estimated that globally, US$12 trillion of fossil fuel assets might be stranded by 2035.

Could the Minister clarify whether the economic benefits under the assessment criteria for EEIA tax relief includes consideration for the downside risk from future disruptions, such as decarbonisation?

On the other hand, the global transition to low-carbon opens up a host of new opportunities. My second point, Mr Speaker, therefore relates to incentives for innovations and investments that are aligned with a carbon-neutral economy. Section 67 of the EEIA currently lists activities eligible for investment allowances. These include reducing consumption of water and improving energy efficiency. Unfortunately, this leaves out a wide range of capital expenditure investments that contribute to Singapore's long-term sustainability, such as renewable energy, active mobility, as well as waste reduction.

While there are grants available for some of these activities, such as the 3R fund for waste recycling and reduction, this should not preclude the option to use investment allowances as an additional incentive.

Could the Minister clarify whether the list of activities eligible for investment allowances can include a category for capital expenditure that reduce greenhouse gas emissions either directly or indirectly?

For pioneering economic activities, aligning our tax incentives with a carbon-neutral economy would help us get a foothold into a host of emerging industries that support a climate-friendly future. These industries include carbon capture and storage, renewable energy, circular manufacturing, bio-plastics, energy storage, electric vehicles, alternative meat, climate-resilient agriculture and green building technology. A 2018 report by the Global Commission on the Economy and Climate estimated that over 65 million new low-carbon jobs could be generated globally in 2030.

Clean energy alone is expected to generate 2.2 million jobs in ASEAN. We are building one of the world's largest floating solar farms in Tengah Reservoir. The expertise we develop would position Singapore as a key exporter of this technology. An undersea cable to transmit solar power from Australia could also be in the pipeline.

The alternative meat market is expected to grow to US$470 billion by 2040, equivalent to a 17 times expansion in the next 20 years. Alternative meat start-ups Beyond Meat and Impossible Foods have already taken the world by storm. I am proud to see local start-up Shiok Meats entering the arena. I urge the Minister to align our tax incentives with a carbon-neutral economy, so that we can attract and grow more of such champions.

Could the Minister share whether the qualifying criteria for tax relief under the EEIA can include consideration for the potential of the activity to reduce greenhouse gas emissions either directly or indirectly?

Mr Speaker, the COVID-19 pandemic has highlighted the importance of having foresight and courage to prepare now for the possible crises of tomorrow. A recent headline in TODAY read: "Singapore has been buttressing its food security for decades. Now, people realise why".

Indeed, it was because of decades of effort to diversify our food sources that allowed Minister Chan Chun Sing to welcome the 300,000 airflown eggs to Singapore from Thailand when the risk arose that supply of eggs from Malaysia could be affected by the overnight lockdown.

In that same spirit, let us have the foresight and courage to prepare our economy for the risks and opportunities that emerge from a carbon-constrained future. Every tool in our policy toolbox needs to be on the table. I look forward to the Minister's response to my clarifications above. I support the Bill.

Mr Speaker: Senior Minister of State Chee Hong Tat.

1.51 pm

Mr Chee Hong Tat: Mr Speaker, I would like to thank Ms Anthea Ong for her support for the Bill. Sir, Ms Anthea Ong asked whether the Government takes into account the carbon emissions of economic activities that we incentivise and whether the EEIA could incentivise activities that reduce Singapore's greenhouse gas emissions.

The short answer to both questions is yes.

Singapore's strategies to reduce carbon emissions are formulated at the national level through the inter-Ministerial committee on climate change, which has been formed since 2007. And these in turn shape how we work with our companies and industries, both existing and new, to make the necessary adjustments to prepare for a carbon-constrained future.

When assessing applications for incentives, including those under the EEIA, we will give priority to investments that are aligned to our national objectives. Carbon emissions is an important consideration, but it is not the only criterion. We will also evaluate if the investment contributes to Singapore's economy, advances our capabilities, and creates good jobs for Singaporeans.

In the area of the petrochemical industry, for example, this is an important sector for Singapore, in terms of both direct and indirect contributions to the economy, to jobs and to livelihoods.

But what we will do is we will work with the industry players to make sure that what we have in Singapore are best-in-class, because we do not just produce to meet Singapore's domestic needs. Our petrochemical industry actually serves the whole world, consumers in different parts of the world. So, we will work with them and implement measures that will meet best-in-class standards for this industry.

Sir, Ms Anthea Ong also spoke about coastal protection, and indeed, this is something that we take very seriously. Singapore take our climate change commitments seriously because we know we need to do our part. We want to be a responsible stakeholder. And hopefully this will also set a good example for other countries to do likewise.

I say this because climate change requires global action. Singapore's actions alone will not be adequate. If the other countries do not follow suit, we will not be able to tackle this global challenge together.

So, when we invest in protecting our shorelines, this is something that we are investing to protect both the current and future generations of Singaporeans. But in order for sea levels not to rise significantly, it is going to go beyond what Singapore can do alone. And this is why we hope that the world can work together, to be able to find solutions and tackle climate change together.

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 Chee Hong Tat].

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