Income Tax (Amendment) Bill

Order for Second Reading read.

3.07 pm

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

The Income Tax (Amendment) Bill 2018 covers 17 income tax changes announced in the 2018 Budget Statement as well as 19 tax changes arising from the periodic review of our income tax regime. Of the 19 non-Budget proposed tax changes, eight changes are proposed refinements to the income tax regime while the remaining 11 changes are technical amendments to remove obsolete provisions or to provide clarifications on the law.

We sought views from the public on the draft Bill from 20 June to 11 July 2018. MOF evaluated all the feedback received and incorporated them where relevant to the draft text of the Bill.

Let me start by highlighting some of the key tax measures.

First, the existing Corporate Income Tax (CIT) rebate for the Year of Assessment (YA) 2018 will be enhanced by raising the rebate percentage from 20% to 40% of tax payable, and the rebate cap from $10,000 to $15,000. The CIT rebate will also be extended to YA 2019, at 20% of tax payable, capped at $10,000. This will help companies, especially smaller ones, cope with near-term cost pressures. Clauses 43 and 44 of the Bill provide for this change.

Second, adjustments will be made to the Start-Up Tax Exemption (SUTE) Scheme and the Partial Tax Exemption Scheme from YA 2020. The tax exemption under both schemes will be reduced from the first $300,000 to $200,000 of normal chargeable income. Exemption under the SUTE Scheme will also be lowered from 100% to 75% for the first $100,000 of normal chargeable income. Even with these changes, corporate tax will remain low for start-ups and smaller companies. In addition, start-ups and smaller companies can tap on a wide range of Government support measures to build capabilities and grow their businesses. So, clauses 32(f), 50(a) and 50(d) to (g) of the Bill provide for these changes.

Third, to encourage research and development (R&D) to be done in Singapore, the tax deduction for staff costs and consumables incurred on qualifying R&D projects performed in Singapore will be increased from 150% to 250%. This enhanced deduction will be available from YA 2019 to YA 2025. Clauses 16 and 17 of the Bill provide for the change.

Fourth, to further encourage internationalisation, the expenditure cap for the Double Tax Deduction for Internationalisation claims, without prior approval from Enterprise Singapore or the Singapore Tourism Board, will be raised from $100,000 to $150,000 per YA from YA 2019. And clauses 14 and 19 of the Bill provide for this change.

So, these are the tax changes. They give effect to the announcements that were made in Budget 2018 this year.

As mentioned earlier, the Ministry of Finance also regularly reviews and refines the income tax regime. So, I will now highlight the three broad changes arising from this periodic review of the tax regime which are in the Bill.

First, we will enhance the Inland Revenue Authority of Singapore's (IRAS') powers to investigate tax crimes. Tax offenders and criminal syndicates are becoming more obstructive and employing more sophisticated schemes to defraud the authorities and cover up their crimes. Currently, IRAS has powers to require persons to provide information, record statements and take possession of documents or items that constitute evidence of tax offences. Enhanced investigative powers are required to more effectively deal with serious tax offenders, as well as acts of obstruction which may hamper IRAS' investigations and prosecution. Such obstructive acts include taking flight, destroying or refusing to hand over evidence, and contacting other witnesses to collude or fabricate evidence.

The proposed amendments will enhance IRAS' investigative powers, by providing authorised IRAS officers with the (i) power of forced entry; (ii) power to arrest without warrant; and (iii) power to carry out body search; subject to conditions. I will refer to these as enhanced investigative powers in my speech. I should also note that investigation officers of other tax authorities such as the UK and US have similar powers to facilitate their investigations. We will put in place safeguards in the way these enhanced legislative powers are exercised.

For example, the power to arrest without a warrant may only be exercised for an investigation of serious tax offences, such as tax evasion, or where a suspect attempts to destroy evidence with a view to hindering or obstructing IRAS' investigations.

The power of forced entry may only be exercised if entry cannot be gained to a building or place in two situations.

One, when it is for an investigation of a serious tax offence and there is reason to believe that there is in a place an item relevant to the investigation or prosecution that may otherwise be concealed, removed or destroyed, Or, two, when there is a reason to believe that a person liable to be arrested under the Act is in the building or place.

The power to carry out a body search may only be exercised on a person found in a place which IRAS has lawfully gained entry into for the purpose of investigating a tax offence and to search for items which may be relevant for investigation or prosecution. There is an additional safeguard for a woman to only be searched by a female officer.

All these enhanced investigative powers may only be exercised by officers authorised by the Comptroller of Income Tax. These authorised officers would receive training consistent with those in other law enforcement agencies, such as Singapore Customs.

The amendments will also expand IRAS' power to gather all information relevant to its investigations or prosecution of tax offences from any person. Currently, IRAS may gather information relating to a person's income, assets or liabilities only. The amendment will allow IRAS to gather all information as long as it is relevant to the investigation or prosecution. For example, this could include information relating to business transactions or information relating to accomplices.

In addition, the amendments will align the penalties imposed under the Income Tax Act for persons who obstruct officers acting in discharge of their duty with those for a similar offence under the Goods and Services Tax Act. Specifically, section 66 of the Goods and Services Tax Act imposes a maximum fine of $10,000 and imprisonment of up to 12 months, or both, for obstruction of officers.

Clauses 2(b), 3, 41, 42, 45, 46 and 47 of the Bill provide for all of the changes which I have just described.

The second broad change pertains to the proposed amendment of the Income Tax Act to allow IRAS to share with law enforcement agencies (LEAs) information that may be necessary for investigation or prosecution of serious crimes. Serious crimes are offences listed in the First and Second Schedules to the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act.

We need the proposed amendments as the activities of criminals including syndicates are often multi-faceted. Their criminal activities may not be limited to tax evasion, and may extend to other forms of illegal activities like drug dealing and corruption. A Whole-of-Government approach is required to better tackle such serious crimes. And again, I would highlight that other countries, including Australia, Norway, Sweden and the UK, also allow for the disclosure of tax information to LEAs to combat non-tax crimes.

Under the proposed amendments, information shared is to be disclosed by the Comptroller to the head of an LEA for the purpose of investigation or prosecution of serious crimes. Unauthorised onward disclosure of such information would constitute an offence. And clause 4 of the Bill provides for the changes.

Third, we propose to amend the Income Tax Act to allow tax deduction for motor car-related expenses for private hire car (PHC) drivers. Unlike taxi drivers, PHC drivers are currently not allowed to claim tax deduction on car-related expenses. We have reviewed this issue with the Ministry of Transport, and taken into account feedback from various Members of Parliament during debates on this matter as well as the National Private Hire Vehicles Association.

In view that taxi and PHC drivers now provide similar point-to-point transport services, we will allow tax deduction on car-related expenses incurred by PHC drivers, against their driving income. Such expenses would include car rental and petrol, for example. And to keep compliance manageable, a PHC driver may claim tax deduction for expenses incurred to earn driving income based on a deemed expense ratio prescribed in the Income Tax Act. We consulted with the National Private Hire Vehicles Association and the National Taxi Association, and have proposed to set the deemed expense ratio at "60% of gross driving income". The ratio is a proxy for all expenses incurred to earn driving income, including service fees paid to platform providers. Alternatively, the PHC driver may opt to claim tax deduction based on the actual amount of expenses incurred in earning driving income. So, they can opt for the deemed 60% deduction or they can claim tax deduction based on the actual amount of expenses incurred.

The convenience of a deemed expense ratio will be extended to taxi drivers. Like PHC drivers, taxi drivers will be allowed to opt for the deemed expense ratio to ease tax compliance. Alternatively, taxi drivers can choose to continue with their current practice of claiming tax deduction based on the actual amount incurred on relevant expenses.

Capital allowance for the purchase costs of cars will continue to be disallowed for PHC drivers. As for taxi drivers, almost all currently do not own their taxis and therefore do not claim capital allowance. Only about 80 individuals today own taxis. These taxis are the yellow-top taxis. For taxi drivers who own these yellow-top taxis, the capital allowance in respect of their taxis will be grandfathered.

These changes in tax treatment update our tax regime to allow deduction for car-related expenses incurred by PHC drivers, while maintaining support for our long-standing policies on car ownership under our tax regime. The proposed amendments will take effect from YA 2019, for income earned in 2018. Clauses 22, 23 and 24 of the Bill provide for the changes. Mr Deputy Speaker, I beg to move.

Question proposed.

3.18 pm

Er Dr Lee Bee Wah (Nee Soon): Mr Deputy Speaker, Sir, private-hire car (PHC) services which in the days of old used to be one of the modes of transport for those in the better-off segment of society, is today an affordable transport option for many. And, in spite of various issues enshrouding the PHC, the demand for their services has not abated. If at all, demand has, in fact, increased, and this is especially so for families with elderly and young children; and, also for those with less mobile family members, as maneuvering around with buses and trains still has its challenges. The convenience of almost door-to-door service, and with a driver to assist those on wheel-chair, PHC is a good option.

So, PHC drivers provide a necessary transportation service for the public. They complement taxi drivers or compete with our taxi drivers. It depends on how you look at it. Hence, PHC drivers deserve to claim tax deductions and receive fair remuneration for their labour.

Early this year, when it was about time to file for income tax return, many PHC drivers whom I met – some I met at coffeeshop, some they came to my Meet-the-People Session, and they asked why is that the expenses, such as petrol, car parking are not allowed to be deducted against their income, and end up they have to pay higher income tax. And that is why I spoke on this issue in Parliament before.

And now, they should be happy to hear about this amendment. But they have one concern. They say that some of the PHC drivers are full-time drivers; some are part-time drivers. So, how is IRAS going to differentiate between these two categories of claim? So, can the Minister enlighten us?

For fuel claims, I think that is quite straight forward as mileage clocked for ferrying passengers will be recorded by the PHC's platform. But for parking and rental, it is next to impossible to identify how much of these expenses go into picking up passengers. And, once some PHC drivers are approved to provide courier services, there will be further blurring of lines between work and personal.

Undoubtedly, some PHC drivers are full-time drivers, and it would be somewhat unfair to deprive them from the same tax benefits as full-time taxi drivers.

Sir, observing the current trend, the point-to-point service sector will only keep expanding. PHC platforms are enhancing their services to meet the needs for more courier services. In the meantime, we are seeing more ad hoc couriers on our roads. These are people who drive their own vehicles from cars, vans to motorcycles. They pay for parking, and in the case of motorcyclists, they have to pay for high motorcycle COEs, all of which come out of their own pockets. These are issues that I have already brought up in Parliament previously.

I think it is important that the Government recognise this trend and review the regulatory framework for this sector, including having an appropriate income tax regime for all these operators. If PHC drivers can claim income tax, will the Minister consider the inclusion of other self-employed delivery persons as well? Sir, in Chinese, please.

(In Mandarin): [Please refer to Vernacular Speech.] It is a good idea to give tax deduction to PHC drivers. However, PHC drivers are different from taxi drivers. There is no minimum mileage requirement. If the driver drives his car mostly for personal use, he could abuse the tax benefits. This would be unfair to the full-time drivers. I therefore suggest that for PHC driver to enjoy the tax deduction, he must also meet a minimum mileage or number of jobs requirement.

In addition, people who use their own vehicle to provide courier services must pay for parking and a high motorcycle COE. To be fair, they should also enjoy tax benefits.

(In English): Sir, I support the Bill and I hope that it will come into effect before the filing of income tax for next year.

3.24 pm

Mr Chen Show Mao (Aljunied): Sir, I wish to return to the implications for gig economy workers in the Income Tax (Amendment) Bill before us today.

To begin, I would like to express my appreciation that MOF has been responsive to public feedback to simplify and increase the allowed tax deduction on car-related expenses incurred by private hire car drivers. Tax simplification is always welcome, both to promote compliance as well as to improve the efficiency of administration and enforcement.

Sir, the participants in our gig economy include many private hire car drivers and taxi-drivers constitute the largest category of our self-employed persons. And that is how we typically think about the gig economy worker – a self-employed person, an independent contractor, and not an employee protected by the Employment Act.

In fact, the Tripartite Workgroup Report whose recommendations on gig economy workers were recently accepted by the Government is intituled "Support for Self-employed Persons". And as the recommendations themselves make clear, we have focused on the risks of self-employment that have been laid bare and exacerbated in recent years by the gig economy, such as unstable income that can fluctuate much more sharply and quickly than for more traditional self-employed persons outside the gig economy, such as stallholders in a hawker centre.

Sir, gig economy workers can be a very diverse group – drivers, delivery persons, accountants, coaches. And the group includes substantial numbers among the lower income, more vulnerable groups in our population. Because of the temporary and uncertain nature of gigs, these workers are more likely to be living from pay cheque to pay cheque and finding their short-time cash-flow needs often trump their longer term economic interest in saving for future retirement. The question is, how can we provide them with better support, including through income tax amendments.

The Government has accepted the Tripartite Workgroup's recommendations for "Contribute-As-You-Earn" model whereby a MediSave contribution is required as and when a service fee is earned. And intermediaries and corporate service buyers are required to make the deductions whenever they pay the self-employed person. With "deduct as you go" and consequently with smaller pay cheques, it is likely that short-term cashflow crunches will get worse for the gig economy workers, making it even more difficult and challenging for him or her to make voluntary CPF contributions in a disciplined way.

As the Government studies the implementation of "Contribute-As-You-Earn", may I urge that it also look into tax incentives for self-employed persons to encourage them to make voluntary CPF contributions that will help with their retirement adequacy in future.

The Government has also accepted the Tripartite Workgroup's recommendation that the tripartite partners work with insurers to make available to self-employed persons insurance products that will provide daily cash payouts in the event of loss of income due to prolonged illness or injury. Will the Government consider tax incentives to encourage the take-up of such insurance products by gig economy workers, including along the lines of existing income tax relief for life insurance?

Sir, as I indicated, the provisions in this Bill that work to the greatest ease and benefit of private hire car drivers are welcome. I urge the Government to examine more generally the overall regime of tax incentives faced by gig economy workers. Let us help this growing and often vulnerable group of workers with the support and protection that they, their dependents, their work, and their enterprise deserve.

3.29 pm

Assoc Prof Walter Theseira (Nominated Member): Mr Deputy Speaker, Sir, thank you. Sir, the general question a tax Bill should answer is whether it is fair, sustainable and improves the efficiency of the economy. I will discuss how, in my view, this Bill achieves these objectives.

The tax reform that will probably affect the most Singaporeans is the change in tax treatment of private hire drivers' income. Hon Members and the public have asked for private hire drivers to be treated like taxi -drivers for tax purposes. At this point, I wish to declare my interest. I am a director of the Singapore Taxi Academy.

Now, the basic problem is private hire car drivers are taxed on revenue and not their net income presently. Since car operating costs are high in Singapore, their effective tax rate is much higher than it should be, given their net income. Let me illustrate the difference that this Bill's reforms will make.

Grab informs me that their full-time private hire drivers have gross revenues between $6,400 and $10,800 per month. This is before commissions and expenses. Today, private hire drivers can already deduct the commissions which are about 20% of fare revenue, on average. But even with these deductions, they would pay from about $2,000 to $6,000 in annual income tax. If we assume that drivers' net income is about 40% of gross revenue, the average tax rate for the more successful drivers could reach 12% of their net income. Sir, 12% of the net income is actually higher than the average tax rate for Singaporeans with chargeable income of $160,000 annually.

Now, under the proposed Bill, a full-time private hire driver will have a reduction in tax in the range from about $1,800 to $4,700 a year. This is an annual savings that is just like one month’s bonus for the drivers. Sir, I understand there are some 37,000 private hire driver licence holders. Their tax burden will be substantially reduced by this Bill. This Bill will also affect our 97,000 taxi driver licence holders, who can now choose to have their deductions computed by formula.

But, Sir, is this a hand-out, a subsidy of some type that is costing the taxpayer? I would say no. It is actually a reform that improves the efficiency of the economy. After-tax earnings should reflect the economic value of the work done. It is not efficient to tax private hire drivers more than we tax taxi drivers when they do the same kind of work. Tax reforms like this will encourage Singaporeans to seek the most productive types of work, and reduce the chance that their work decisions are distorted by the tax system.

Sir, this Bill will help our tax system address new challenges in our economy which the previous hon Members have spoken about. The scope and nature of work is changing. We are seeing an unprecedented shift away from full-time employment into alternative, flexible forms of work, such as freelancing and contract work. Economists Alan Krueger and Lawrence Katz show in a paper forthcoming in the Industrial and Labor Relations Review, that the proportion of United States workers in alternative work rose from 10.7% to 15.8%, from 2005 to 2015. In Singapore, MOM reports that in 2017, 8.4% of Singaporean workers were self-employed own account workers. This was an increase of 23,400 workers between 2016 and 2017.

Mr Deputy Speaker, Sir, the question is: is our tax system ready for these changes if and when they happen? Are the incentives right, so that Singaporeans neither rush to alternative work, nor do they shy away from it?

Now, bringing this back to the Tax Bill, one area we could consider for tax reform is to ensure employees and the self-employed are treated the same when it comes to social security costs. Consider medical costs. Many full-time employees are covered by company group health insurance. The company deducts the medical costs as business expenses. What about the self-employed? Now, except for Medisave, the self-employed do not enjoy tax deductions for personal medical costs. So, the problem is: employees effectively pay for medical costs from their pre-tax income, but the self-employed pay for it from post-tax income.

Although CPF contributions are not a tax, I do beg your indulgence to touch on this briefly. Retirement and housing are also very important social security costs and CPF contributions are tax deductible. However, the self-employed are not required to contribute to their CPF Ordinary and Special Accounts. They therefore earn higher take-home incomes, which may appear to make alternative work more attractive.

Sir, some say it may not matter, because the self-employed are free to voluntarily contribute to CPF for housing and retirement – and, of course, then they can enjoy the tax benefits. But, unfortunately, a wide body of research in behavioural economics suggests that people react to taxes and contributions which are visible, or salient, and they under react to or ignore those which are not. A paper by Congdon, Kling and Mullainathan published in 2009 in the National Tax Journal provides a very good non-technical summary of this kind of research.

What is the relevance for alternative work? The problem is that take-home income is salient. The benefits of being an employee are not salient. The value of company-provided medical benefits, annual leave, staff training, and so on, are not salient to workers. The value of CPF contributions, which provide for the social security of our workers, are not salient. Income taxes and the benefit of income tax deductions, are also not salient because our system charges taxes the year after income is earned.

On balance, Mr Deputy Speaker, Sir, I believe alternative work, which fills your wallet with take-home income today, may sometimes be too attractive, especially for younger Singaporeans who may be tempted to forgo starting formal careers. And our tax system has a role to play in adjusting this balance.

Taken together, Mr Deputy Speaker, we must continue the work of restructuring our tax system for the future economy to ensure the incentives are right for all workers. In the future economy where income and jobs may vary highly year to year, we should seriously consider a pay as you earn or contribute as you earn income tax system, which will help to smooth take-home income for workers. We may even enlist the help of the alternative work platforms to arrange for these tax deductions and contributions to be made at the source, when income is earned. These are issues for another day of course. So, Mr Deputy Speaker, Sir, I am in support of this Bill. Thank you.

3.36 pm

Mr Louis Ng Kok Kwang (Nee Soon): Sir, I stand in support of this Bill and would like to thank the Minister for the proposed amendments, which will allow private hire drivers to claim tax deductions for car-related expenses.

This is an issue I, along with several other Members of this House have raised previously and I am glad that we are finally leveling the playing field and ensuring that it is fair.

Sir, the Bill makes broad amendments as announced in the Budget 2018. I would like to focus on three areas in particular. First, the extension of the tax deduction for qualifying donations. Second, the extension of the Business and IPC Partnership Scheme (BIPS). And lastly, IRAS’ enhanced enforcement powers.

Sir, section 37 will be amended to extend the 250% tax deduction for qualifying donations until December 2021. I would first like to declare my interest as the Chief Executive of an IPC.

My interest notwithstanding, I support this extension in the spirit of giving and fostering a sense of community. Charities rely heavily on public donations, which empower us to make a difference in the community. The donations are our lifeline and to be honest, fundraising remains a challenge for many of us, especially in recent times.

With this extension of tax deduction, I believe we can encourage more Singaporeans to give back and strengthen our community by donating more on issues we care about.

This deduction has been extended multiple times since it was first introduced as a temporary measure in 2009. Would the Minister consider formalising the deduction as a permanent measure after 2021? This would send a stronger statement of the Government’s commitment to support voluntary giving. It would also give the IPCs some greater assurance and stability.

Next, section 14ZB will similarly extend the Business and IPC Partnerships Scheme for another three years until December 2021.

The Scheme complements the tax deduction for qualifying donations by encouraging employees volunteerism through businesses. Would the Minister similarly consider formalising the 250% deduction for businesses expenditure when employees volunteer and provide services to IPCs?

Would the Minister also consider extending the scope of the Scheme? I have two suggestions on how this Scheme might be expanded.

First, owners of the businesses such as sole-proprietors, partners and shareholders who are also directors of the same company are not qualifying employees under this Scheme. Can the Minister clarify the rationale for this exclusion and would the Minister consider extending the Scheme to owners of businesses? Business owners volunteering their own time and services can send a very strong message on the value of volunteerism to their employees.

Second, could the Scheme be extended to charities that do not have IPC status? IPC status allows charities to issue deductible receipts for qualifying donations to donors. As the Scheme pertains to giving through acts of volunteerism rather than monetary donations, expanding this scheme to non-IPC charities would not blur the fundamental distinction between IPC and charities.

IPCs are rightfully held to a higher standard of compliance and governance, which not all charities have the resources to meet. However, non-IPC charities continue to serve equally worthwhile causes and employees should be encouraged to volunteer with non-IPC as much as with IPCs. In this regard, there does not seem to be a good reason for drawing a distinction between the two.

Lastly, clauses 2(b), 3, 41, 42, 45, 46 and 47 propose to enhance IRAS’ powers to investigate tax crimes. I support the intention and agree with the need to take a whole-of-Government approach to crack down on tax crimes given the increasing sophistication with which these crimes are carried out.

It is also stated that “These powers under the proposed amendments will be exercised only by trained IRAS investigation officers and where necessary so that investigations are not impeded.” Could the Minister clarify what such training entails and share what safeguards are in place to prevent abuse of powers by IRAS officers? I understand Minister has replied to some of these in his opening speech.Will these officers undergo training similar to what our police officers go through? I understand Minister earlier mentioned that they undergo similar training to what our Singapore Customs officers go through. So, why not training that our Police officers go through instead

Sir, notwithstanding the above clarifications, I stand in support of this Bill.

3.40 pm

Mr Saktiandi Supaat (Bishan-Toa Payoh): Mr Deputy Speaker, in Malay please.

(In Malay): [Please refer to Vernacular Speech.] Mr Deputy Speaker, I rise in support of this Bill, which I note is giving more powers to investigators who are working to pursue those who are trying to evade from paying taxes.

It is important that the investigation team be given more powers because, in today’s context, taxation is more complex. These criminals can be involved in major crime syndicates including terrorist groups. I do not know whether the IRAS will be building up a new talent pool of investigators who will be armed under special circumstances just as they do in the United States Inland Revenue Service.

Or, would IRAS tap on the CAD or other agencies and appoint them as "specially authorised officers" under the proposed amendments to support them in any raids done on the premises? And, what about interrogation rooms and holding centres where these arrested culprits are required to be held over a period while investigations are on-going? Perhaps, Minister could clarify further?

Next, I will move on to the amendment affecting the Private Hire Cars. The shared economy is an increasingly global phenomenon, and as more PHC services continue to take interest in our market, we can only expect this industry to grow. It is important to constantly review and improve the current infrastructure, to ensure that the trend is moving in a positive direction. Changing the tax regime is one way to keep moving ahead.

I do not wish to make this issue into a case of taxi drivers versus PHC drivers, because in essence, allowing PHC drivers to claim tax deductions for expenses incurred on the job is simply about ensuring fairness. PHC drivers incur costs while providing an integral transportation service for the masses. It is only right they are able to claim for operating expenses just like other businesses and service providers.

I would like now share some examples of my residents who find themselves in predicaments because of the existing tax regime.

One resident had been involved in three road accidents, resulting in three periods of downtime, during which he was unable to drive and earn an income. However, he was still required to pay for the rental of the car due to the contract that he signed with the rental company. This has resulted in an unfair situation where he has to pay for the job.

Meanwhile, another resident was having financial difficulties because not only does he find his tax liability too high, he also finds it a massive burden having to contribute to Medisave based on his inflated income, and leaving him with little available income and cash to spare.

In another case, a resident's circumstances are even more dire. His total expenses for this year come up to $33,000. None of this can be categorised as deductibles, and on top of that, he has to make Medisave payments that keep on increasing, and therefore, he has problems in meeting expenses for his basic necessities.

I have written to IRAS on behalf of these residents but the outcomes were unsatisfactory. If car rental payments, along with other expenses incurred on the job were made tax-deductible, the situation would be fairer. A common impression about PHC drivers is that many of them have dual jobs, and are driving part-time to supplement their incomes, or to pay off vehicle ownership.

Then there is the controversy of the seating preference. For instance, a small number of PHC drivers do not like to be seen as drivers; they prefer their passengers to sit in front. So some have questioned why should they be allowed tax deductibles if they do not identify themselves as providers of a professional service?

The reality is, I have met a number of residents who are full-time PHC drivers. They are driving full-time to support families, or to bridge a period of unemployment while waiting to hear from potential employers. They will share their grievances about the high costs of rental and fuel, while the income from their labour is fully taxable.

And there are many valid reasons for them to stay as PHC drivers instead of switching over to a taxi company. The most obvious one is age, and certainly some of them are not yet 30 years old; trying to do something constructive while looking out for other career options; juggling housing loans and family commitments.

Then there are others who prefer the more flexible mileage requirements of PHC companies because they need to work longer hours, or the flexible hours are necessary to perform caregiving duties, and so on.

Allowing PHC drivers to claim tax deductions for expenses will help them to manage their costs of living. And, for taxi drivers who are previously deterred by the difference in the income tax regime, this would give them additional options, and having options is always a good thing for the future.

Of course, the other concern is that those who are working as PHC drivers are part of the gig economy that provides an income in exchange for labour, but this does not come with the typical benefits that are seen in full-time employment. Moreover, it is difficult for drivers to upskill and enhance their career portfolio in this industry. By amending the Income Tax regime in their favour, are we encouraging PHC drivers to remain where they are?

It will be good for everyone if the Minister could clarify whether there are plans to restrict the age limit. Will there be requirements for PHC drivers to undergo medical health screening to ensure that they are fit and healthy in the interest of public safety?

In my opinion, it is important to help make the jobs of PHC drivers affordable. They are providing a rather important service and they deserve a fairer tax regime. In the meantime, we must think of ways to help PHC drivers transit from the industry into another industry that they choose, if they wish to do so, and encourage them to keep on upskilling, but I suppose this would be a matter for another occasion. Mr Deputy Speaker, thank you.

3.48 pm

Mr Lawrence Wong: Mr Deputy Speaker, I thank the hon Members Mr Chen Show Mao, Mr Louis Ng, Er Dr Lee Bee Wah, Mr Saktiandi Supaat and Assoc Prof Walter Theseira for their comments and also their support for the Bill. Let me address the questions that have been raised.

First, on tax deductions for qualifying donations and extension of the Business and IPC Partnership Scheme (BIPS) which was raised by Mr Louis Ng, the 250% tax deduction for qualifying donations was extended for three years until December 2021 to continue to encourage the spirit of giving. The total tax deductible donations received by IPCs from corporate and individual donors have risen by 26% from about $687 million in 2008 to $866 million in 2016. So, this is a very encouraging trend and we hope more can continue to come forward to give. Many donors contribute out of passion and heart for the community and it is not just because of the tax incentives. Having said that, the 250% tax deduction that we offer today is already one of the most generous tax deduction schemes worldwide. Countries like Hong Kong, America and Australia provide only 100% tax deductions for corporate and individual donations. So, we do not think it is necessary at this stage to make this tax deduction permanent. We will continue to study ways to encourage giving, taking into account the needs and maturity of the charity sector, the impact of tax deductions on donations and the tax revenue forgone. We also need to consider how the different deductions and reliefs benefit taxpayers in different income tax brackets.

Unlike tax deduction for qualifying donations, BIPS is a relatively new scheme that was first piloted in the second half of 2016 to encourage businesses to support their staff to volunteer. We extended the scheme for three years in 2018 until December 2021 as the take-up was encouraging. We want to encourage corporate giving but we remain open to existing, new or different ways of doing so. So, let us monitor the progress of this scheme and study how best to further encourage corporate giving.

Mr Ng asked if the scheme could be extended to allow for the wages of sole proprietors, partners and shareholders, essentially the business owners, to be claimable. The rationale for the scheme is for our businesses to encourage their employees to contribute their skills and time to the IPC. Therefore, the focus is on the employees. In fact, the business owners of the company already benefit from the tax deduction given to their businesses when their employees volunteer in the IPCs under this scheme.

Mr Ng also asked if the scheme could be extended to charities which are non-IPCs. Currently, only IPCs can issue tax-deductible receipts for qualifying donations. This is so because IPCs are subject to stricter standards in regulatory compliance and governance, compared to the non-IPC charities. We apply the same standards for BIPS as wages and related expenses associated with volunteering are also eligible for tax deductions, and we will continue to review how to make this scheme accessible and relevant to encourage corporate volunteering.

So, that is on the tax deductions for qualifying donations as well as the extension of the BIPS.

Next, let me touch on tax deduction for motor car-related expenses for private hire car (PHC) drivers. As many Members mentioned just now, many of you have spoken up about the need for the tax deduction. We have taken in your feedback, reviewed this extensively and we are now making these changes. The tax changes update our tax regime in view that taxi and PHC drivers now provide similar point-to-point transport services.

Er Dr Lee Bee Wah asked about the difference between part-time and full-time PHC drivers and whether some of them would have difficulties apportioning their expenses correctly. Indeed, this is a reason why IRAS has taken time to listen to feedback from different stakeholders and, instead of coming up with a scheme that may be complicated and different to administer, we have decided on a tax deduction based on the deemed expense ratio set at 60% of gross driving income. This ratio is a proxy for all expenses incurred to earn driving income and it applies to both full-time and part-time drivers. So, those who drive more would claim more, while those who drive less will claim less. Nevertheless, drivers who still opt to claim tax deduction based on the actual amount of expenses incurred can do so if they wish to. And if they want to do that, they will need to keep proper records of the expenses and ensure the correct apportionment of these expenses between that incurred to earn the driving income and that for private use. But I would imagine, with this deemed expense ratio, many drivers would consider using it for their convenience and for ease of compliance.

I would also like to clarify, in response to the question raised by Er Dr Lee Bee Wah, that currently, self-employed delivery persons are already allowed to claim tax deduction on expenses incurred on using motorcycles or commercial vehicles, such as vans. So, that is already claimable.

Mr Saktiandi shared about examples of residents who are PHC drivers who face difficulties in paying their income tax for the Year of Assessment 2018 as well as their MediSave contributions. The tax changes will help them on a prospective basis. But for those individuals who may have difficulties with their existing obligations, I would advise that they contact IRAS and CPF Board, and the agencies will look into having a suitable instalment plan to assist them with their obligations, be it for tax or for MediSave contributions.

Mr Saktiandi also asked about the regulations in respect of PHC drivers. He asked about age limits, medical health certifications. All of these really come under the purview of MOT and LTA which set the regulatory framework for PHC drivers. For example, LTA already requires all individuals to pass a medical examination before they can apply for their PDVL or the Private Hire Car Driver's Vocational Licence, and I am sure these regulations will continue to be updated and reviewed by MOT and LTA.

Next, Assoc Prof Walter Theseira, Mr Chen Show Mao and Mr Saktiandi highlighted the need to consider this increase in people who are self-employed in light of the gig economy, and all of the Members rightly highlighted the concern that such self-employed persons may value more their take-home pay and put in less for their longer term needs, be it for medical needs or for their retirement. I think Assoc Prof Theseira said this is actually a broader issue for another day, and truly it is, because it is a bigger issue than the amendments that are being contemplated in this Bill. The Government is very mindful of this issue and that is why we have mandated to start with MediSave account contributions by self-employed persons to ensure that they are able to meet their basic healthcare needs. And as several Members have highlighted, MOM announced in this year's Committee of Supply that the Government would be implementing a "Contribute-As-You-Earn" model for self-employed persons' MediSave contributions whereby a MediSave contribution is required as and when a service fee is earned. Under this model, service buyers or intermediaries who contract with a self-employed person will deduct and transmit the MediSave contribution to the person's MediSave account whenever they pay a self-employed person. The Government, as a service buyer, will take the lead. So, we will implement the "Contribute-As-You-Earn" model, starting with a pilot by 2020. This will allow the Government to work through the implementation issues and help smoothen its subsequent implementation in the private sector. Of course, the issue is a far bigger one than just looking at the MediSave contributions alone, as many Members have highlighted. So, we will continue to look at different options, including incentives where necessary, to better ensure the retirement of Singaporeans who are self-employed.

Both Mr Louis Ng and Mr Saktiandi Supaat asked some questions about IRAS' powers to investigate tax crimes. So, let me just address some of the questions they have raised.

In general, investigations of tax offences are conducted by IRAS officers. In cases involving both tax evasion and other offences, such as money laundering or corruption, IRAS may engage the relevant agencies, be it the Commercial Affairs Department or the Corrupt Practices Investigation Bureau (CPIB), to conduct joint investigations.

As I had mentioned earlier in my speech just now, the enhanced investigative powers in the amendment Bill will be exercised only by authorised IRAS officers and they will undergo training on the use and escalation of force and various other techniques that are relevant to the exercise of these enhanced investigative powers. The training programmes are similar to that received by officers of other law enforcement agencies. Mr Ng asked if it is similar to that of the Police Force because I only mentioned Customs as an example just now. I would like to assure him that it is, indeed, similar to the training received by officers in the Police Force as well.

As mentioned earlier, the safeguards will be legislated to ensure that these enhanced investigative powers are properly exercised. These safeguards are consistent with those applying to other law enforcement agencies. For example, the power to arrest without a warrant may only be exercised for an investigation of serious tax offences like tax evasion or where a suspect attempts to destroy evidence with a view to hindering or obstructing IRAS' investigations.

In addition to these legislative safeguards, there will be clear guidelines and operational protocols on situations which allow for the exercise of these powers by authorised trained tax investigators. Together, these measure will ensure that the enhanced investigative powers are properly calibrated and only exercised when other means are found to be inappropriate.

Mr Saktiandi asked about interrogation rooms and holding centres for suspects. There are already interview rooms in IRAS currently, specifically catered for the questioning of suspects. In situations where the subject under investigation is required to be held for a longer period, he or she may be escorted to facilities in the Police Force.

Mr Deputy Speaker, let me conclude. MOF will continue to review our tax regime and our schemes regularly to ensure their relevance and effectiveness. The changes to the tax regime for PHC drivers and enhancements to IRAS' investigative powers are the results of such policy reviews. I thank the various Members who have spoken on these issues before. We have taken in your feedback, we have put in place these changes and I believe they are for the better. Mr 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.

Mr Deputy Speaker: Order. I propose to take a break now. I suspend the Sitting and will take the Chair again at 4.25 pm.

Sitting accordingly suspended

at 4.03 pm until 4.25 pm.

Sitting resumed at 4.25 pm.

[Deputy Speaker (Mr Charles Chong) in the Chair]