Income Tax (Amendment) Bill

Order for Second Reading read.

2.45 pm

The Minister for Finance (Mr Lawrence Wong): Mdm Deputy Speaker, I beg to move, "That the Bill be now read a Second time".

The Income Tax (Amendment) Bill covers 38 amendments. Of these, 13 amendments arose from the Budget Statement in February 2021, as well as COVID-19 support measures announced earlier this year to help workers and businesses. Another 25 amendments arose from the periodic review of Singapore’s income tax regime.

We have sought views from the public on the draft Bill earlier this year and have taken into account the feedback received. We thank all the contributors for their inputs.

Let me start with the key amendments that give effect to the 2021 Budget Statement and the support measures announced earlier this year.

First, to help businesses with cash flow, the enhancement to the Loss Carry-Back Relief scheme has been extended for another year. Qualifying deductions for the Year of Assessment (YA) 2021 may be carried back up to three preceding YAs, instead of one. The amount of qualifying deductions that may be carried back is capped at $100,000. This allows businesses to get a refund of up to $17,000 of income tax paid for YA 2018 to YA 2020. Clause 32 of the Bill provides for this amendment.

Second, the scope of the Double Tax Deduction for Internationalisation (DTDi) scheme has been enhanced to cover additional qualifying expenses, for example, specific expenses incurred to participate in approved virtual trade fairs. Clauses 8 and 11 of the Bill provide for these amendments. This is to help us encourage our firms to internationalise.

Third, the 250% tax deduction for qualifying donations to Institutions of Public Character (IPCs) has been extended for another two years to Calendar Year (CY) 2023. Likewise, to continue supporting corporate volunteering, the Business and IPC Partnership Scheme (BIPS) has been extended for another two years to CY 2023. Clauses 14 and 29 of the Bill provide for these amendments. We hope this will continue to encourage Singaporeans to give back to the community.

Fourth, mandatory or voluntary monetary support payments that tenants receive from their landlords in 2021 will not be taxed. This will allow tenants to benefit from the full amount of the monetary support payments. Landlords will also be allowed to claim income tax deductions for these monetary support payments they made to tenants in 2021. This is to facilitate the passing on of rental waivers granted to master tenants of qualifying Government-owned commercial properties to their sub-tenants, as well as the making of monetary support payments by landlords to their tenants in 2021. Clauses 7, 16 and 19 of the Bill provide for these amendments.

MOF regularly reviews and refines the income tax regime. Let me now touch on three key amendments among the 25 amendments in the Bill, arising from this periodic review of our tax regime.

First, we will set out the tax treatment for two situations: where trading stock is appropriated, or used, for non-trade or capital purposes, and vice versa. In other words, where capital assets become trading stock. IRAS’ current tax treatment of such situations is similar to the practice and case law of the UK. The proposed amendments will now codify this current tax treatment into our tax legislation.

Trading stock held by taxpayers may be appropriated for non-trade or capital purposes. For example, a property developer may decide to stop trying to sell unsold units and instead keep them for long-term capital gains. In such cases, we will treat the market value of the trading stock on the date of appropriation as income at that juncture. Any gain, which is arrived at after deducting expenses, will then be subject to tax, while any loss is allowed as a deduction.

This proposed amendment is necessary to protect our revenues. Because without this amendment, there would be revenue loss from deductions claimed by the taxpayer when the asset was held as trading stock, whereas any gain on the subsequent disposal of the asset will be treated as capital in nature and not subject to tax in Singapore because we do not have a capital gains tax.

Conversely, non-trade or capital assets may become trading stock. For example, a property developer may choose not to hold its investment property and redevelop it for sale.

When the redeveloped property is subsequently sold, the gains are computed and subject to income tax. The proposed amendments provide that in computing such gains, the cost of the trading stock is its market value on the date the asset, in this instance the investment property, becomes trading stock.

Clauses 3, 20, 21, 27 and 61 of the Bill provide for these amendments that pertain to the clarification of our tax rules for the purposes where trading stock is appropriated for non-trade or capital purposes and vice versa.

Second, we will facilitate IRAS’ effectiveness when it administers public schemes.

Over the past two years, we have introduced and enhanced many support measures, like the Jobs Support Scheme and the Jobs Growth Incentive, to help businesses and workers. IRAS has stepped up to support this effort by centralising and taking on the business disbursement functions for nine such schemes, which will be added to the Ninth Schedule of the Act.

As part of the quality assurance process to ensure that public schemes are administered as intended, such as disbursing the correct amount of payments to eligible firms, IRAS needs to work with external auditors to check and audit its scheme allotment. This includes checking against income tax data to verify a company’s eligibility for public schemes, for example, whether it is an SME.

As the Income Tax Act restricts the disclosure of protected income tax data to non-public servants including external auditors, this amendment will allow persons authorised by the CEO of IRAS access to selected income tax data and documents, appropriately safeguarded, for the sole purpose of auditing the administration of public schemes.

Safeguards are provided for in the Bill to ensure the proper usage of such tax data. In particular, the Comptroller of Income Tax will be able to restrict the extent of information that needs to be made available to the authorised persons. Authorised persons who are granted access to the protected data will be prohibited from copying or retaining the data, or disclosing the information to other parties. In addition, to protect data privacy, identifiers will be masked before any data is released to auditors under this provision.

As a related amendment, we will also amend the Goods and Services Tax Act to allow access to Goods and Services Tax information to persons authorised by the CEO of IRAS to audit the administration of public schemes. Clauses 2 and 57 of the Bill provide for these amendments.

Third, a protection of informers provision will be included, similar to the provision in legislation like the Customs Act and the Cybersecurity Act 2018. This amendment protects informers by prohibiting witnesses in Court, who might be the informers themselves, from disclosing information that may lead to the discovery of an informer’s identity and thus encourages informers to step forward with information that will enable more effective tax enforcement.

Related amendments will be made to the GST Act, Property Tax Act, Stamp Duties Act, Betting and Sweepstake Duties Act, Private Lotteries Act and Estate Duty Act. Clauses 50, 55 to 60 of the Bill provide for these amendments. Mdm Deputy Speaker, I beg to move.

Question proposed.

Mdm Deputy Speaker: Mr Louis Ng.

2.54 pm

Mr Louis Ng Kok Kwang (Nee Soon): Madam, this Bill introduces a wide array of reforms meant to update our income tax policies and provide necessary financial support to our economy.

I thank the Ministry for doing a public consultation for this Bill in June 2021 and for publishing in September 2021 its response to feedback received. Indeed, several pieces of feedback were accepted and we see their imprint in today’s Bill. I hope MOF will continue this good practice of holding public consultations and accepting productive feedback.

Madam, I have three points of clarification to make.

My first point is about tax deductions for donations. Singaporeans should donate to social and community causes. To encourage this, the Government is providing tax deductions for qualifying donations up until the end of 2021. This Bill extends the end date of that scheme by two years. I thank the Ministry for it.

However, I would like to raise questions about one kind of recipient: donor-advised funds (DAFs). To my understanding, donations to DAFs are eligible for income tax deductions if the DAF is designated to offer grants to Institutions of Public Characters (IPCs).

DAFs have become more popular around the world. From 2015 to 2019, donations to DAFs have risen by 110% in the UK and 80% in the US. With this growth, lawmakers and experts have criticised the rise of DAF-related "zombie philanthropy".

This is the trend where DAFs hold on to donations indefinitely and fail to disburse them to charities. The government loses tax income immediately due to tax deductions, while society benefits only belatedly as donations sit untouched for a long time.

On this point, I would like to raise three questions.

First, can the Minister share what is the yearly dollar amount of income tax deductions linked with donations to DAFs for each of the past five years?

Second, can the Minister share what information is typically requested under section 37(3)(b) of the Income Tax Act? In particular, what information has it previously requested when an individual attempts to claim tax deductions using donations to a DAF?

Third, can the Ministry share how the Government proactively guards against the problem where donors claim tax exemptions, tax deductions for donations to DAFs while the DAFs fail to disburse funds to the IPCs in a timely manner?

I know DAFs are meant to encourage charitable giving and I have no broad concerns with their existence. However, there may be room for stronger tax rules on DAFs that tie the incidence of tax deductions with the distribution of the funds. Such rules would promote stronger governance of intermediary charity groups and promise more timely benefits for society.

My second point today is about data secrecy. This Bill empowers IRAS to offer people access to highly confidential government data for the purpose of auditing the administration of public schemes, such as of IRAS’ IT systems. Such people can copy government records for conducting their audits.

While this amendment may help IRAS undertake vital audits, I am concerned that it may not promise sufficient safeguards for data secrecy.

On this, I have two questions on the topic of excess for the Minister’s clarification.

First, excessive scope. What scenarios fall within and outside the purpose of the audit? Would it be reasonable for a data audit firm to create extensive digital back-ups stored on their own systems? How does the Government determine whether the backups are excessive in scope?

Second, excessive time. Why do the amendments not penalise permitted people from holding on to copies of government records for excessive amounts of time? Surely, we agree that even IT auditors should not be holding on to confidential government records for longer than necessary.

Copies of government records held in excessive scope for excessive time increase the likelihood and severity of data leaks and data misuse. I hope the Government will take strong action to ensure vital government records are used and copied in a responsible way.

My third point today is about tax deductions for landlords. In this COVID-19 crisis, more than before, Singaporeans have learned the immense powers landlords have over commercial tenants.

Commercial tenants have gone out of business as they struggle to pay their rent. Many groups, such as the Restaurant Association of Singapore and Singapore Tenants United for Fairness, have spoken in chorus about the lack of flexibility from landlords.

The Government has tried our best to urge landlords to do the right thing. But the pleas have often fallen on deaf ears. As a result, in the past year and a half, this House has to pass laws compelling landlords to provide rental waivers, to allow penalty-free termination of rentals and, most recently, to match rental support provided by the Government.

In this context, the purpose of the new section 14ZH is unclear. It seems to encourage a somehow perverse situation where a landlord can evict a failed tenant and then pay reduced taxes on their rental income.

Why should landlords receive financial incentives when they evict a tenant and keep the property vacant? The outcome is a net loss for society as productive land is left unused.

In addition, how will IRAS ascertain whether a landlord has made "reasonable efforts" to find a new tenant during the vacancy period? This loosely defined clause appears to be the only check in these amendments against the scenario I have just described. It would be important to clarify how IRAS intends to implement it and guard against bad-faith actors.

Madam, notwithstanding my clarifications, I stand in support of the Bill.

Mdm Deputy Speaker: Mr Leon Perera.

2.59 pm

Mr Leon Perera (Aljunied): Mdm Deputy Speaker, I am not speaking on the Bill. I believe there was some error. My colleague, Mr Louis Chua, is speaking. Thank you.

Mdm Deputy Speaker: Okay. Mr Yip Hon Weng.

3.00 pm

Mr Yip Hon Weng (Yio Chu Kang): Mdm Deputy Speaker, many businesses continue to struggle during this pandemic period. I support the provisions and exemptions to reduce some of their overheads. Nevertheless, I would like to highlight five issues.

First, Mdm Deputy Speaker, I am concerned about ensuring adequate revenue streams from the loss of income tax due to the exemptions. The Government has already had to dip into reserves twice to fund the COVID-19 package. Through the Government’s prudent planning and reallocation of resources, we are assured that we do not need to expect to tap on the reserves anytime soon. Yet, it is apparent that the costs to deal with the economic effects of the pandemic are rising.

In these trying times, it seems that the Government would continue to fund the bulk of the COVID-19-related healthcare expenses for as long as possible. With reduced tax revenues, how does the Government ensure that the expenses remain sustainable? What is the projected loss in revenue from the proposed provisions and tax exemptions?

Mdm Deputy Speaker, related to the above, my second point is on ensuring that the tax exemptions for businesses meet their intended purpose of providing a lifeline to struggling businesses. These exemptions should remain sustainable, in case they have to be extended in light of the persistent uncertainty of COVID-19.

Businesses have been accorded a litany of support measures to tap on, from the JSS to rental waivers, training grants and schemes, and so on. Do we really need to further exempt in areas that companies are supposed to strategise and exercise prudence on, as part of running a business? I am referring specifically to packaging, provision of doubtful debts and diminution in value of investments and renovations.

For instance, companies that have had to invest in R&R works to pivot their business, or to fulfil safe management requirements owing to the pandemic, should be the intended recipients of this tax exemption. On the other hand, there are also companies that have clearly expanded and are thriving due to the pandemic: delivery companies and online office solutions come to mind. There must be a way to differentiate between the former and latter type of companies, as the latter are not the intended recipients of these tax exemptions.

These companies should indeed be applauded but they should be assisted through other schemes and grants that we already have in place which reward companies that are expanding or hiring more employees.

As for tax exemptions on the design of packaging for overseas markets, I understand that this is meant to support internationalisation efforts. However, we should be promoting green and sustainable packaging, in line with the global call for more sustainability efforts. It would appear contradictory to our long-term goals of reducing waste in packaging, if companies can get subsidised for extravagant packaging. Let us not forget that the recently introduced Mandatory Packaging Reporting Framework under the Resource Sustainability Act, which was intended to help companies reduce packaging use, had also hit roadblocks due to COVID-19.

I would propose a more targeted approach to identify relevant sectors and businesses for specific tax rebates. This is not to make things difficult for businesses, but to be judicious in providing rebates. Support schemes should remain sustainable. This is to continue providing the necessary assistance to businesses and workers for as long as needed. Beyond tax exemptions, further support can be given in the form of mentorships and consultations, to guide businesses to tap on the existing relevant support schemes.

Mdm Deputy Speaker, my third point is that the impending GST hike, originally planned to take place between 2022 and 2025, will come sooner than later, to make up for this loss in tax revenue. I have spoken about this before in my earlier speeches. Understandably, the GST hike was announced before the pandemic and there were plans to implement measures to cushion the impact on the lower- and middle-income groups. However, residents have expressed the sentiment that the GST hike should only be implemented after the job market stabilises, hopefully, in the short to medium term. This is especially so as we brace ourselves for overall increases in the cost of living over the next few years.

Fourth, Mdm Deputy Speaker, there must be increased vigilance against unscrupulous companies who may manipulate the provisions. In the past two years, we have seen how some errant employers either tried to make money off the Jobs Support Scheme by falsifying CPF contributions, or asked employees to return part of their monthly wage in cash. Some would also split wages across business entities to circumvent the salary ceiling. What are the methods of auditing to prevent such acts from happening? Moreover, how would IRAS determine the validity of declared expenses to ensure that they are not frivolous, or worse, fictitious? This is relevant, especially in reference to clause 7 of section 13ZA, which relates to the exemption of certain payments received, in connection with COVID-19 events.

Mdm Deputy Speaker, my last point is that I support the introduction of whistle-blowing protection in clause 50 of the ITA and the related tax statutes. This is consistent with the Cybersecurity Act 2018, as what the Minister has said, and the Regulation of Imports and Exports Regulations (RIER). This also helps to prevent unscrupulous companies from manipulating the provisions, a point I made earlier.

In practice, it is difficult to detect corporate crime like money laundering and fraud. It does not mean that this does not exist. Corporate crime exists in Singapore. We have seen recent high profile cases involving Hin Leong and the fraudulent Envy nickel trading scheme. Whistle-blower protection is key to good corporate governance. It allows employees who want to do the right thing to speak up, alert the authorities and limit damage before it becomes too late. The fallout can be enormous and damaging.

Hence, the introduction of whistle-blower protection in tax statutes is welcomed. Will the Government introduce similar provisions to other statutes concerned with corporate crime? Will the Government also consider enhancing the current whistle-blower protection clauses to prohibit corporations from retaliating against whistle-blowers? The current provision only protects informers from being identified in proceedings. However, it does not stop a company who is aware of a whistle-blower complaint, from initiating a witch-hunt to flush out the whistle-blower. The company may also place pressure on the whistle-blower, for example, by threatening to derail his career.

Protection of a whistle-blower’s identity in the context of proceedings is scant reassurance, when they could still be retaliated against in other forms. Without further protection, whistle-blowers will still be reluctant to come forward.

In conclusion, Mdm Deputy Speaker, the past two years have been difficult for our local businesses. Many continue to struggle to stay afloat to provide jobs for Singaporeans and to move our economy. They should be the target of our support schemes and tax exemptions to help them tide over these difficult times. The Government is also running a tight ship with increased demands and expenses, exacerbated by the pandemic. A poorly timed GST hike would lead to reduced consumer activity, which in turn hurts businesses. Additional prudence must be exercised. This is to ensure that the assistance offered is, as John Maynard Keynes put it wisely and succinctly, targeted, timely and temporary. I support the Bill.

Mdm Deputy Speaker: Mr Louis Chua.

3.08 pm

Mr Chua Kheng Wee Louis (Sengkang): Mdm Deputy Speaker, I would like to first declare my interest as a research analyst working in a financial institution, covering the real estate industry and I am also a chartered accountant of Singapore, although not a practising public accountant.

Mdm Deputy Speaker, it is said that in this world, nothing is certain except death and taxes. What we can also be certain of is that this quote for more than 200 years ago, will often be repeated by politicians, even though taxes most certainly do not affect everyone in the same way.

I recognise that Income Tax (Amendment) Bills are introduced to Parliament with sufficient regularity as many of the clauses relate to tax changes made in the Government's annual Budget Statement.

In my speech, I would like to first raise some clarifications relating to specific tax measures and tax changes that are raised in the Bill before moving on to share my thoughts on pertinent tax issues, which I believe ought to be seriously considered as part of Singapore's periodic review of the income tax system.

First, in relation to the proposed amendments included in the Bill, clause 29 amends section 37, where the 250% tax deduction for qualifying donations made to IPCs and other qualifying recipients will be extended for another two years, that is, for donations made during the period 1 January 2022 to 31 December 2023.

While donations ought to be made on altruistic grounds, I am also supportive of the enhanced deductibility of donations, given that this will continue to encourage Singaporeans to give back to the community and to provide support for the charity sector.

Singaporeans have been giving selflessly, of course. Looking back at 2020, when the Government gave all adult Singaporeans regardless of income a one-off Solidarity payout of $600, many decided to donate this payout instead.

Notwithstanding the giving surge in 2020, the persistency of COVID-19 has presented much challenge to charities this year. For most charities, donations are the primary means of funding the good work that they do and it is important for them to ensure both the sufficiency and regularity of the donations that they receive.

To better encourage sustainable giving by Singaporeans and companies here, where the habit of giving is integrated into our lives, should we not make permanent the 250% tax deduction for qualifying donations made to IPCs? This does not preclude short-term enhancements in future such as back in the year of assessment 2016, where the tax deduction granted is three times.

However, with the 250% tax deduction already in place since YA 2010, making permanent a baseline level of tax deduction for donations gives charities the assurance of this continuing support while encouraging Singaporeans to continue supporting the causes that matter to them in a sustainable manner.

Second, clause 2 amends section 6 to allow any person authorised by the Comptroller of Income Tax access to any IRAS records and all documents containing taxpayer income information protected under section 6 that are necessary for the person to audit IRAS administration of any public scheme specified in the Ninth Schedule. These will include schemes such as the JSS and Wage Credit Scheme, for example.

And the role of IRAS is to be the main tax administrator to the Government. Yet, over time, IRAS has also been called upon to go beyond tax collection and to support the Government in disbursing various support grants to companies.

I do support and believe in the importance of enabling an independent third party audit of how IRAS has been implementing these support schemes to ensure proper accountability. This is especially in the context of COVID-19 where substantial sums of monies are involved and continue to be disbursed in some of these schemes alongside the complex and ever-changing conditions around them.

I note in section 6(11)(c) that authorised persons must make and subscribe to a declaration of secrecy in accordance with section 1, "must not disclose or make copies of the records or documents and will be guilty of an offence if otherwise." That being said, my concern is less on the deliberate disclosure of information, but more in the inadvertent leakage of such information through data breaches. Given the sensitivity of tax information, any such breaches would be disastrous even if the negligent party was charged subsequently.

In the spirit of being prudent with taxpayers' information, is there a consideration to codify the requirement to retain such records or documents only for a specific period of time required to conduct the audit and for such authorised persons to declare that all copies of tax information in their possession have been destroyed thereafter?

Thirdly, I note the creation of a new section 10P which provides the tax treatment for cases where trading stock is appropriated for non-trade or capital purposes, and where non-trade or capital asset becomes trading stock. I believe the new section provides for greater certainty in the timing and recognition of the tax base in such cases, given that the market value of trading stock on the date of appropriation for capital purposes is treated as income that is subject to income tax at the juncture and, similarly, where the cost of the trading stock is its market value on the date the capital asset becomes trading stock.

Again, in the context of COVID-19, companies facing economic challenges and cash flow issues may have no choice but to scale down their operations, and in so doing, dispose of their capital goods such as property, plant and equipment. May I seek confirmation from the Minister that such transactions are not caught under the new section 10P? And how would the distinction be drawn between a manufacturer selling off its factory or production line compared to a residential developer which converts its existing office building, formerly held as an investment property to strata units which are on-sold to investors?

Further, I note under section 10(1)(g) of the Income Tax Act, a so-called "catch-all" provision that taxes any gains or profits of an income nature not falling within paragraphs (a), (b), (c), (d), (e) and (f) under the preceding paragraphs. How would section 10(1)(g) factor into IRAS' consideration as to the factors used to determine whether or not such gains from the sale of what is now deemed to be trading stock are revenue in nature?

Mdm Deputy Speaker, I shall now move on to speak about the number of tax issues which I believe ought to be considered as part of Singapore's periodic review of the income tax system.

First of which is the need to consider implementing a wealth tax in Singapore. Even as COVID-19 ravages across the world, disrupting livelihoods and causing economic hardship to workers and businesses alike, rising equity markets and government stimulus mean that global wealth and the number of high net worth individuals continue to reach record highs globally.

I am sure that Members in this House will agree with me that widening wealth inequalities are undesirable over the longer term insofar that they risk leading to tensions that impact our societal cohesiveness.

The idea is not new, of course, and such taxes have been raised by the Workers' Party in this House. During the Budget debates earlier this year, Deputy Prime Minister Heng agreed that there is scope to further review our wealth taxes. I wonder if this is currently being actively studied by MOF and if so, what is the status of the study?

At a lecture at the Institute of Policy Studies in July, the Managing Director of MAS, Mr Ravi Menon, noted that to address the risk of growing wealth inequality, it made sense to shift the balance in Singapore's tax structure away from taxing income towards taxing wealth, wherein property would form a major component in the Singapore context.

Again, in Singapore, where housing prices have broadly grown in tandem with the economy, high home ownership rates and public housing subsidies have in the past helped to narrow the disparity in household wealth. But these mitigating factors can only go so far.

An area that I am particularly concerned with is the divergence in public and private home prices. For example, private home prices rose 10.9% between end-2020 and end-2015, while HDB resale prices only rose by 2.4% over the same period. Even if we take into account the sharp spike in HDB resale prices year-to-date, HDB resale prices rose by 11.7% in the past five years compared to 19.7% for private home prices. This wealth gap has been exacerbated by the falling percentage of resident households who live in public housing, which has declined to 78.7% in 2020, from 80% in 2015 and 82% in 2010.

Put in other words, household wealth from property is increasingly skewed towards the top 10% to 20% of resident households. If left unchecked, this could lead to greater disparity in inter- and intra-generational wealth.

Mdm Deputy Speaker, I recognise that Member Ms Foo Mee Har has also been speaking on wealth taxes, although respectfully, I do not think that any new wealth tax should be one-off in nature. While well-intended, the fear of further "one-offs" could negatively impact faith in regulatory certainty in Singapore. Rather, in principle, wealth taxes need to be recurring yet sustainable, reasonably easy to implement and hard for the wealthy to avoid so that the middle class does not end up bearing more of the burden.

One possible solution is to raise property-related taxes on the homes valued above a high threshold, say, $5 million, or for owners of multiple properties cumulatively worth $5 million. I have used this value just as a starting point for discussion, so as to not penalise the majority of Singaporeans, especially the aspiring middle class.

As home valuations are well documented in Singapore, this will help with policy implementation before we consider wealth taxes on net worth, which more comprehensively captures the wealth of the ultra-wealthy. This also means that for the vast majority of Singaporeans who reside in HDB flats, there will be no wealth tax applied to them.

The imposition of such a tax could generate legitimate concerns, one of which pertains to Singapore's status as a financial centre and wealth management hub. Yet, one also has to bear in mind that Switzerland, as a key financial centre and wealth management hub globally today, is one of the countries that actually has a net wealth tax.

Let us also remember that not only does Singapore not have a wealth tax, there is no capital gains tax, no tax on dividends, no inheritance tax, no estate duties, and has one of the lowest effective personal income tax rates globally.

Yes, there could be implementation challenges and a wealth tax will take many forms, be it net wealth tax like Switzerland, a property gains tax or an inheritance tax, to name a few. And, yes, having a wealth tax alone will not eliminate widening wealth inequality in Singapore. But do we truly want to have a tax system where our low- to middle-income workers pay more in income tax than a trust fund baby living off his grandparents' inheritance?

The second issue is to raise the level of progressivity in our corporate income tax regime to better support our local SMEs.

I do recognise that there are features in our current corporate taxes that better benefit SMEs. Corporate income tax rebates being capped at a dollar amount, $15,000 for the Year of Assessment (YA) 2020, for example, would mean large multinational companies (MNCs) would not disproportionately benefit from the corporate income tax rebate of 25% that was given.

In 2018, Hong Kong implemented the two-tiered profits tax regime to relieve the tax burden for SMEs, in particular. In Singapore, we do have the tax exemption scheme for new startup companies and partial tax exemption for all companies which have a similar effect. Yet, it was in the same year in Budget 2018 that the Government announced tighter restrictions around these schemes. For an SME making $300,000 in chargeable income, for example, total corporate income tax paid before any rebates will be close to $34,000 or an effective rate of about 11%, compared to around $25,000 or an effective rate of about 8% based on prior rules.

Even as other support for companies to build capabilities is being strengthened, I hope the Government will consider providing greater tax relief to our SMEs, such as by raising tax exemption limits which are geared towards SMEs, given the challenging domestic trading conditions brought about by COVID-19.

I recognise that Minister for Finance Lawrence Wong has said that effective tax rates for SMEs are much lower than the effective tax rates for non-SMEs in Singapore. But what is also true is that SMEs paid $4.8 billion in corporate income tax out of profit before tax of $44 billion for YA2019 versus non-SMEs, which paid $11.5 billion in corporate tax out of profit before tax of $459 billion.

As I shared in my speech in July this year, SMEs accounted for 9% of total profit before tax in YA2019, yet, they contributed an outsized 29% of corporate income tax paid.

Now, I do appreciate that MOF has its way of calculating effective tax rates, which the Finance Minister has clarified is based on a definition of chargeable income that is a bit different from that per section 38 of the Income Tax Act.

So, using the data provided to my Parliamentary Question yesterday, for example, based on the subset of profit-making firms in YA2019, SMEs accounted for 20% of accounting profit before tax, 22% of chargeable income but 30% of corporate income tax paid.

So, similarly, the conclusion can still be made that SMEs collectively paid more tax per dollar of either pre-tax profits or changeable income, as compared to non-SMEs.

Ultimately, what companies report in their financial statements to shareholders are accounting profits, which are audited in Singapore based on the Singapore Financial Reporting Standards, which are, of course, modelled after the International Financial Reporting Standards (IFRS).

The use of accounting profits as a meaningful basis of comparison on tax rates is made all the more relevant, given the fact that Pillar Two of the G20/OECD Base Erosion and Profit Shifting (BEPS) 2.0 proposal is quite simply using financial accounting income for the determination of the tax base, with a small number of adjustments allowed.

This brings me to my third point in that in the fullness of time, I do hope that the Government will continue to safeguard its taxing rights and view the global minimum tax reforms as an opportunity rather than a threat, given Singapore's strong non-tax advantages and attractiveness to MNCs.

I recognise that a lot of details on BEPS implementation are still being ironed out. But given the current average effective corporate tax rate is close to 3% as shared by the Minister, technically it would seem that even a small shift towards the proposed global minimum rate of 15% could result in much higher corporate tax receipts for the Government. Tax receipts which can then be used to reinvest in our people and our local companies.

To conclude, Mdm Deputy Speaker, notwithstanding my clarifications on the Bill, I support the amendments.

Our tax policy sends a strong signal of the kind of growth we want to pursue and the kind of society we want to build. In the face of rising inequality and the economic and social disparities that are brought to the fore by COVID-19 globally, we have a moral imperative to enhance progressivity in our tax system and ensure that any tax changes we propose bring us closer towards achieving quality growth and an inclusive society.

Mdm Deputy Speaker: Mr Don Wee.

3.23 pm

Mr Don Wee (Chua Chu Kang): Mdm Deputy Speaker, I declare that I am a council member of the Institute of Singapore Chartered Accountants. In Mandarin, please.

(In Mandarin): [Please refer to Vernacular Speech.] Mdm Deputy Speaker, income tax is one of the main sources of our national revenue. An appropriate tax regime would enable revenue to be fully utilised and promote economic growth. In addition to giving the Government the capacity to regulate macro-policies, it would also promote the development of specific areas.

The amendments proposed in this Bill are broadly in line with these objectives, especially in this challenging economic environment, to help our SMEs.

COVID-19 has led to a widening wealth gap between rich and poor in many countries. In order to avoid the rich getting richer while the poor getting poorer in our country, the Government has been improving the situation through a number of inter-Ministry policies and measures, including tax deductions and encouraging individuals and businesses to do more good and to donate to Institutions of Public Character (IPCs).

I support and recommend that MOF consider giving higher tax deductions on large donations. I believe this will help build a more united and caring society. A good tax regime is one that works towards an ideal society where the needs of all Singaporeans are met.

Next, I would like to comment and ask some questions on the Bill.

(In English): Mdm Deputy Speaker, allow me to comment on the various amendments by section.

Amendment of section 6: regarding the proposal to allow authorised persons access to IRAS records and/or documents containing taxpayers' income information, would the Ministry share specific examples where IRAS' records will be shared with a private sector auditor?

Amendment of section 13ZA: I thank the Government for its compassion towards the companies by exempting the Jobs Support Scheme payouts from income tax during this challenging time.

Amendment of sections 14B and 14K: the Ministry proposes to enhance the Double Tax Deduction for Internationalisation (DTDi) scheme to include additional qualifying expenses in support of efforts made by our enterprises to go international. I would like to ask if expenses incurred on digital platforms can be included, such as advertisements on social media and the engagement of influencers to drive online traffic to virtual trade fairs?

If the online exposure attracts a great deal of interest and the companies benefit from many business leads derived from the virtual fairs, can the follow-up marketing and business development expenses be eligible too?

Amendment of section 14ZA: to promote rated retail bond issuances, the amendments seek to extend and refine the Double Tax Deduction (DTD) Scheme for allowing qualifying upfront costs attributable to these bonds. I would like to ask if green bonds can be included in the scheme to promote sustainability.

Amendment of section 19A: the Ministry seeks to extend the option to accelerate the write-off of the cost of acquiring plant and machinery to capital expenditure incurred in Financial Year (FY) 2021.

Based on the current business environment which seems volatile till the first half of 2022, would the Ministry consider extending the option to FY2022 as well? This would be helpful as we are encouraging business owners to automate in order to reduce reliance on foreign workers.

Amendment of section 37: to continue to encourage donations, the 250% tax deduction for qualifying donations will be extended for another two years to 31 December 2023.

I would like to suggest that MOF offer higher tiers of tax deduction for bigger donations. For example, for donations of $5 million and $10 million, the tax deductions can go up to 300% and 400% respectively. This will encourage the wealthier members of the community to factor in donations as part of their estate planning.

My concern is that our wealth gap here may widen substantially after this COVID-19 pandemic. Many of our Institutions of Public Character (IPCs) are doing a great job helping vulnerable Singaporeans. I hope richer Singaporeans can be incentivised to contribute more to support good causes.

Amendment of section 104A: regarding the inclusion of a provision to protect informers, how would MOF prevent people with malicious intent from falsifying claims against their competitors or rivals? With informers so well-protected, genuine or not, how can falsely accused persons or companies defend and protect themselves against fabricated charges?

I would like to conclude with my support for the Bill.

Mdm Deputy Speaker: Minister Lawrence Wong.

3.29 pm

Mr Lawrence Wong: Mdm Deputy Speaker, I thank Members Mr Louis Chua, Mr Louis Ng, Mr Yip Hon Weng and Mr Don Wee for their support for the Bill and their comments and suggestions.

While this Bill is mainly to effect the extension of measures announced at the Budget this year and the various COVID-19 support measures that we have also announced earlier this year, Members have raised other suggestions and broader concerns. So, I will respond to these in turn.

Let me start by responding to the comments on the Budget and COVID-19 support measures.

I should clarify that the Bill gives effect to the implementation of measures that have been announced in the Budget and in the various COVID-19 support packages. These are not new measures. They really detail the implementation of measures that have been announced.

I think Mr Yip had questioned if these exemptions were too generous. But to clarify, these are not new measures, they were announced earlier either in the Budget or in earlier statements and we are implementing them, and you would see that in the implementation of these measures, we have been quite careful in scoping them.

For example, the Renovation and Refurbishment (R&R) measure mentioned by Mr Yip, allows taxpayers the option to claim tax deductions on qualifying expenditure over one year, instead of the three years which is already allowed under the Income Tax Act today. But we are just allowing now one year instead of three years. There is also no change to the overall cap of $300,000, which applies for every relevant period of three consecutive Years of Assessment. So, basically, we are allowing the option to claim tax deductions on an accelerated schedule which provides cash flow support to businesses during this period, but we have not changed the overall caps.

Mr Yip also asked about tax deductions on provisions of doubtful debts and the diminution of value of investments under section 14I of the Income Tax Act. This is only available for banks and qualifying finance companies, and is subjected to caps to safeguard against excessive provisions. This existing tax deduction aims to promote the overall soundness and stability of our financial system by catering for the building up of adequate provisions to cushion against potential losses in the financial institutions’ loan and investment portfolios. The change, which is to be incorporated into this Bill, expands the scope to include specified loans and securities in line with financial reporting standards. Again, there is no change of the prevailing caps in the Bill.

Mr Yip was also concerned about tax exemption for packaging costs. I wish to clarify that packaging costs, like any business expense incurred in the production of income, can only enjoy 100% tax deduction. There is no further tax break.

There were also some questions on the Double Tax Deduction for Internationalisation, or DTDi scheme. That covers, amongst others, specified expenses incurred in the design of packaging for overseas markets. These expenses are design costs, not packaging costs. Such design costs include, for example, costs of third-party consultancy fees to design packaging for overseas markets. As part of the Budget 2021 measure, we have announced that design costs would be added to the existing list of automatic qualifying expenses under the DTDi scheme. Again, the overall cap remains unchanged at $150,000 per year for the list of qualifying expenses which taxpayers can claim in their tax return without the prior approval of Enterprise Singapore under the DTDi scheme.

Mr Don Wee had asked about qualifying expenses in relation to virtual trade fair that qualify for this scheme. Expenses incurred by firms on overseas advertisement and promotional campaigns on social media, including the engagement of influencers, are covered under the DTDi scheme. In this Bill, we will enhance the scope of the DTDi scheme to cover specified expenses incurred to participate in approved virtual trade fairs. These specified expenses include third-party costs for the design and production of digital collaterals and promotion materials for the approved virtual trade fair, and logistics costs incurred to send samples overseas to potential clients met at the approved virtual trade fair, subject to conditions. So, as you can see, we are talking about expanding the scope of qualifying expenses but we have continued to keep a cap on the overall amount at $150,000.

Mr Wee asked if the double tax deduction, or DTD scheme for qualifying upfront cost attributable to retail bonds issued under MAS’ Bond Seasoning and Exempt Bond Issuer Frameworks can be extended to green bonds. The answer is yes. Green bonds which meet the qualifying criteria for the DTD scheme can qualify under the scheme.

So, these are to address all the comments about Budget measures, COVID-19 measures which had been announced, but we are talking about the implementation and we want to assure Members that in working out the implementation details as reflected in the amendments in this Bill, we have been careful to make sure that the schemes are carefully and properly designed.

Mr Don Wee then also asked about the further extensions of some of the schemes, beyond what had been announced. For example, he asked if the option to accelerate the write-off of the cost of acquiring plant and machinery can be further extended for another year, in view of the current situation. I should say that each time we ask for additional requests for help for businesses or individuals, we should look at schemes in totality. It is not just one particular scheme but we have other schemes in place overall to encourage businesses to invest in new and emerging technologies to sharpen their competitiveness.

For example, in Budget this year, we had extended the enhanced support levels of up to 80% for existing enterprise schemes like the Productivity Solutions Grant and the Enterprise Development Grant, to end of March 2022. We continue to monitor the situation closely and review all our schemes, as needed. Should there be a need to extend any measure, any such extension will then be announced at Budget 2022 and then it will be effected in next year’s Income Tax (Amendment) Bill. So, it is an ongoing process.

Next, let me address the specific comments raised on other amendments outside of Budget and COVID-19 support measures.

First, Mr Louis Chua asked about the new section 10P. This is a scenario where trading stock is appropriated for capital purposes. I must clarify first that this is an existing treatment. IRAS already practices this. But this is to codify the existing treatment, which is also similar to what is done in Hong Kong and the UK.

Mr Chua asked about the disposal of property, plant and equipment. That is capital in nature. So, it is not considered as business trading stock in the first instance. So, there would be no appropriation of trading stock and section 10P does not apply under such a scenario.

Mr Louis Ng asked about the new section 14ZH in the concerns that it may inadvertently reward a landlord who evicts a failed tenant and keeps the property vacant. This section is in line, again, with the existing tax treatment that IRAS applies up to now. The legislative clarification provides tax certainty for the taxpayers, namely landlords who are taxable on their rental income. So, under this section, as long as the landlord demonstrates with supporting evidence that he has made reasonable efforts to secure a tenant during the vacancy period, IRAS will allow tax deduction for qualifying expenses such as property tax, repair, insurance and maintenance of the property incurred during the vacancy period.

So, what does the landlord have to demonstrate in order to show reasonable effort? For example, IRAS would request a taxpayer to provide supporting evidence such as documents showing that the repair was made to the property to keep it in lettable condition; or that a property agent was appointed to find a tenant; or that the property had been advertised for rent. And if IRAS is satisfied that reasonable efforts have been made to seek a tenant during the vacancy period, then this section will apply. But if IRAS is not satisfied that reasonable efforts have been made to secure a tenant, then the tax deductions will not be allowed.

Next, let me address the points raised by Mr Ng with regard to donor-advised funds (DAFs). Mr Ng asked for data on the amount of income tax deductions linked with donations to DAFs. We do not track this data specifically because tax-deductible donations are currently tracked based on IPC and approved grant-maker status, and this is in line with requirements for the receipt of tax-deductible donations under the Charities Act and the Income Tax Act respectively.

I understand Mr Ng's concerns over ensuring the timely disbursement of funds by DAFs to IPCs. So, for DAFs which are themselves IPCs, they have flexibility to disburse the funds for the charitable programmes, no different from other IPCs. But I think Mr Ng is more concerned about DAFs which are approved grant-makers. For such DAFs, they are required to disburse the tax-deductible donations to IPCs within five years from receiving the donations.

The only exception is when an endowment fund is being set up by the approved grant-maker, in which case the approved grant-maker can disburse the tax-deductible donations to IPCs over a longer period, obviously because they are setting up an endowment fund.

To ensure accountability, all grant-makers are required to submit annual reports to IRAS on the tax-deductible donations received and disbursed. Thus far, all grant-makers have disbursed the donations received to IPCs according to the disbursement requirements within the specified number of years. So, Mr Ng can be assured that we do not have this scenario where donations are being made to grant-makers, but they hold back on disbursing grants to the charities.

Mr Ng also asked about the information requested by IRAS when an individual attempts to claim tax deductions on their donations to a DAF. Again, IRAS does not separately request for information on tax-deductible donations to a DAF. If the DAF is an IPC or an approved grant-maker, the same reporting requirements applicable to IPCs and approved grant-makers would then apply respectively.

On the issue of tax deductions for donations, Mr Wee had proposed for the Government to tier the tax deduction rates based on the donation quantum. I understand the intent of such a suggestion but such a tiered system would then primarily benefit the higher-income as well as larger IPCs who have the resources to engage higher-income donors. Mr Wee's suggestion to provide 300% or 400% tax deductions will also result in more tax revenue forgone.

And Mr Louis Chua, likewise, had suggested to make permanent this tax deduction. Again, I appreciate the intent of Mr Louis Chua and Mr Don Wee to promote philanthropy and charitable giving. But we have to consider the merits and trade-offs carefully, bearing in mind that we currently have one of the highest tax deduction rates for donations in the world and we want to make sure that any scheme we have in place is fiscally sustainable.

In addition, besides tax deduction, the Government also adopts a multi-faceted approach to encourage charitable giving within the community. So, let us not just look at tax alone. Let us look at what we do with regard to non-tax measures as well. And we will continue to review both the tax and non-tax measures to do more for charitable giving.

Next, several Members asked about data confidentiality issues regarding audits on the administration of public schemes. In my speech, I mentioned that safeguards are provided for in the Bill to minimise the risk of unauthorised disclosures and the misuse of tax data. The audits provide independent checks to ensure IRAS disburses payouts correctly to their intended beneficiaries and the data provided to auditors will be limited to what is necessary for quality assurance of that specific scheme.

For example, annual revenue data would be provided to auditors to determine the eligibility of SMEs for the Rental Support Scheme. As revenue size is not part of the scheme design for the Jobs Growth Incentive, such data will not be shared with auditors for the Jobs Growth Incentive. So, the Comptroller of Income Tax will have the discretion to decide on the extent of information that needs to be made available, subject to the safeguards that I have explained.

More importantly, as I mentioned earlier in my speech, the data made available will not be identifiable. Various methods like tokenisation would be used to prevent the disclosure of individual data.

Authorised persons who are granted access to protected data will be prevented from retaining or making copies of the data provided in the first place. In other words, they can only access data on IRAS-issued devices and only within IRAS' premises. So, there is no issue of external auditors storing data for excessive amounts of time.

Authorised persons who are granted access to protected data would be required to make and subscribe to a declaration of secrecy. It would be an offence under the ITA and the Official Secrets Act for authorised persons to disclose any protected information to other parties.

Appointed audit firms will also be required to adhere to contractual terms on data confidentiality and ensure that the use of confidential information is only for authorised purposes. In the event of a breach, the appointed firm will be liable to legal actions under the terms of the appointment contract and penalties under our Acts governing the data.

Let me assure Members that the Government takes this issue very seriously, and safeguards would be put in place to protect the confidentiality of taxpayers' information and to minimise the risk of unauthorised disclosures and the misuse of tax data.

Next, Mr Yip asked about the methods of audits on the disbursement of schemes like the JSS. IRAS, as the administrator of the JSS, had instituted a robust anti-gaming framework, making use of data from multiple sources to identify and detect abuse. While we are unable to share the specifics of IRAS' anti-gaming operations for good reasons – if you tell people what we are doing, I think it will encourage more gaming behaviour – this framework has been in place since the first JSS payout in April 2020. For cases suspected of higher fraud risks, IRAS requires the firms to authenticate their CPF contributions before the payouts are released. Cases with strong corroborative evidence to suggest abuse are reported to the Commercial Affairs Department (CAD) for further investigation and prosecution.

I also thank Mr Yip for his support for the introduction of the Protection of Informers, or POI, provision in the Income Tax and other tax Acts. Mr Yip asked about whistle-blower protection in other statutes.

In fact, the proposed POI provision in this Bill is modelled after similar provisions in the Customs Act and the Cybersecurity Act 2018. The legislative amendment to better protect informers will also apply to other tax Acts, beside the ITA.

Mr Wee asked how we will prevent people with malicious intent from falsifying claims against their rivals or competitors.

Let me assure Members that IRAS does not act on baseless or frivolous allegations. IRAS will carefully examine not only the information provided by an informer, but also other information available to IRAS, and assess the validity of any allegations. IRAS will only commence an investigation when it assesses that a prima facie case exists for tax evasion and if the information provided by the informer proves to be reliable and accurate.

Apart from IRAS' internal process, the POI provision includes a legislated safeguard, similar to the POI provisions in other domestic legislation, which will mitigate against the risk of informers making false claims. In particular, the safeguard provides that the Court may require the production of the original complaint and full disclosure of the informer's identity only if the Court is satisfied that the informer wilfully made in his complaint a material statement which he knew or believed to be false or did not believe to be true; or justice cannot be fully done between the parties without the disclosure of the informer's identity. So, these safeguards are in place.

Let me now turn to some of the broader comments raised by Members.

Mr Louis Chua mentioned wealth taxes and more reliefs and help for SMEs. I would say, in terms of direction, what Mr Louis Chua has suggested is completely aligned with MOF's thinking. We want to address wealth inequalities and we want to do more to support our SMEs. So, in terms of policy intent, we are completely aligned.

But to address wealth inequalities, what exactly do we do? What sort of measures do we put in place? That is something that we will have to study carefully. In fact, we already have a form of wealth tax by way of the tax levied on private residential properties today which is tiered according to annual value (AV). So, we already have that structure in place in our property tax system.

I am unable to reveal what we are thinking about now. I think that will be premature and I do not want to pre-empt the Budget next year. But, obviously, we are continuing to consider all options to address, as I have said, number one, income and wealth inequalities; and number two, what more we can do to support SMEs.

Where SMEs are concerned, I think the data is very clear. I think it is useful to bear in mind when you look at the data, it is not a homogenous group; it is very diverse. And, therefore, if you look at averages or you look at effective tax rates, one can get a misleading picture. Because, in fact, the vast majority of SMEs, vast majority of them, pay very little tax. That is the reality.

We also need to be careful when we look at reliefs and exemptions for SMEs that we do not want to have inadvertent consequence. This discourages them from growing because if they stay small, they pay less tax, I think that will be unhelpful for our SMEs to scale up and grow and develop to become global champions in their own right.

So, we need to find the right incentives to support them but, at the same time, encourage them to scale up and grow. So, that is something that MOF, together with our economic agencies, continue to study carefully. And we will look not only at tax measures but also at non-tax measures, in other words, the kinds of support schemes we can provide to them through grants, loans and equity.

Next, Mr Yip also highlighted the caution that we need to ensure that we spend in a fiscally sustainable manner. And he is absolutely right because beyond our short-term fiscal response to COVID-19, we are mindful of our long-term fiscal responsibility to maintain a balanced and sustainable Budget position. Our prolonged fight against COVID-19 has been facilitated greatly by our ability to tap on Past Reserves for extraordinary measures to protect lives and to safeguard livelihoods.

But beyond these emergency conditions, when it comes to recurrent expenditure, ongoing expenditure, I think it is very important that we maintain the principle to fund them through recurrent revenues. As our recurrent expenditures continue to go up for a whole range of reasons, including rapidly ageing population, the need for more healthcare, to make growing demands for social spending, then we have to ensure that we look at raising our recurrent revenues to meet these recurrent expenditures. So, there is no avoiding this.

Of course, it is never easy to implement a tax increase, let alone a GST increase. The Government has announced that the GST rate increase will take place sometime during 2022 to 2025. This remains unchanged and we will continue to consider all factors, including our fiscal needs as well as the prevailing economic conditions in deciding on the timing of the GST rate increase.

At the end of the day, we must have the courage to make the difficult decisions that are necessary to uphold a culture of fiscal stewardship and fiscal responsibility. That is how we can best serve the interests of Singaporeans, both in the current as well as in the future generations.

Mdm Deputy Speaker, I believe I have addressed Members' concerns and questions. Mdm Deputy Speaker, I beg to move.

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 Lawrence Wong].

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

Mdm Deputy Speaker: Order. I propose to take a break now. I suspend the Sitting and will take the Chair at 4.15 pm.

Sitting accordingly suspended

at 3.55 pm until 4.15 pm.

Sitting resumed at 4.15 pm.

[Deputy Speaker (Ms Jessica Tan Soon Neo) in the Chair]