Income Tax (Amendment) Bill

Order for Second Reading read.

5.01 pm

The Senior Minister of State for Finance (Mr Chee Hong Tat) (for the Deputy Prime Minister and Minister for Finance): Mr Deputy Speaker, on behalf of the Deputy Prime Minister and Minister for Finance, I beg to move, "That the Bill be now read a Second time."

The Income Tax (Amendment) Bill brings into legal effect changes to our tax regime earlier announced at Budget this year as well as those arising from other policy reviews. We sought views from the public on the draft Bill in June. We thank the respondents for their inputs and have taken their feedback on board where feasible.

Let me start by recapping a tax measure from Budget 2023.

We introduced the Enterprise Innovation Scheme to encourage businesses to engage in research and development, innovation and capability development activities. The scheme will be available from year of assessment (YA) 2024 to YA 2028 and grants enhanced tax deductions and allowances for five key activities in the innovation value chain. These are: research and development (R&D) conducted in Singapore; registration of intellectual property, including patents, trademarks and designs; acquisition and licensing of intellectual property rights; innovation projects carried out with polytechnics, ITE or other qualified partners; and training by courses that are eligible for SkillsFuture Singapore funding and aligned with the Skills Framework.

Under the scheme, eligible businesses can also opt to convert 20% of their total qualifying expenditure on the above activities in each year of assessment into a cash payout of up to $20,000. This benefits businesses that have yet to turn profitable or do not have sufficient profits to maximise the benefits from the tax deductions or allowances. In all, businesses that make full use of the scheme could enjoy tax savings amounting to nearly 70% of their investment.

Clauses 10, 12, 13, 14, 19, 22, 26, 34 and 54 of the Bill provide for these amendments.

Mr Deputy Speaker, I will now move on to the non-Budget changes. Let me elaborate on three key proposed amendments.

First, we will amend our tax treatment for foreign sourced income to subject foreign sourced disposal gains to tax under specific circumstances. This is to address international tax avoidance risks relating to non-taxation of disposal gains in the absence of real economic activities. Foreign sourced disposal gains will be taxable when received in Singapore by entities of multinational enterprise groups that do not have economic substance in Singapore. Tighter rules will also apply to disposal gains arising from intellectual property rights due to the higher mobility of such assets.

The policy objective of this move is not to tax capital gains in Singapore. Rather, we are making this move as part of our long-standing policy to align key areas of our tax regime with international norms. The new tax treatment is consistent with international standards, such as the rules against harmful tax practices agreed by the inclusive framework on base erosion and profit shifting, or BEPS, of which Singapore is a member, as well as the EU guidance on foreign sourced income exemption regimes.

We do not expect the new treatment to have adverse impact on our economy as our focus has always been on attracting and anchoring real economic activities in Singapore. Some businesses, however, may face increased record keeping requirements. The Inland Revenue Authority of Singapore (IRAS) will work closely with the industry to minimise the compliance burden arising from this new treatment. The new tax treatment will apply to foreign sourced disposal gains earned and received in Singapore on or after 1 January 2024. Clauses 6, 7 and 44 of the Bill will provide for this amendment.

Second, we propose to mandate the submission of income information to IRAS by intermediaries for self-employed persons, or SEPs.

Since YA 2015, to simplify the tax filing process for SEPs, IRAS has been extending the pre-filling of income information scheme to SEPs and has been obtaining the income information of SEPs from intermediaries, such as commission agencies.

The amendment will provide better clarity and certainty for intermediaries on the scope of information that may be obtained and their obligations to collect, retain and transmit the information to IRAS.

Beyond easing tax compliance for SEPs and facilitating tax administration, the information will also enable public agencies to better administer schemes, such as Workfare Income Supplement (WIS) by identifying the SEPS who could benefit from these schemes more easily and quickly. This will enable the Government to roll out future schemes in a quicker and more efficient manner.

IRAS will be adopting a phased implementation approach based on the readiness of industries with SEPs, starting with commission agents from YA 2024.

IRAS will continue to engage the intermediaries in other industries, such as ride-hail service operators, to understand their needs and work closely with them in the onboarding process.

Clause 47 of the Bill provides for these amendments.

Finally, we propose to ease the compliance burden for individual taxpayers who are self-employed delivery workers.

Since YA 2019, IRAS has provided an option for some groups of SEPs to apply a prescribed deemed expense ratio, also known as Fixed Expense Deduction Ratio, or FEDR, to calculate their net income. This was a citizen-centric initiative: a service improvement initiative to simplify their tax filing process. For example, taxi and private hire car drivers can opt to use a 60% FEDR while commission agents with gross annual commission income of not more than $50,000 can opt for a 25% FEDR. The FEDRs are reviewed regularly based on data collected to ensure that they remain relevant and reflective of the actual expenses incurred by the different groups of SEPs.

To provide greater convenience to another group of SEPs, we propose to extend the FEDR option to self-employed delivery workers who are earning gross annual delivery income of up to $50,000. The ratios will differ depending on the delivery modes, as the workers would use different modes and would incur different levels of expenses, based on IRAS' consultation with the industry and survey with the workers.

Those who do not take up this option can continue to claim tax deductions based on the actual amount of tax-deductible expenses incurred in the production of their delivery income.

This change found in clause 23 of the Bill will take effect from YA 2024 for income earned in 2023. Mr Deputy Speaker, I beg to move.

Question proposed.

Mr Deputy Speaker: Mr Saktiandi Supaat.

5.10 pm

Mr Saktiandi Supaat (Bishan-Toa Payoh): Mr Deputy Speaker, Sir, when I spoke on amending the Income Tax Act last year, I mentioned how the Act is frequently amended almost every year to implement the Government's latest fiscal strategy announced in the Annual Budget Statement.

I am glad this year is no different, as we seek to make our tax system fairer, easier to use and an important lever to boost our economic competitiveness. Just like the last few years, this Bill implements the tax changes announced by Deputy Prime Minister and Minister for Finance during the Budget Statement in February 2023.

One significant change is to the Working Mother's Child Relief (WMCR), which allows working mothers to enjoy deductions to their taxable income for each additional child they have. For every child born or adopted from 1 January 2024 onwards, the mother will get a fixed deduction of $8,000 for the first child, $10,000 for the second child and $12,000 for any subsequent child and no longer a deduction of 15%, 20% or 25% of her annual income.

From my conversations with young couples, I understand that some are frustrated that this move penalises higher-income mothers as they would enjoy less tax benefits than before. Even though I clarify that they will continue to enjoy the percentage tax deductions for any child born before 1 January 2024, the fact remains that mothers earning more than $4,500 per month will get less benefit than before for any future child. Taking the latest tax data, how many mothers enjoying the WMCR earn less than $54,000 a year and how many earn more than that amount?

If the aim is "to encourage couples in all income groups to have children", as Deputy Prime Minister explained in his Budget round-up speech, did the Ministry consider retaining the percentage deductions while adding fixed dollar floors to the deductible income? This would allow lower-income mothers to gain more without being at the expense of higher-income mothers.

On a related note, I notice that the Bill also removes the deduction allowed to a woman in relation to the levy she or her husband pays for a domestic helper. What is the rationale for this? Is the underlying basis for such a deduction no longer relevant today? Mr Deputy Speaker, in Malay, please.

(In Malay): [Please refer to Vernacular Speech.] The Bill also introduces a new provision for IRAS to require prescribed persons to collect, retain and submit income information for Self-Employed Persons (SEPs). While the list of prescribed persons has not been announced yet, I expect that it will include platforms and ride-hailing companies who would be able to process such information for the delivery riders and private-hire drivers that they work with. Therefore, what other types of intermediaries does the Ministry expect to prescribe in subsidiary legislation?

I also understand that a phased implementation approach will be adopted. Can the Ministry share how it expects to do this? Will this come into effect for next year’s income tax filing for Year of Assessment 2023?

I am a strong advocate of the use of data and technology to push and deliver Government support schemes to Singaporeans. However, there may be good reasons why SEPs do not want their income data to be collected and retained by other persons, including the operators of the platforms which they might be providing their services on. Will it be compulsory for SEPs to participate once IRAS issues a notice to the third-party intermediary to collect, retain or provide income data, or will SEPs be able to opt in or opt out?

(In English): Mr Deputy Speaker, finally, I am supportive of the move to enhance the tax incentives for qualifying expenditure on R&D. This is especially important in these times of high interest rates, where companies are likely to shelf or postpone their R&D plans which may require borrowing to fund the significant investment upfront.

However, could the Ministry shed light on how it decided on the 400% that the tax deduction will be raised to? Has there been any studies on how the changes in the tax deduction for R&D over the years had impacted the amount of R&D that is conducted? Mr Deputy Speaker, Sir, notwithstanding the clarifications sought and the questions asked, I support the Bill.

Mr Deputy Speaker: Mr Louis Chua.

5.15 pm

Mr Chua Kheng Wee Louis (Sengkang): Mr Deputy Speaker, the number one issue which many of our Sengkang residents share during our house visits and one which many residents across Singapore are grappling with is undisputedly the relentless rise in the cost of living.

Indeed, the World Economic Forum Global Risks Report 2023 ranked the cost-of-living crisis as the top ranked global risk by severity over the next two years, given stubborn inflationary pressures, food supply and energy supply concerns.

Domestically, while one can argue that inflation rates have been trending down in recent months, where the latest data for August 2023 has CPI-All Items inflation easing to 4% year-on-year in August from 4.1% in July, it is important to note that this is still significantly higher than what we have been used to in Singapore, when inflation rates have averaged a mere 1% to 2% in the last four decades.

While I acknowledge the one-off $1.1 billion Cost-of-Living Support Package introduced on 28 September 2023, the recent slew of price spikes of key necessities which could persist well into the future have caused much consternation – with electricity prices up by an average of 3.7% compared to three months ago, gas prices up by 2.3% compared to three months ago, public transport fares set to go up by 7% next year, with another 15.6 percentage points of future fare increases yet to be inflicted on commuters, unleaded 95-octane petrol now close to $3 a litre and, of course, not forgetting COE prices which continue to set new record highs with Category A at $105,000 and Category B at $140,889.

Moreover, the second order effects on inflation from increases in basic utilities, transportation and fresh shocks to global energy and food commodity prices have yet to be fully seen on consumer prices, which could result in persistent price pressures in 2024.

Moving from the individual Singaporean's point of view to that of the Government's position, now that we are close to the halfway mark in terms of the financial year, it is also timely to reevaluate the Government's current fiscal position against what was initially projected as per Budget 2023.

As a quick recap, I shared in my Budget Debate speech that the Government's fiscal position turned out to be better than expected in the last two financial years. Based on the latest revenue and expenditure data released on SingStat, it appears that there could be a further close to $3 billion of primary surpluses in FY2022 than what was initially expected.

What about the current financial year? In Budget 2023, the Government expects operating revenues to increase by $6.4 billion to a record high of $96.7 billion. This is set to be led by corporate income tax, personal income tax and GST revenues, which are all set to reach new record highs.

But based on just the first five months of the year, operating revenues are already higher by $6.9 billion compared to a year ago. In other words, the increase in revenues that was expected for the whole of FY2023 was already surpassed at the five-month mark. Meanwhile, expenditures in the first quarter of FY2023, have been stable.

If we set the cost-of-living crisis, which is threatening the living standards of many Singaporeans, against what will likely be a better-than-expected fiscal position for the Government in yet another year of record high collections of corporate income tax, personal income tax and even GST, I find it difficult not to feel a strong sense of injustice and imbalance here.

This leads me to my next point about the hike in GST rate from 8% to 9%, which is all set to go ahead from 1 January 2024 despite the circumstances I have described.

At the conclusion of the Budget Debate, Deputy Prime Minister Lawrence Wong shared that, "We have to proceed with the second step of the increase in GST in 2024 as planned. Deferring this will only store up more problems for the future and will leave us with less resources to take care of our growing number of seniors."

Even if I am personally resigned to the fact that no matter what my objections to the GST rate increase are and that the Government is adamant that the alternatives that the Workers' Party has put forth will not be accepted, could we not, at the very least, defer the planned increase in GST in 2024?

In Budget 2022, Deputy Prime Minister Lawrence Wong shared that the GST hike will bring in about 0.7% of GDP in revenues annually or about $3.5 billion when the full hike is in place in 2024.

Even with a one percentage point increase in the GST thus far, the Government expects GST revenues in FY2023 to be $2.9 billion higher than FY2022 – close to what the full GST hike was supposed to bring in. If we compare FY2023 GST revenues against that in FY2021, then GST revenues would be $4.7 billion higher.

With Government revenues already better than initially projected at the five-month mark, is it that difficult to delay the second step of the GST increase and will this delay result in us storing up more problems for the future and leave us with less resources to take care of our growing number of seniors, as shared by Deputy Prime Minister Wong in the Budget 2023 round-up speech?

I leave Singaporeans to draw their own conclusions.

Finally, while I note that changes to the Working Mother's Child Relief (WMCR) is set to go ahead as per clause 53 of the Bill, I wish to again reiterate my desire for the Government to reconsider this move.

As I shared in my Budget Debate speech earlier this year, while there could be a group of lower-income working mothers who would benefit marginally from this change, the majority of would-be working mothers will be worse off with the change in methodology.

Based on my estimates of working mothers' income within married couples in resident households, roughly 20% of mothers will benefit from the WMCR changes while the remaining 80% of mothers will either be unaffected or worse off.

I wonder if WMCR truly seeks to reward families with children and encourage married women to remain in the workforce after having children or does it have the unintended opposite effect?

If the aim is to benefit lower- to middle-income working mothers, why not just give a motherhood tax rebate to working mothers earning below a certain income?

To further support lower-income working mothers, if the tax rebates granted exceed the tax payable, tax credits can be paid out in cash to ensure the reliefs are not lost. Moreover, unwed single mothers are ineligible for this relief.

The Government can say that, look, the change to the WMCR should not be seen in isolation and IRAS can claim that considering both the WMCR change and the one-off $2,000 increase in the CDA First Step Grant in the child's first year of birth, about 97% of mothers would be better off or at least no worse off in that one particular year.

But what about the next 15 years' of tax assessments for the working mother? Would she be better off or worse off with the WMCR change?

Perhaps a reversion of WMCR to what it previously was could be considered as part of the "A Singapore Made for Families 2025" plan, which is supposed to affirm our whole-of-society effort to create a family-friendly Singapore.

Allow me to conclude in Mandarin, Mr Deputy Speaker.

(In Mandarin): [Please refer to Vernacular Speech.] Although I am aware that the Government announced a one-off assistance package last month, with prices of many daily necessities soaring recently and the second-order effect on inflation from global energy and food prices not yet fully reflected in local prices, the cost-of-living pressures faced by Singaporeans may continue for some time, if not, increase.

Considering the welfare of Singaporeans, especially given that the Government's fiscal position is better than expected, collections of corporate income tax, personal income tax and GST are set to hit new record high, and revenue increase has achieved the full year's expected growth in just five months, I hope that the Government will defer its decision to raise GST to 9% in 2024. I also hope that the Government will reconsider changes to the WMCR to create a family-friendly Singapore.

Mr Deputy Speaker: Ms Mariam Jaafar.

5.23 pm

Ms Mariam Jaafar (Sembawang): The proposed amendments to the Income Tax Act put into effect some key measures to drive incentives to bolster our economy and to support Singaporeans, as announced in Budget 2023.

I will speak today on two changes that are relevant to parties at the opposite ends of the economic spectrum: firstly, for the very rich, the amendments related to the Philanthropy Tax Incentive Scheme (PTIS) for family offices; and, secondly, the amendments related to mandating the submission of income information by intermediaries for Self-Employed Persons, a segment of our population with a significant share of lower-income workers.

First, the amendments related to PTIS, which allows family offices with approved section 13O or section 13U incentive awards to claim 100% tax deductions for overseas donations made through qualifying local intermediaries. The aim is to build on our success in attracting family offices from around the world and to develop Singapore's reputation as a regional philanthropy hub.

These tax incentives complement other changes announced at Budget 2023, including allowing family offices to meet the minimum local spending requirement via charitable donations and grants to blended finance structures as well as the inclusion of climate-related investments and blended finance structures for the purposes of the Capital Deployment Requirement.

Taken together, it is a really exciting bet on the role of philanthropic capital linked to family offices in catalysing much needed investment.

The increasingly global nature of many of the challenges facing the world – from food and health security to education gaps and climate change – requires increasingly global responses and resources. By absorbing risks and lowering costs, philanthropic capital can play a key role alongside development and public finance to mobilise the needed private capital, for example, in the form of blended finance structures.

To me, the design of PTIS is well thought through. It clearly reflects the Government's intent to build Singapore's philanthropic ecosystem linked to family offices. The changes could result in a higher proportion of higher quality family offices. At the same time, the requirement for 100% of overseas donations to be channeled through qualifying local intermediaries should spur local charities to build their capacities and capabilities to meet the requirements for overseas philanthropy.

Finally, the broader updates to the spending requirements could promote activity and innovation in the still emerging climate finance and blended finance space.

Tax incentives for cross-border philanthropy are not so common globally, but Singapore is not unique in the region in encouraging family offices to deploy capital towards philanthropic causes. Hong Kong has also recently introduced tax concessions for family-owned investment holding vehicles (FIHVs) and provided that approved charities in Hong Kong may hold up to 25% beneficial interest in such FIHVs in order to encourage FIHVs to invest in charitable assets.

But mobilisation of capital is only part of the story. For greater impact, collective action is needed of players across the finance and investment ecosystems to get more creative, trying new approaches for accelerating investments in order to drive meaningful innovation and actions. It requires new partnerships, new skills, new ways of thinking, including systems thinking and systems innovation, to achieve the scale of change the world needs right now.

Against this context, I have a few clarifications for the Minister.

Firstly, the application and approval process. The amendments provide for the Minister or authorised body to approve a person or persons as approved donors and recipients. How long does it take for a family office, already approved under section 13O or section 13U or new to Singapore to be approved as a donor, or for a local charity or intermediary to be approved as a qualifying local intermediary? How will MAS ensure that the approval processes do not discourage new and smaller philanthropic entities but with perhaps key strengths and capabilities to apply?

Secondly, oversight. What level of oversight will there be on the actual use of the philanthropic contributions? How will MAS approach and manage the administrative and compliance requirements of philanthropic entities operating abroad and often be in partnership with local entities and local laws?

Thirdly, capacity and capability building. How will the Government work with the ecosystem to build the capabilities and skills of the players in the philanthropy ecosystem domestically but also internationally through partnerships with organisations perhaps further down the learning curve to drive greater impact? Is there room to consider for some portion of the contributions to be made directly to a very select list of international organisations and yet qualify for the tax incentives?

Fourthly, impact tracking. In July, I had asked a Parliamentary Question on the economic contribution of single-family offices. In their reply then, MAS said that they would conduct regular surveys or analyses to obtain a better understanding of these contributions. I hope that these new measures, including the development of blended finance structures, climate related investments and charitable contributions, will be analysed over the course of this five-year pilot.

Mr Speaker, those of us who work in finance know full well the caricatures of financiers – the wolves of Wall Street, the fat cat bankers, the dodgy crypto bros. But let us never forget that finance has been, can be and must be a force for good. Philanthropies can and must get creative to go beyond channeling aid to unlocking and catalysing investment into the biggest challenges of our time.

Family offices can contribute to this new philanthropy ecosystem and be a force for good and I support PTIS. I would now like to shift to the amendments related to submission of income of Self-Employed Persons (SEPs).

I have to admit that this news has led to some level of consternation on the ground, but it is the right thing to do, for those who earn an income beyond a reasonable threshold to accurately report their income, whatever their level of income. It is how we do right by one another, how everyone takes responsibility and how we keep being a team. We need to have faith in the system, that if we need help, we will get it.

Sir, the new requirements should be seen by SEPs as a way to make it easier for them to report their income tax, and not something that is out to catch them.

It is equally the Government's responsibility to accurately assess the income tax of each hardworking Singaporean worker and to be proactive and responsive when the data tells us that something has changed in the worker's situation and to extend support when needed. Because we know full well the vulnerabilities of being self-employed – how sickness and injury means zero income for the day or, worse, months, like for my resident who has met with an accident recently. And so, this proposed change, by increasing transparency for tax assessment, must also make it easier, more automatic, for schemes that are designed to support Singaporean SEPs to be administered and minimise onerous submission of information each time.

Sir, I have two clarifications; both have to do with the potential for greater responsiveness.

First, in the September Sitting, I had filed a Parliamentary Question asking if IRAS will consider revising the FEDR – in this specific instance, the 60% FEDR for taxi and private hire drivers in light of higher operating costs. I thank Deputy Prime Minister Lawrence Wong for his response that IRAS has reviewed the FEDR in 2023 and concluded that the FEDR remains sufficient for the vast majority of drivers. Yet, I continue to hear feedback on the ground from some drivers that they are taking home less and, in some cases, significantly less. Apart from inflation, there have also been recent corporate actions announced that could have an impact on drivers' earnings.

So, I would like to ask a clarification of the Minister: how often does IRAS review the FEDR to keep pace with changes in the costs of services? If it is trigger-based, what are the triggers? And could the submission of income information automatically allow for more timely and accurate assessment of the sufficiency of the FEDR by assessing patterns and trends across the population for each category of SEPs?

Two, how can the possession of timely income information for SEPs facilitate the design and administration of Government schemes to support SEPs, in particular to address the vulnerabilities of SEPs? For example, can SEPs be qualified automatically rather than having to apply for schemes like the Workfare Income Supplement (WIS) but also the Majulah Package, the Cost-of-Living Support Package or others?

Mr Speaker, Sir, a tax system does much more than to collect revenues for our Budgets. The tax system, when well-designed and well-understood, strengthens the relationship and the accountability between the Government and the people. This Government has strived over the years to build a comprehensive, fair and sustainable tax system. Notwithstanding the clarifications, I support the Bill.

Mr Deputy Speaker: Assoc Prof Jamus Lim.

5.32 pm

Assoc Prof Jamus Jerome Lim (Sengkang): The Bill before us is an omnibus one that includes a slate of proposed amendments associated with the 2023 Budget, along with almost as many that improve tax administration and align policy objectives. The Workers' Party has already expressed its reservations with respect to several components of this year’s Budget, especially the continued insistence on an increase in the GST, along with our concerns over the design of Working Mothers' Child Relief, which we continue to hew to. We have also expressed our support for other elements that we believe are net positives, including tax incentives for research and development and an increase in the CPF monthly ceiling, that will go toward improving the business environment while also supporting workers.

In light of this, I will focus my remarks, first, on thoughts related to non-Budget measures proposed in the Bill. I will then go on to address an issue within the spirit of the Bill – the use and timing of taxes for fulfilling economic objectives. I will, first, offer an assessment of our current economic situation before explaining why I believe that rebating taxes in full is not only a responsible policy choice, but the only right thing to do.

Mr Deputy Speaker, I have two comments on the proposed non-Budget amendments.

Clause 23 of the Bill proposes the introduction of fixed expense deductions (FEDRs) for self-employed delivery workers. This is not necessarily a negative development, especially since a segment of delivery workers may be among the lower-income segments of our society. But I wonder if these FEDRs will require these workers to claim the exemptions themselves, or if any such claims will be automatically filed by their companies when they report their employee earnings. I understand that this approach could well be unusual, but if certain delivery riders are less tech- as well as tax-savvy, they may be unfamiliar with the intricacies of claims for tax exemptions. I also say this because, at least based on clause 44 of the Bill, the entire point of the amendments related to SEPs is to simplify the tax filing process, and a complicated claims procedure would surely go against that purported aim.

Clause 46 of the Bill further amends the interest rate peg charged on the refund of income taxes from the Prime Lending Rate (PLR) to the Singapore Overnight Rate Average (SORA). This is a welcome move because, as the Ministry has itself acknowledged, the relevance of PLA has been diminished and it makes eminent sense to tie returns to a more credible and robust measure, such as SORA. Clearly, MOF recognises the importance of ensuring that only credible interest rates are used as our benchmarks.

But yet, this reminds me of other increasingly obsolete rates, those for short-term fixed deposits as well as saving accounts, for which CPF Ordinary Account (OA) interest rates are derived. In the local context, the problem with these rates is that they have, similarly, become increasingly removed from the rates that banks genuinely offer to their customers. Even setting aside short-term teaser rates, the yield on the one-year Singapore Government Bills – about as riskless a rate as one can command – currently stands between 3.7% and 3.8%, several multiples higher than the miserly 0.7% for the major local bank average rate, and still more than a full percent higher than the CPF floor of 2.5%. Even the SORA itself has transacted at between 3.6% and 4% over the past month.

My hon friend and Sengkang colleague, Mr Louis Chua, has repeatedly banged on this drum in the past, and I continue to bang that selfsame drum, urging the Government to reconsider the peg for CPF interest rates, especially that which applies to what is paid on accounts held by retirees who cannot enjoy any upward revision in their incomes to account for the higher inflation eating away at the purchasing power of their hard-earned savings.

Sir, the Income Tax (Amendment) Bill recognises that taxes generate powerful incentives that can shape the subsequent economic behaviour of agents in the economy – this is you and I. While I agree with the thrust of the measures proposed, I would also like to put it to this House that the long-term considerations that are the preoccupation of much of the Bill should also take into account shorter-term matters that concern the regular folk in our country.

Indeed, coffee shop chatter often likes to speak about how this Government gives out chicken wings, only to take back a whole chicken. While pithy, I do not particularly enjoy this characterisation because I understand that part of the essential functions of Government include redistribution and public good provision, for which raising taxes is ultimately part and parcel of meeting expenditure needs. So, in a sense, the Government is always in the business of giving away as well as taking back chickens.

But where the aphorism rings true is when there is a perceived imbalance between what taxpayers fork out and what they believe they are getting back in benefits and entitlements. To be clear, our system remains largely progressive. So, those in the lowest income undoubtedly get more than what they put into the system. But this is the case in virtually every high-income country in the world. It would be an exceedingly low bar to benchmark our expectations of Government as one that does not engage in regressive taxation on net.

Rather, we should ask ourselves if the Government is doing enough to support the least fortunate in our midst or if it can do more. If the squeezed middle class is receiving crucial support, especially when costs of living are rising at a rapid clip and if Singaporean households are feeling increasingly squeezed. If society can ask those who have been the luckiest in the economic sweepstakes to give back a little bit more to the system that they have benefitted so much from. Hence, it is not so much about chickens or chicken wings, it is about whether the people are getting the support today at a time when they need it or if they are being asked to sacrifice more at a time when finances at home are already increasingly tight.

So, is it a good time then to be asking for chickens or should the Government be giving out more chickens at this time?

Although we managed to avoid a recession thus far, Singapore's economy remains undeniably fragile. In the second quarter, we grew by a mere 0.1%, a harrowing brush with a technical recession, given the 0.4% contraction we experienced in the first quarter. Further headwinds are to be expected, given the downturn in the global electronics cycle, on which our manufacturing sector remains heavily dependent. The general weakness in growth is acknowledged by both the Government and private sector. The Ministry of Trade and Industry downgraded its full-year GDP forecast to a range of between 0.5% and 1.5%, from 0.5% to 2.5%. The median GDP forecast among respondents to the Survey of Professional Forecasters was just 1% in September, down from 1.4% in June. Concomitantly, the labour market also appears to be cooling, with labour demand falling for the fifth consecutive quarter, along with a dip in job vacancies.

Prices are still rising faster than is comfortable. Headline inflation still clocks in at 4%, twice as high as the MAS target. Looking below the hood, inflation in key survival sectors – food, accommodation and transport – are even higher, and the recent inflation picture has been a little flattered by collapsing energy prices. Moreover, the recent and impending price hikes on a range of things, such as S&CC, electricity and gas tariffs, postage and public transport, will likely apply upward pressure on inflation, going forward.

Taken together, Singapore's economic situation appears fragile. We may yet avoid a recession but are heavily dependent on international economic conditions which are weak in both China and Europe, two key engines for global growth. In spite of this softness in the real economy, inflation, while down from the peaks of last year, cannot yet be regarded as tamed.

Taken together, it is hard to fathom why we would want the fiscal impulse from the Government to be a further drag on the economy. Estimates are that fiscal revenues rose by 0.7% of GDP as a result of the GST hike alone. This is even before the anticipated increase by another percentage point for GST come January next year.

It is in this context that I had previously stressed the importance of rebating back, as much as possible, any surpluses the Government will earn arising from the simple fact that tax revenues – much of which is levied in percentage terms – would almost certainly rise in absolute terms due to inflation alone. At that time, Deputy Prime Minister Lawrence Wong stated unequivocally, in a response to our claim that a surplus would likely emerge, that, and I quote, "I wish that were so, but unfortunately, we do not have any surplus".

Yet, in his National Day Rally this year, Prime Minister Lee Hsien Loong announced the $7 billion Majulah Package, which he stated would be funded from "resources from this term of Government". Of course, part of this would have been due from unspent expenditures accrued from careful spending as well as additional receipts due to unexpectedly vigorous economic activity, especially in the real estate sector. But, undoubtedly, a non-trivial part of this is also the simple fact that tax receipts are elevated because inflation has become elevated, resulting in greater receipts in nominal terms.

The Government, in tandem with announcements over the hikes to utilities, also indicated that there will be a Cost-of-Living Package to help offset the increase. To be clear, this method of effecting lump-sum transfers, instead of rolling out subsidies, is an approach that would be recommended by most economists, and it is my preferred approach as well. Nevertheless, some murmurings on the ground have griped about how these packages are only one-off. And that is true, although this is based on a presumption that wages will eventually catch up, thereby making most wage-earning households whole.

So far, however, wages have barely kept up – gross salaries grew, in real terms, by only 0.4% last year, and in terms of basic wages, they shrank a full percentage point. And so, I would urge the Government to stand ready with continued support, should the erosion of take-home salaries persist.

After all, a pass-through of any tax windfall should not be viewed as Government largesse, but as arising from the simple arithmetic of how inflation simply bumps up the nominal price of everything, including tax revenues. Hence, rebating surpluses is not about generosity at all, but simply a moral imperative that the Government not profit from rising prices.

Mr Deputy Speaker: Ms Jean See.

5.45 pm

Ms See Jinli Jean (Nominated Member): Mr Deputy Speaker, I declare my interest as a representative of the Labour Movement.

The Income Tax (Amendment) Bill evokes a range of emotions in workers and firms. Workers and firms appreciate that the Bill provides certainty on the "what". Nonetheless, they seek clarity on the "how".

Allow me to make three main points. First, ensuring data is simple to interpret, yet accurate and complete.

A new section – 14ZH of the principal Act – covers workers performing delivery services. This includes delivery workers using online matching platforms. Section 14ZH offers certainty that self-employed delivery workers will now be allowed automatic tax deduction. This is to be based on a prescribed percentage of annual gross income from freelance delivery work and is subject to an income cap. At present, self-employed commission agents, taxi drivers and private hire car drivers benefit from similar "fixed expense deduction ratio" or FEDR arrangements.

[Mr Speaker in the Chair]

Mr Joseph Goh, a private-hire car driver of close to eight years, appreciates that the FEDR frees him from needing to derive the expense figure for his yearly tax filing. But he worries that a predetermined fixed expense deduction ratio could become outdated and over-simplified. Other private hire car drivers and taxi drivers share his worry.

Self-employed delivery workers now share this worry too. They ask: does the data behind the FEDR reflect the reality of climbing operating costs, such as higher fuel prices and pricier vehicle leases? Has the data considered operational complexities such as how different elements impact platform work? Or the multi-fold impact of GST on drivers and riders' incomes? For instance, Mr Goh has little choice but to absorb the GST that is imposed on his vehicle rental, commissions payable, servicing fees, fuel costs and so on.

These platform workers therefore seek assurance from the Government that the FEDRs are determined using accurate and complete data and are reviewed periodically.

This leads to my second point: adopting pro-worker perspectives to data collection.

Another new section – 68A of the principal Act – grants the Government power to require any person, whom I shall refer to as X, who belongs to a prescribed class of persons to comply with a notice that may require X to collect and retain identification and income and expenses information of any person, whom I shall name as Y, who entered into an agreement or arrangement of a specific description with X for carrying on any trade, business, vocation or profession for which Y derives chargeable income. Examples of X may include commission-paying agencies and taxi or platform operators.

Section 68A makes certain that the Government would have visibility of platform workers' income and expense information if the Government so decides. This visibility makes platform workers wonder how such information would be used and how its use would be safeguarded.

They also wonder if the Government's heightened awareness of platform workers' income challenges would translate to policy-makers becoming more proactive in engaging the NTUC and its representative affiliated associations on more support for platform workers. After all, "with great power comes great responsibility" goes the saying familiar to most Spiderman fans.

Platform workers thus seek to be assured that the FEDRs would be accurate, complete and indicative of the operating cost challenges of taxi drivers, private hire car drivers and delivery workers, for their respective vocations and as platform workers. Now, this concern has been by Labour Movement Members of Parliament at various Parliament Sittings since Year 2020 if I recall. In this regard, could the Minister share how the Government intends to ensure continual relevance of the fixed expense deduction ratios?

Third, devising pro-company approaches to encourage firm-based innovation.

The Bill also makes certain economic support for Singapore businesses desiring to innovate. At core is the the Enterprise Innovation Scheme m or EIS in short. By tapping on EIS to innovate, small firms can aspire to outcompete larger firms. Firms with more modest ambitions, too, can tap on the EIS to embark on process innovation, a journey that can also inspire in their workforce the courage to experiment.

Whether firms seek to innovate for incremental gain or transformative technology, smaller firms generally find it challenging to set aside capital for innovation. Innovation involves uncertainties and trade-offs. Scarred by the pandemic, small firms tend to prioritise profitability and accumulation of reserves over risk and vague promises of success.

Firm X is a typical example. Wanting to enhance its existing product to cater to a new market, a small firm, Firm X, decided to partner a local polytechnic on an innovation project. Firm X was quick to apply to Enterprise Singapore for project funding under the EIS. It was then that Firm X realised that it could be out of a substantial amount of cash for up to a year if it proceeded. Why was this so?

This was because Firm X had to pay the polytechnic upfront before it could commence the project. However, it could only submit the claims for reimbursement after the completion of the project. Firm X was also informed that it might only receive the reimbursements three to six months after claim submissions.

To protect its cash position, Firm X decided to reduce its cash outlay and in turn the project scope. While this slowed Firm X's progress, its founders felt that conserving cash would put Firm X on surer footing to navigate the economic uncertainty. Many small firm owners shared the same sentiment.

This Bill seeks to raise tax deductions to 400% of qualifying expenditure in five areas of innovation activities. It also allows businesses the option of converting 20% of their total qualifying expenditure per Year of Assessment into a cash payout of up to S$20,000. While these are praiseworthy initiatives, cash-tight firms like Firm X might still hesitate from setting aside adequate budget for innovation-related spending. But this hesitation might waver if subsidies were given upfront.

A pro-company approach could thus involve mirroring the existing arrangement for course fee subsidy. For courses approved by SkillsFuture Singapore, firms need only bear the unsubsidised portion of course fees; the training institution offsets the balance from a SSG block budget. Similarly, the EIS could set aside a block budget to provide upfront subsidy for innovation projects of EIS-supported firms. Approved institutions partnering these EIS-supported firms could offset the subsidy amounts from this block budget. Therefore, under this arrangement, EIS-supported firms would only have to pay a fraction of the project cost.

A pro-company approach could lower firms' barriers to innovation. These firms' workforce would benefit from exposure to innovation activities. Innovation-led growth could open doors for workers to build skills in new areas and to embark on new prospects. To lessen the cash burden on small firms, could the Government explore offering firms innovation-supportive arrangements that are less taxing on cash-flow?

In the same vein of enabling small businesses, could the Government consider allocating greater training support for freelancers and self-employed persons who want to upskill to supply to innovating firms? For instance, firms might want to enter the metaverse. Local creative freelancers with the right skillsets could create metaverse relevant digital assets for these firms. Would the Government consider working with umbrella organisations, such as NTUC' Visual, Audio, Creative Content Professionals Association, to provide financial support to freelancers when they train for new opportunities? Like small firms, such support woudl go a long way to ease the financial burden on freelancers when they trade off present gigs to invest in future skills.

Sir, I would like to conclude by reiterating three main points of my speech.

First, platform workers need assurance that data used to determine the fixed expense deduction ratios is simple to interpret yet accurate and complete.

Second, platform workers want to know how their information would be used and safeguarded if platforms are to release it to the Government, and whether the Government, being better informed, would engage representative organisations like the NTUC to introduce more support for platform workers.

Third, small firms can be encouraged to innovate if innovation projects were co-paid upfront. The Government could also support freelancers who want to train for future-oriented work. These freelancers could cater to the new needs of innovating firms.

Notwithstanding these three points which I hope the Minister could consider, I thank the Minister for this comprehensive and progressive Bill. Mr Speaker, I support the Bill.

Mr Speaker: Mr Shawn Huang.

5.56 pm

Mr Shawn Huang Wei Zhong (Jurong): Mr Speaker, the Enterprise Innovation Scheme (EIS) is a commendable initiative that encourages and incentivises businesses to invest in R&D, innovation and capability development.

The EIS, with its increased tax deductions and allowances, is poised to have a significant impact on business innovation. It encourages businesses to invest in R&D and intellectual property registration, which can lead to the development of new products, services, and technologies.

The EIS can give Singapore businesses a competitive advantage on the global stage by providing enhanced tax allowances. This is especially true in today's highly competitive and rapidly changing business environment.

Introducing tax breaks for qualifying innovation projects with selected partner institutions is a progressive step. It fosters knowledge exchange and potentially game-changing innovations by encouraging collaboration between businesses and educational or research institutions. It broadens participation while also enhancing its developmental and translational potential.

Offering a non-taxable cash payout option is a practical option for businesses. It provides flexibility and immediate financial relief, which can be beneficial to startups and small businesses with limited cash flow.

To make it easier for businesses to navigate the scheme and to take full advantage of the incentives, can the Minister provide more information and specific guidelines on eligibility criteria, application processes, and documentation requirements?

In terms of awareness and outreach, many businesses may be unaware of the scheme's benefits, a well-crafted and proactive outreach can increase participation. As such, how will the Ministry of Finance (MOF) conduct awareness campaigns and workshops to educate businesses about EIS?

Long-term commitment to such incentives can provide businesses with the stability and assurance needed for sustained innovation efforts. Long-term commitment is required for the scheme to be effective and given that the scheme will run out after the work year 2028, what are the indicators that MOF will track while deciding whether to extend it beyond 2028?

It is prudent to establish a balanced framework of monitoring and evaluation. Regular evaluation can aid in assessing the effectiveness of incentives and making necessary changes or improvements. Maintaining transparency in the allocation of incentives and an accountability system in the use of funds will protect the scheme's integrity and long-term viability. As such, what are the mechanisms established when tracking the performance and impact of EIS over time?

To summarise, the Enterprise Innovation Scheme has the potential to stimulate Singapore's innovation and economic growth. To maximise its impact, it is critical to provide clarity, raise awareness, and continuously evaluate its effectiveness while keeping long-term commitment and inclusivity in mind.

The second part is on the philanthropy tax. The Philanthropy Tax Incentive Scheme for Family Offices demonstrates Singapore's commitment to philanthropy on a local and global scale. It represents a bold step forward in harnessing wealth and generosity for the greater good.

First and foremost, this programme is intended to increase the impact of philanthropy. We hope to channel significant resources towards causes that truly matter. By incentivising family offices to establish their giving operations in Singapore, this initiative has the potential to attract both wealth and talent to our shores. When family offices choose Singapore as their philanthropic hub, it enriches both our financial and philanthropic sectors, fostering an environment in which both innovation and giving thrive.

This scheme's global outlook is one of its distinguishing features. We demonstrate our commitment to supporting philanthropic efforts beyond our borders by allowing family offices to claim tax deductions for overseas donations made through qualifying local intermediaries. This reinforces our vision of Singapore as a global philanthropic hub.

However, there are considerations and suggestions to consider.

As with any significant policy change, transparency and accountability are of the utmost importance. To ensure that family offices understand the criteria for participation, the eligibility conditions must be transparent and clearly defined. We must also put in place robust monitoring mechanisms to ensure that the scheme achieves its goals and impact.

This scheme will rely heavily on public reporting and impact assessments. Encouraging family offices to report their philanthropic activities can help to build trust and confidence in the scheme's effectiveness.

Collaboration through family offices, local intermediaries and charitable organisations should be encouraged. We can maximise the positive impact of philanthropic donations and make a significant difference in our communities by working together.

Finally, this scheme is about more than just global giving. We should encourage our family offices to support charitable organisations in Singapore and promote local philanthropy. Our local community deserves our help and generosity as well.

The Philanthropy Tax Incentive Scheme for family offices is an exciting and innovative initiative. It has the potential to affect positive change on a global scale while enhancing our own philanthropic ecosystem. Let us embark on this journey to become a regional, if not global, philanthropy hub with a sense of purpose and transparency, dedicated to making the world a better place for all. Mr Speaker, I support the Bill.

Mr Speaker: Ms Usha Chandradas.

6.03 pm

Ms Usha Chandradas (Nominated Member): Mr Speaker, Sir, I rise in support of this Bill but I would like to seek some clarifications from Senior Minister of State Chee on two particular provisions.

The present amendments introduce the new section 10L of the Income Tax Act, which brings to tax gains from the sale of foreign assets by entities that are part of a multinational group. These changes seek to align our tax rules with that set out in the European Union Code of Conduct Group guidance.

While there are exceptions carved out in the new section 10L, the amendment has the broad effect of deeming as "income" in nature, gains which prior to this amendment may have been characterised as capital gains. It is quite a dramatic change in Singapore's income tax landscape and I would like to seek the following clarifications from the Senior Minister of State.

First, what are the reasons for enacting section 10L at this time? It has been announced that more comprehensive international tax -related amendments concerning Pillar Two of the Base Erosion and Profit Shifting initiative will only be implemented from 2025. Would the Minister be able to contexualise Singapore's wider roadmap towards compliance with these new international tax norms?

My second clarification has to do with the interpretation of the new section 10L. I note that in the response to the public consultation on the Bill, the Ministry of Finance has indicated that the Inland Revenue Authority of Singapore (IRAS) will provide further guidance on the concept of "economic substance" through an e-tax guide to be issued.

This is expected to provide more detailed examples for certain specific sectors. However, there are some aspects of section 10L which can be clarified further and in particular, those relating to the definition of an "excluded entity" at section 10L(16). Reference is made here to a pure equity-holding entity having "adequate human resources and premises in Singapore". However, it is not clear whether this assessment will be an objective test adopted by the authorities or a subjective one, which will be based on what the taxpayer fairly represents in the context of its operations.

There are also doubts as to how the term "direct and effective control" will be interpreted. This was a requirement added only after the public consultation process. Some aspects of it can be explained further. For example, it is not clear how it will be applied in the context of a fund entity which has outsourced discretionary management to a fund manager in Singapore.

Professional commentators have further noted that it would be useful to set up a system of expedited advance rulings on the determination of "economic substance" in order to assist taxpayers and it is not immediately apparent from the legislation if such a system will be made available.

Additionally, it is also unclear as to how section 10L will interact with the present administrative concessions on the operation of section 10(25) and the deemed remittance of foreign-sourced income.

One particular example is the present concessionary treatment for foreign businesses which are not operating in or from Singapore. They are actually able to remit their foreign income to Singapore without being taxed on such income. I am given to understand that this concession is in place to begin with to encourage the use of Singapore's banking systems and facilities.

To summarise, there are some aspects of section 10L which remain unclear. I would therefore like to ask if the Senior Minister of State can clarify the extent to which more detailed guidance and examples will be provided in order to assist taxpayers in their interpretation of this new law. I understand that tax practitioners have written to the authorities to seek clarifications on these technical points and more, and I hope that more detailed guidance will follow.

While I fully agree that we should indicate our strong commitment to evolving international tax norms, we should balance this commitment with the need to provide clarity to businesses that wish to engage in or with Singapore.

The next provision I would like to address in the Income Tax Amendment Bill is the new section 37AA, which introduces the Philanthropy Tax Incentive Scheme for family offices, or PTIS for short. The PTIS is being introduced in order to strengthen Singapore's position as a regional philanthropy hub. It is also put in place to encourage family offices to anchor their giving operations in Singapore.

On this provision, I have two clarifications for the Senior Minister of State. Firstly, the enhanced deduction under the new section 37AA is subject to subsection (9) – to any "condition precedent or condition subsequent" that the Minister or an authorised body may impose on the fund manager managing the funds of the incentivised vehicles concerned. Would the Senior Minister of State be able to clarify what is intended by this provision and what kinds of conditions are envisioned?

Subsection (10) provides for a clawback of the tax deduction granted if fund managers of incentivised funds fail to adhere to conditions which are imposed later in time. These fund managers may not be entities that the approved donors actually have any control over and so I would like to clarify if any steps are being taken to ensure that such donors are not unfairly prejudiced in the event that the authorities decide to unilaterally impose "conditions subsequent" on their fund managers.

Secondly, I would like to ask the Senior Minister of State if steps are being taken to ensure that local charities and Institutions of Public Character (IPCs) are not excluded from the benefits of the PTIS. I acknowledge that the proposed amendments today extend the application of the 250% tax deduction on donations to local IPCs all the way to 2026, which is a very welcome move.

According to the Monetary Authority of Singapore (MAS) website, the PTIS will also require that qualifying Single Family Offices should increase their headcounts and this includes the hiring of philanthropy professionals. It has also been announced that donations should be made through certain local qualifying intermediaries.

Looking at these measures in totality, it appears that there is a push towards helping local charities to develop their expertise in supporting overseas charitable giving and towards growing philanthropic capabilities in Singapore.

That being said, it is also clear that the PTIS is primarily intended to allow family offices to obtain tax advantages in respect of their overseas giving. What then could result is a "race" for donations, whether perceived or real, with local charities feeling as though they have a new source of competition for funding.

Charities in Singapore do not always have an easy time with fundraising. I would like to highlight the specific example of arts-based charities.

From the National Arts Council's Arts Philanthropy Corporate Giving Research findings, which surveyed 470 respondents last year, companies agreed that corporate giving to the arts is important to build a vibrant community and a connected society. Regardless of this awareness, businesses were still not motivated to give to the arts sector, possibly because such benefits were not deemed to be as direct from a business perspective. The research report concludes that more can be done to better articulate how a vibrant community underpinned by the arts can be good for businesses.

The statistics in Singapore seem to bear this out. In the 2021 report by the Commissioner of Charities, arts and heritage charities received only 5.8% of all annual receipts in the charities sector. In contrast, charities in the education and social welfare sector accounted for almost two-thirds of the total receipts received in FY2020.

DECK is an arts centre for photography and registered IPC in Singapore. It is presently fundraising to build a permanent art centre for photography and amongst the visual art community is well known as being a big supporter of both emerging and established artistic talent.

Gwen Lee, who is the co-founder and director of DECK once told me that fundraising for her charity is like carrying the weight of the Himalayas on her shoulders all the time. There is little respite and there is constant worry about how staff will be paid and how they will meet their compliance obligations. DECK is just one example, of course, from the arts. This is a similar concern faced by many local charities which often operate with lean teams and on stretched budgets.

Particularly in the arts, the PTIS can potentially provide a new source of funding for local charities and, in my view, this can create some much needed diversity in terms of funding sources. This diversity is important because an over-reliance on Government funding and subsidies in the arts is neither sustainable in the long term, nor is it desirable in terms of the substance and quality of artistic production.

Secondly, foreign family offices setting up shop in Singapore bring with them not only sources of funding but also different ways of looking at the world. Particularly, in the context of arts charities, this could be useful in providing new perspectives on art making within our local creative community.

While we certainly cannot force philanthropic organisations to donate their money locally if they do not wish to do so, it is my hope that the Government will help to ensure that local charities and IPCs are well poised to avail themselves of the new sources of philanthropic funding in Singapore which will benefit from this new scheme. I hope that when administering the PTIS, local charitable entities are brought to the attention of approved donors as well.

The rising tide of foreign philanthropy in Singapore should result in all charitable boats being lifted to greater heights. Notwithstanding these clarifications, I stand in support of the Bill.

Mr Speaker: Mr Don Wee.

6.13 pm

Mr Don Wee (Chua Chu Kang): Mr Speaker, Sir, I would first like to address the topic of tax gains from the sale or disposal of foreign assets that are received in Singapore by businesses without economic substance in Singapore.

The new section 10L treats gains received in Singapore by an entity from the sale of immovable or movable properties situated outside Singapore – referred to in the section as foreign assets – as income chargeable with tax.

This proposal is significant as it marks a key and fundamental shift in Singapore's longstanding policy of not taxing gains of a capital nature. This change is largely driven by a multilateral tax policy-making environment. Otherwise, Singapore may be monitored by the European Union, with potential repercussions for Singapore's reputation.

This proposed change by MOF may lead companies to reconsider the best place to receive such gains. How many multinational enterprises (MNEs) will be affected by this amendment in Singapore? Will this affect our global appeal due to the uncertainty over the impact on investment vehicles?

The proposed amendment affects only companies that have entities without economic substance in Singapore but hold foreign assets. Companies will not be taxed if they can show "reasonable" economic substance in Singapore. However, reasonableness is subjective. Will MNEs incur taxes if the foreign assets are sold as part of an internal restructuring? Is the gain derived from subtracting the net book value from the open market value? If the sale of the foreign asset is to a related Singapore company, would the Ministry consider making an exception to accept the use of net book value as sale value for internal restructuring purposes?

Another potential area of ambiguity concerns investment entities, such as special purpose vehicles (SPVs) set up by investment funds and family offices. Does a SPV which have not applied for the fund tax incentive scheme need to prove that it is a pure equity-holding entity in order to qualify for exclusion?

Are investment companies, investment funds and single-family offices (SFOs) investment vehicles that carry on their businesses in Singapore through Singapore-based fund managers and Singapore-based SFOs with Singapore-based operations excluded from this proposed change?

I would also like to seek confirmation that foreign tax credit will be granted if foreign taxes have been levied on these gains.

I would now like to comment on MOF's proposal to require intermediaries, such as real estate and insurance companies, to submit the income data of self-employed persons (SEPs) directly to IRAS.

I support this as it will facilitate the income tax assessment of these SEPs, as well as the administration of schemes that cover SEPs, such as the Workfare Income Supplement and various support grants. When will this be extended to other intermediaries, such as parcel deliverers and taxi operators?

This is a good proposal as it removes the hassle of SEPs having to input their tax submission and ensures accuracy. SEPs will have a lighter administrative workload and fewer concerns about wrong declarations.

Next, will the Philanthropy Tax Incentive Scheme be applicable for philanthropic funds that finances sustainable projects located overseas like the retirement of coal fired power plants? Can philanthropic funds which invest in and help Singaporean SMEs to decarbonise qualify for this scheme too?

How about philanthropic funds which invest in the mitigation of climate change globally, in other words, the beneficiaries are located overseas?

Singapore has to strengthen the ecosystem of compassion, capital and expertise to tackle the crisis of global warming and loss of biodiversity. The abovementioned proposed changes can encourage funds to pay more attention to the social causes that require investment, impact and compassion. Mr Speaker, Sir, in Mandarin.

(In Mandarin): [Please refer to Vernacular Speech.] At a time when business costs are high, disbursing resources to pursue innovation is unlikely to be top of mind for most business owners. Yet, the current macroeconomic climate presents the best timing to invest in innovation so as to offset some costs.

But any Government scheme is only as good as its utilisation. I hope Government can work with the SME centres, business associations, business consultants and the Centres of Innovation to promote EIS to the SMEs. Can EIS be used to fund the education and upskilling of staff which are foundational to developing an innovative mindset and maximising the value technology can bring to their businesses?

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

Mr Speaker: It is now my pleasure to call on Mr Neil Parekh Nimil Rajnikant for his maiden speech in this Parliament.

6.18 pm

Mr Neil Parekh Nimil Rajnikant (Nominated Member): Mr Speaker, Sir, thank you for allowing me to join this debate on the amendments to the Income Tax Act to bring into effect several announcements made in the Deputy Prime Minister's Budget speech earlier this year.

I would like to discuss a few specific amendments that are related to business. Let me discuss first the Enterprise Innovation Scheme or the EIS.

To nurture and encourage innovation, Budget 2023 introduced the EIS that enhances the tax deductions for five very important activities in the innovation value chain.

These five activities are: R&D conducted in Singapore; registration of intellectual property (IP), including patents, trademarks and designs; acquisition and licensing of IP rights; training via courses approved by SkillsFuture Singapore; and lastly, innovation carried out with polytechnics and the Institute of Technical Education (ITE).

In my view, the EIS is poised to be a game changer for our economy as these deductions are very good for businesses, especially small and medium enterprises (SMEs) and important for workers who aspire to excel, improve themselves and keep themselves abreast with the need for improved skills in an ever-changing global environment.

The introduction of the EIS is a holistic approach to anchor high value-creation activities in Singapore by providing companies with added incentives to undertake R&D activities in Singapore, acquire IP rights and upskill and transform the workforce.

I would like to touch on the deductions available for expenses related to electronic commerce. These deductions are designed to foster the growth of businesses that operate in the digital sphere, which is increasingly becoming the mainstay of trade and commerce. Businesses can now deduct startup expenses related to business advisory, account creation, content creation, product listing and placement.

The next area I would like to discuss is maintaining overseas offices and the deductions that are available for that. As our economy becomes increasingly interconnected globally, maintaining overseas trade offices is crucial for businesses to expand their international reach.

As we adapt to the digital age and the ever-expanding global marketplace, we recognise the need to support businesses that operate internationally and engage in electronic commerce.

The deduction for expenses related to overseas trade offices will encourage businesses to establish and sustain these offices, fostering trade relationships and enhancing our country's global presence.

In a rapidly evolving global landscape, innovation is key to success for businesses and nations. Economic progress enhances competitiveness and improves our standard of living.

Introducing this new tax deduction for qualifying expenditure incurred in pursuing innovation projects is a visionary good policy that aligns with our nation's commitment to innovation and economic growth.

Lastly, there are provisions for SMEs or companies that do not generate sufficient profits to benefit from tax deductions to opt for cash conversion instead. More SMEs should tap on the EIS for innovation, IP and training expenses in order to access digital and green economy opportunities.

Let me now turn to several other tax changes which are before this House. These changes have the potential to significantly impact some corporates, fund management companies and family offices operating in Singapore. I am referring to the introduction of section 10L, the taxation of gains from the sale of foreign assets received in Singapore by businesses without economic substance in our country.

Well, the world is changing and we in Singapore have to change with it. The spirit of this change is to align our tax practices with the EU Code of Conduct Group (COCG) guidance, which aims to mitigate international tax avoidance risks. Other jurisdictions, such as Hong Kong are implementing similar rules to avoid being on the COCG's blacklist.

Previously, the cornerstone of Singapore's tax system was that it does not tax capital gains. This change, however, introduces capital gains tax into the Singapore system and perhaps represents a fundamental change to our tax system.

A potential sort of impact of this change is that some corporates, fund management companies and family offices, may consider relocating their holding companies to other global jurisdictions, such as Dubai or the United Kingdom, resulting in a loss of opportunities and jobs within Singapore.

However, one very positive outcome of this tax Bill could be that these entities may instead choose to increase their economic substance in Singapore by expanding their operations and business so that they are exempt from this new tax. Needless to say, such increased business activity can only help our economy.

In the larger scheme of things, the Government needs to continue to reiterate its pro-investment and pro-business stance by clearly communicating the rationale for the shift and its continued commitment to providing a stable and trusted regime for both individuals and companies with investment and holding structures.

The second area is on submitting income information for self-employed persons (SEPs). This initiative aims to streamline income tax assessment for SEPs and facilitate the administration of schemes, such as the Workfare Income Supplement.

In this regard, I have the following suggestions to make which perhaps the Government can explore in the implementation of this initiative.

Would the income tax department consider exploring the possibility of combining this roll-out with upcoming changes with regards SEPs serving as platform workers and who may require a structured and standardised way to achieve financial inclusion? Can the platforms enabling employment for SEPs, be classified as intermediaries and be provided with financial support to establish this new infrastructure for regulatory reporting?

A word about creating awareness. We have often heard from our SMEs in a variety of sectors, that it is quite a challenge for them to keep pace and track the changes made to the tax system after each Budget.

I would encourage MOF to have regular roadshows post-Budget as well as distribute focused, short information brochures through various digital channels throughout the financial year.

Such consistent, focused messages are very useful for our smaller businesses to easily comprehend and then take necessary action to make sure that they do not lose out on the benefits that they could accrue and gain from the changes. Sir, I stand in support of the Bill.

Mr Speaker: Mr Sharael Taha.

6.26 pm

Mr Sharael Taha (Pasir Ris-Punggol): Mr Speaker, I welcome the amendments to the Bill. Key amendments, such as tax gains from the sale of foreign assets that are received in Singapore by businesses without economic substance in Singapore and mandating the submission of income information by intermediaries by self-employed persons better improve tax administration and policy objectives.

The philanthropy tax incentive scheme for family offices strengthens Singapore's position as a regional philanthropy hub and encourages family offices to anchor their operations in Singapore.

And the Enterprise Innovation Scheme (EIS) enhances the already available tax incentives and aims to encourage more businesses to engage in R&D, innovation and capability development.

Mr Speaker, Sir, in Deputy Prime Minister Lawrence Wong's Budget speech in February this year, he shared that amidst a very challenging external backdrop, our economy grew 3.6% in 2022 and our unemployment rate at 2.8% in December last year is below pre-pandemic levels.

It was described that 2022 was a year of "brutal inflation" worldwide where global inflation was around 9% and inflation reached historic levels in many advanced economies, such as the United States and Germany.

To battle this inflation, MAS had tightened our monetary policy five times since October 2021. While this has eased the pressure on headline inflation, inflation rates are still higher than what Singaporeans are used to.

Hence, up to February this year, we have rolled out three packages to address cost of living concerns totaling more than $3.5 billion. And just last week, Deputy Prime Minister Lawrence Wong announced another $1.1 billion Cost-of-Living Support Package to help Singaporeans cope with higher inflation and cost-of-living challenges.

Amidst higher prices, including higher conservancy prices, higher water prices and higher transport prices, the additional $1.1 billion Cost-of-Living Support Package for households aims to offset these price increases with the additional Service and Conservancy Charges rebate, U-Save rebate and Public Transport Vouchers. In addition to that, all Singaporean households receive $200 of CDC vouchers and 2.5 million eligible adult Singaporeans will receive up to $200 cash payment.

We see both the headline and core inflation rates slowing down for the past few months with core inflation down to 3.8% year-on-year in July compared to 4.2% in June.

While Cost-of-Living packages are rolled out to assist Singaporeans with inflation, businesses are facing immense challenges too.

In addition to inflation and rising cost, businesses in Singapore continue to have to contend with rising cost of production, tight labour market, challenges of attracting talent, managing workers expectations in the new norm, increasing global competition, MNEs re-shoring/near-shoring and governments around the world offering more grants, schemes and support to continue to attract investments into their country and giving us a run for our money.

While we all want to pay our workforce better, this is only sustainable if it is done with a corresponding increase in productivity and through engaging in high value-added work and work in industries that are higher-valued to the world.

Improving productivity, building capability, anchoring quality investments, nurturing and sustaining innovation is our lifeline to remain relevant in the global market.

Thankfully, we are not short of tools to encourage companies to deliver what we need. We have the National Productivity Grant, with the additional $4 billion top up mentioned by Deputy Prime Minister Lawrence Wong. We are investing $24 billion from 2021 to 2025 to catalyse research innovation. We have specific industry transformation maps (ITMs) for 23 industries and many other schemes and policies that are aimed to drive productivity and nurture innovation.

This Bill proposes to enhance and have new tax deductions on qualifying expenditure through the new EIS to further nurture and sustain innovation.

Today, businesses already enjoy tax deductions of up to 250% of qualifying expenditure on qualifying R&D activities, registration of intellectual property, acquisition and licensing of intellectual property (IP) rights and training expenditure.

The EIS will enhance the tax deductions of up to 400% of qualifying expenditure on five core activities: qualifying R&D activities, registration of IPs, acquisition and licensing of IP rights, innovation projects carried out by polytechnics, ITEs and qualified partners, and training via courses approved by SkillsFuture.

While I am fully supportive of its intent, my clarification will focus more on the effectiveness of this tool and if we need to tweak it to meet the policy intent of encouraging businesses to engage in R&D, innovation and capability development activities.

To do so, my clarifications are broadly summarised in the following: firstly, how effective has the tax incentive been in developing new capability and R&D? Secondly, how do we ensure investment into skills give rise to real productivity or capability development in Singapore? Thirdly, can we expand the list of qualified partners for support on innovation projects?

Firstly, given that tax deduction on qualifying R&D expenditure, registration of IPs, acquisition and licensing of IP rights and training expenditure has been ongoing and what is currently proposed is an enhancement to it, what is the total amount of tax deduction that has been claimed for these criteria for the past five years?

Based on this, granted that it is a lot harder to quantify the benefits, does the Ministry have an estimate of how this has encouraged and enabled more innovation or generated more IPs in Singapore? It will be useful to have an idea if this is an effective lever to drive innovation in Singapore.

Secondly, on training expenditure. The tax deduction is applicable to "qualifying training expenditure incurred on courses that are eligible for SkillsFuture funding and aligned with the Skills Framework". Clicking on the link of eligible courses found on go.gov.sg/eis-training leads us to 12,523 course records, listing anything from artificial intelligence (AI) and machine learning to wine appreciation and 3D jelly art.

I believe the qualifying training expenditure on the courses eligible for EIS tax deduction is too broad, given that the policy objective is for EIS to encourage businesses to engage in R&D, innovation and develop deeper capability.

To be fair, there are good and relevant courses in the SkillsFuture list, such as "Intellectual Property and Business Model Planning" and "Intellectual Property, Innovations in IoT". Can the Ministry consider narrowing down the number of courses so that businesses can sharpen their thinking when it comes to driving R&D, innovation and developing capability in their organisation?

Another consideration when assessing qualifying training expenditure in relation to delivering intended policy objectives is the assumption that skills learnt in training are applied and delivers a real value to the business. Can I also suggest that to qualify for tax deduction from the training expenditure, a business has to show that the trainee has delivered value to the organisation? For example, in the Lean Six Sigma black belt certification where although the course fee is $9,000, the trainee must show that he is able to apply his skills and deliver cost savings to his organisation before he receives the certification. Similarly, should we get the applying companies to briefly describe how their staff are applying the skillset to drive innovation and productivity in their organisation?

While I understand and appreciate that asking for proof of applying the learnt skillset may be challenging to administer, the smaller number of applications from a precise list of courses and the use of possibly AI and machine learning to assess the submissions could help in the administrative process. This will then ensure that businesses intending to claim this tax deduction will think through more thoroughly about how trainees can immediately put their newly acquired skillsets to further develop R&D and capability in the organisation.

I have mentioned about narrowing the number of eligible courses to focus more on productivity and innovation. I have also touched on encouraging businesses to then apply the newly acquired skillset. The next important element is then – who is eligible for the tax deduction for training expenditure in the company?

While I appreciate that it covers individuals deployed under central hiring arrangement or even secondment arrangement, can the Ministry consider having a minimum amount of years that the employee has to serve in the company before his training expenditure can be considered for tax deduction?

This is especially important because since we now have the option to convert qualifying training expenditure into cash. This will make it harder for those who intend to abuse the system and send temporary "workers" for training indiscriminately and collect the training expenditure in cash.

On my last clarification, Mr Speaker, Sir, the Bill proposes that innovation projects carried out with polytechnics, ITEs and qualified partners may be eligible for tax deductions.

Currently, the list of partners includes all the polytechnics, ITEs and partner institutions such as Aquaculture Innovation Centre, Centre Innovation for Complementary Health Products (Temasek Polytechnic) and Precision Engineering Centre of Innovation (SIMTech).

Is there a reason why local universities and their associated centres are not included as partner institutions? Will the Ministry review the list of partner institutions periodically? Mr Speaker, in Malay, please.

(In Malay): [Please refer to Vernacular Speech.] Businesses are currently facing immense challenges from rising costs, a more competitive labour market, difficulties in attracting talent and increasing global competition.

While businesses wish to pay their workforce better, this is only sustainable if it is done with a corresponding increase in productivity, and through engaging in higher value-added work and work in industries which provide more value to the world.

Improving productivity, building capability, anchoring quality investments, nurturing and sustaining innovation is our lifeline to stay relevant in the global market.

This Bill proposes to enhance and contains new tax deductions on qualifying expenditure through the new EIS to further nurture and sustain innovation in Singapore.

While I am fully supportive of its intent, my clarification will focus more on the effectiveness of this Bill to meet the policy intent of encouraging businesses to engage in R&D, innovation and capability development activities.

The clarifications that I seek can be summarised as follows; firstly, how effective have tax incentives been in developing new capabilities and R&D secondly, how do we ensure that investments in skills will give rise to productivity or effective capability development; and thirdly, can we expand the list of partners that qualify for support?

(In English): Mr Speaker, Sir, in conclusion, I believe the Income Tax Amendment Bill has changes that help align it better with policy objectives while improving tax administration. The introduction of the EIS to encourage more businesses to engage in R&D, innovation and capability development is very much welcomed. Notwithstanding the clarifications I have mentioned earlier, I support the Bill.

6.39 pm

Mr Speaker: Leader of the House.

Debate resumed.

Mr Speaker: Mr Keith Chua. I also note that this is your maiden speech in Parliament.

6.40 pm

Mr Keith Chua (Nominated Member): Mr Speaker, Sir, thank you for the opportunity to participate in this debate.

I would like to firstly declare my interest in non-profit organisations and social service organisations that benefit from the tax deduction benefits that we have in place. The proposed amendments to this Bill are wide ranging.

Last week, I had the opportunity to participate in a study trip to Denmark. Denmark ranks as one of the happiest countries. The Danish welfare state is characterised by an extensive social security system and high-income equality. This has been possible with the Danish society willing to contribute high taxes in return for the system they now collectively enjoy. Their journey took time and is steeped in history. It was not always easy and not without challenges.

The word "trust" was frequently used throughout our various interactions, whether this was learning about sustainability at Lego, whether it was about urban innovation and design at Bloxhub, rethinking issues requiring systemic change at the Danish Design Centre or teaching the entrepreneurial mindset, beginning all the way in primary school through to secondary school, at the Danish Foundation for Entrepreneurship.

Mr Speaker, Sir, I believe all participants from our Singapore team brought away many helpful observations that we can consider, from personal to corporate to societal improvement.

Allow me to share three helpful lessons and observations from the many that I noted.

The first is that of a society that is not just surviving but thriving. As I reflect on the many achievements in Singapore, we are thriving in several areas and surviving in others. In catching up on the news of recent initiatives after coming back, I am encouraged by the new $1.1 billion Cost-of-Living package to help tide lower- to middle-income families cope with rising costs.

Ultimately, we need to try to work toward a model where as many as possible not just survive with support packages but thrive in an environment that provides financial stability, high quality of life and the ability to make choices on what really matters.

Bloxhub in Copenhagen is a co-working community space that brings together architects, engineers, startups, policy-makers and academia to drive urban innovation.

Creative thinking and collaboration begins at the very earliest stages. Copenhagen, and I am using the figure that was given to us at the presentation, has a population of 600,000 – about a 10th of our population – and yet they have assembled an initiative to plan for a further increase for 100,000 – and this is an urban population – by 2050.

In their words, cities are systems, cities are nature, cities are communities. Their continuing mission – to create liveable, resilient cities for the future – but they are planning well in advance.

The second observation is the practice of constant and continuing review of systems and processes across all sectors, whether these are social, health, green issues or digital transformation.

The Danish Design Center illustrated an example of their current study concerning youth mental health issues – and they start with the difficult questions. For example, is this an issue where youths are surviving in a sick system? They are now undergoing a comprehensive review of whether systemic change will be required to enable youths to thrive and not just survive.

The third observation that we could consider is from the Danish Foundation for Entrepreneurship. Entrepreneurship is taught from primary school upwards. The teaching of entrepreneurship has been found to help solve challenges creatively, help handle complex situations, look for available resources, network, increase motivation, amongst many, many other positives.

In the 10 years since implementation, the sample findings suggest entrepreneurship has been transformative. One major objective is to keep Danish entrepreneurship at the forefront. However, as not everyone becomes an entrepreneur, their evaluation has shown that teaching entrepreneurship has developed a better workforce.

The Singapore non-profit sector has benefited from the extremely generous deduction of 2.5 times the amount or value of qualifying donations. Clause 32 extends this through to 31 December 2026. Institutions of a Public Character (IPCs) across the spectrum of social services – medical and health services, education, culture, heritage, arts, sports – have had many years to build up a culture of giving, supported by this generous scheme. The objective is to enable and encourage collaborative philanthropy in the non-profit sectors. Some sectors, as we have heard, seem to have done better than others.

The matter of qualifying donations may benefit from a review, to enable access to funding by new initiatives that are charitable in nature but have not yet achieved IPC status. In a similar way, smaller IPCs may be helped in ways to increase wider awareness of their mission. Mr Speaker, Sir, I believe we are moving toward a society that is ready to give more. This is being done through giving time, giving expertise and giving financially. The Government has laid one foundational piece for the coming years, further extending the 2.5 times deduction. We should not delay demonstrating our collective responsibility to play our part.

May I request if the Minister would consider a longer runway to enable our society to achieve an increasingly collaborative model of Singapore philanthropy? The demands of an aging society, the aspirations for better quality of life for those with specific needs and the vulnerable and the desire that no one gets left behind will need the active participation of both Government and people. Planning and implementing may well take us beyond 2026.

For many years, we have been giving beyond our borders. The interest and active initiatives include social entrepreneurs, foundations, religious organisations, educational institutions and volunteers. Many do so quietly and without fanfare. Thus far, all these initiatives have not received tax deduction. It shows us giving goes beyond the material. However, I do agree that giving beyond our borders will be enhanced by the proposed tax incentives for approved beneficiary organisations. I look forward to the continuing development of Singapore as a philanthropy hub and the proposed schemes for donations outside of Singapore.

Public consultations have been a method to get feedback and suggestions. Some of the feedback and suggestions are accepted. Those that are not accepted get an explanation. May I request the Minister to consider the approach of co-creation alongside the approach of public consultations? Co-creation potentially enables wider buy-in at the early stages, enabling the voices from both top-down and ground-up to be given opportunity for consideration.

Forward Singapore will give us a comprehensive picture of the Singapore that we aspire. Achieving this may require asking difficult questions and to agree to systemic changes where necessary. Fifty-eight years ago this nation with began with a group of dedicated leaders who transformed a small country with limited resources to the financial success that we enjoy. This has been a collaborative effort of leaders and people. Today, we find ourselves as stewards of a success story and as Singaporeans, carry this responsibility for the current and future generations.

The future will be different, in terms of challenges and aspirations. History, however, has shown us the place and value of collaboration.

Mr Speaker: Ms Nadia Ahmad Samdin.

6.49 pm

Ms Nadia Ahmad Samdin (Ang Mo Kio): Thank you, Mr Speaker, Sir. I would like to declare my interest as counsel and senior project leader of a social impact intermediary that works with various stakeholders, including the philanthropic sector.

Sir, the way our Government manages to collection and expenditure of its revenues sits at the centre of how taxation interfaces with Society. There are few ways we can think about taxes. As the mechanism, it is the liver by which a government collects and redistributes resources to different segments of society, including the vulnerable and those who need it most. On a strategic level, tax policy is also an instrument that pools our collective resources to help us shape the society that we wish to see as a people. It is also the means by which we provide incentives for industries to move towards and sectors to grow.

At its core, good tax policy can help foster the balance between social harmony and economic progress. There are three broad areas I would like to discuss regarding the bill.

First, on taxing gains from the sale or disposal of foreign assets that are received in Singapore by businesses without economic substance. This will bring us in line with international standards. I would like to ask the Minister for greater clarity on three things. First, MOF has shared that it would not be practical to prescribe in legislation, minimum thresholds to establish economic substance, given the variety of business model and skill of operations. Is the approach going to be on a case by case basis? What are some of the key principles that would distinguish businesses with economic substance and those without?

I also understand that further guidance will be provided in an IRAS e-tax guide. I would like to ask, what is the timeline for the IRAS e-tax guide to be made available for greater regulatory clarity? Finally, what type of firms, in terms of industry and size, does the government expect these changes to affect the most?

The second area of discussion is regarding the Enterprise Innovation Scheme, or EIS. The EIS is an investment to further secure Singapore's position as an Innovation Hub as it helps companies defray risks when undertaking research and development. Due to the long incubation period for innovation and uncertainty, firms may think long and hard before committing upfront resources to innovation. Could the minister share more about the current restraints and constraints faced by companies undertaking capability development activities and how the EIS amendments aim to mitigate them and lower the barriers for smaller companies, in particular, which may be cash-strapped?

From a tax utility perspective, what are the factors are considered important by the Government for the research and development ecosystem to grow sustainably beyond subsidies? Are there any existing schemes or new ones which the Government is intending to create or to enhance domestic human capital capable of executing the R&D that the EIS hopes to support?

Finally, what has the take-up rate been for similar existing schemes and beyond just utilisation, what other success indicators have we tracked for such schemes that encourage research and development and the development of intellectual property (IP)?

Third, Sir, our social spending needs are growing and I am heartened by the Government's efforts to enhance our social compact through growing our tax space. I also note the launch of the philanthropy tax incentive scheme and the relevant clauses 30 and 31 in the amendment Bill. Alongside the broadening of the scope of eligible investments to include blended finance structures to recognise concessional capital, which aims to strengthen Singapore's position as a regional philanthropy hub. This will also catalyse more investments into worthwhile social and climate projects.

In order to achieve this status, our philanthropic framework must tackle key issues of our time, which are typically global in nature and go beyond our shores. For example, climate change and also at greater scale, for example, wider populations in Southeast Asia and not just Singapore. Our strategic trusted and neutral position in this region is prime for such operations. Sir, we are home to more than half of Asia's family offices. The growth in the number of family foundations, has generally followed the growth in family offices (FOs) and I agree with the push towards encouraging FOs to anchor their giving operations in Singapore.

While allowing tax deduction for overseas donations via qualifying local intermediaries shifts the longstanding principle of tax deductions for donations exclusively benefiting the Singapore community is an understandable step, I hope that we can put in further measures to proactively strengthen the nexus between family offices and our local charitable organisations. This is to ensure that firstly, overseas donations do not overshadow the proportion of domestic donations from these FOs. Secondly, the domestic donations are given in a way that are meaningful – demonstrating and understanding of local organisations' needs and that of the clients that they serve.

Domestic donations should also be done in a sustainable way such that charitable organisations have the funding visibility for a longer-term horizon to grow their missions and reach in serving our community and are encouraged to try new, innovative ways to tackle complex emerging social challenges.

I would also like to ask how many qualifying local intermediaries there are. How long will it take for local intermediaries to qualify and what support is available to fund capacity building of social sector organisations? It would also be important to ensure that legislation such as fund regulations and charity laws remain clear and keep up with the times to enable the structuring of such new models.

In Singapore, most will agree that our collective contributions should enable us to create a society which uplifts each and every citizen to thrive, regardless of where we start in life. In Budget 2023, Deputy Prime Minister Lawrence Wong reaffirmed his commitment to this ideal.

However, in an inflationary environment with rising cost of living, many feel the pinch. The execution of increasing taxes when it comes to real life and how we can and should go about raising funds to pay for increased support is often less straightforward. In conversations, many often point to free healthcare and education systems in some other parts of the world. But less spoken off, is the higher tax rates that come with it. The government debt or the culture which has been developed in these jurisdictions over time, leads to each individual seeing it as their responsibility to invest in their own society. This includes not just businesses, as corporate citizens, but everyday people too.

While we talk about the amendments in this Bill, I would like to take a moment to encourage discourse on attitudes towards taxation while staying away from bogeyman tactics. As we renew our social compact, as part of the Forward Singapore efforts, we need to have more conversations to build consensus on questions that are fundamental to how we tax different segments and distribute resources equitably.

To do so, we should do two things. First, aim for greater and more accessible discourse around tax that makes it relevant to the everyday person. Second, we should aim to clearly communicate the benefits and trade-offs of changes to tax policy, to ensure that Singaporeans better understand how these changes affect our shared future. Sir, I support the Bill.

Mr Speaker: Mr Yip Hon Weng.

6.57 pm

Mr Yip Hon Weng (Yio Chu Kang): Mr Speaker, Sir, the legislative amendments to this Bill are put forth with the primary objectives of implementing tax measures as outlined in the 2023 Budget Statement. The changes are also to align our tax system with international tax developments and MOF's periodic reviews. Notwithstanding, I wish to seek a few clarifications on the Bill.

Firstly, Mr Speaker, Sir, I have some queries on the EIS. While the prescribed cap of $400,000 additional tax deduction may serve its intended purpose for smaller businesses, it may be less relevant to larger enterprises. On the other hand, smaller businesses, although potentially eligible for the EIS, might not have significant taxable income against which they can offset their investment. In such cases, it is highly likely that most of these businesses would opt for the cash option. Yet the cash conversion ratio of 20% may not be sufficient to motivate them. As such, are there plans to review these figures, to ensure that they adequately cater to the needs of a broader spectrum of businesses?

Also, I could not resist drawing parallels between the EIS and the previous research and development incentives under the Productivity and Innovation Credit (PIC) scheme. In this connection, it begs the question of how effective the previous scheme had been, and whether these incremental changes will truly foster the desired outcomes. The cost of research has also increased over the years. As such, the "$50,000 of qualifying innovation expenditure" may only make up for the small amount of research cost. Will this quantum be revised upwards to attract higher-end and more advanced research that may cost more but likewise attract more talent?

Will the Government consider broadening the scope of the EIS to encompass joint ventures that closely collaborate with our local ecosystem and industries? By doing so, we can ensure that the benefits of this scheme extend beyond the immediate beneficiaries and contribute to the overall growth and development of the entire ecosystem.

Secondly, Mr Speaker, Sir, I would like to speak about the amendments to the Working Mother's Child Relief Scheme (WMCR). Several Members have raised this as well. During the Budget deliberations, concerns were raised that the changes in the WMCR disincentivises higher-earning mothers to consider having more children. In certain cases, the policy changes would result in some individuals receiving fewer incentives than before.

For example, to cite local finance website Dollars and Sense, working mothers of three children, earning between $7,000 and $12,000, would pay an additional $1,000 or more in income tax than before. Likewise, working mothers earning $12,000 or more will have to pay $5,000 or more in additional income tax.

Considering the feedback stemming from the policy change, I would like to inquire about the measures the Government has taken to address these concerns. What steps have been taken to ensure that the changes in the WCMR scheme are effectively communicated to the public, along with the policy considerations that underlie this decision?

Furthermore, are there plans in place to address any perceived disincentives amongst this group of working mothers, to ensure that they do not feel discouraged from expanding their families? While it may be argued that the higher cash payouts may not be a factor for these group of mothers, a right signal needs to be sent. What specific policies and initiatives are being considered, and how will they be implemented to provide tangible support for this group?

Third, Mr Speaker, Sir, I have some queries on the proposed changes pertaining to mandating submission of income information by intermediaries for self-employed persons (SEPs). What processes will be implemented to ensure that the intermediaries comply with this requirement? Additionally, what penalties will be imposed in the event of non-compliance?

How does the Government plan to guarantee the accuracy of the information obtained through this mandate? Given the diversity of occupations and income streams of SEPs, it is critical that we employ robust methods to validate this data, so as to prevent misuse or fraudulent claims. Does the Government intend to leverage advanced technologies, such as fraud detection algorithms or Artificial Intelligence (AI), to enhance accuracy and efficiency of this process. Furthermore, will there be whistle-blowing policies in place?

In conclusion, Mr Speaker, Sir, these amendments hold far reaching implications for our businesses, families and us. Recognising that there is no one-size-fits-all policy, it is imperative that we maintain a commitment to regularly review and adapt taxation policies to ensure their ongoing adequacy. Moreover, effective communication channels must be established to address public concerns and to make residents more aware of available alternatives and supporting policies. I support the Bill.

Mr Speaker: Mr Louis Ng.

7.03 pm

Mr Louis Ng Kok Kwang (Nee Soon): Sir, this Bill gives effect to the measures announced during this year's Budget Statement. The amendments will encourage businesses to engage in research and development, and develop their capabilities through the Enterprise Innovation Scheme. Through tax incentives, they will also encourage family offices in Singapore to base their philanthropic operations in Singapore.

The amendments also change the WMCR from a percentage of earned income to a fixed dollar tax relief.

I have two points of clarification to raise. My first point is about the WMCR. I have spoken up many times pushing to extend the WMCR to single unwed parents who are parents too and should not be discriminated against.

I understand that the WMCR is to "encourage married women to remain in the workforce after having children". This is what is stated on the IRAS website but it is not accurate as the relief is provided for divorcees too, rightly so. But again why are single unwed parents left out?

There is actually a loophole here. A giant loophole. To be clear, single unwed parents can get the relief if they just marry the father of the child and then file for a divorce. They then qualify for the WMCR. But why make them jump through so many hoops to get something they should get in the first place?

We want to encourage mothers to return to the workforce but why not encourage single unwed mothers to return to the workforce too?

For single unwed mothers who do return to the workforce despite the absolutely difficult circumstances they are in, should we not support them and provide them with the WMCR?

This policy is not cast in stone and we are amending it now to provide more Government support for eligible lower- to middle-income working mothers. We should provide support to single unwed mothers too.

I know the reply will be that we do provide support to single unwed parents and the Senior Minister of State might list the range of support provided. I agree that some support is there but this push for providing the WMCR is also about being fair and being inclusive. It is about making sure single unwed parents do not feel discriminated against.

Single unwed parents have written to me, come to my Meet-the-People Session and speak to me during my home visits. I hear them, I feel the stigma they face and the discrimination they endure daily.

One single unwed parent wrote to me with regard to the WMCR and said, "Why the unfair treatment and discrimination for single mothers?" and "Many grievances ever since my baby was born and I am ashamed to be a Singapore citizen who is left out in the system."

Let me stress that the appeal here, like the appeal to provide the single unwed parents with the cash component of the baby bonus and the parenthood tax rebate, is not about providing single unwed parents with more support.

The appeal is that they be treated equally and be provided with the WMCR like how it is provided to married, divorced and widowed working mothers.

My second point is on growing Singapore as a philanthropic hub. The pilot tax incentive introduced by the Bill offers Family Offices a 100% tax deduction for overseas donations.

I applaud the move to take an international perspective in growing Singapore's philanthropic work. However, this should not be limited to the top tiers of society.

Philanthropic giving should be encouraged across the whole of society. However, the 80:20 fund-raising rule still requires 80% of funds raised for foreign charitable purposes to be applied towards charitable purposes in Singapore.

As we look to grow Singapore's presence as a regional or even global philanthropic hub, will the Government consider what other tax measures can be used to encourage different forms of giving to local, regional and international causes?

For instance, can we look into how tax incentives can support individuals who wish to contribute to regional humanitarian causes? Helping to alleviate humanitarian crises contributes to regional stability, which in turn benefits Singapore as a country dependent on stable relations and predictable relations with her neighbours. So, notwithstanding these clarifications, I stand in support of the Bill.

Mr Speaker: Senior Minister of State Chee.

7.06 pm

Mr Chee Hong Tat: Mr Speaker, I thank Members for their support for the Bill, and their comments and suggestions. Let me respond to the points they raised.

Mr Don Wee, Ms Nadia Samdin, Mr Neil Parekh Nimil Rajnikant and Ms Usha Chandradas spoke on the proposed new tax treatment on foreign-sourced disposal gains.

Let me reiterate that the proposed new tax treatment does not represent a shift in our broader tax policy on capital gains. It is not the intent of the proposed amendments in this Bill to tax capital gains in Singapore.

Instead, the objective of this amendment is to address international tax avoidance risk by entities without real economic activities in Singapore, as well as that relating to foreign-sourced gains from the disposal of intellectual property rights. For the latter, we will adopt the internationally-agreed modified nexus approach, which is also currently used for our Intellectual Property Development Incentive.

As we have designed this proposed change to be as targeted as possible, there should not be significant impact on genuine businesses with real activities here.

This move should be seen in the context of our broader policy to align key areas of our tax regime with international standards such as the rules against harmful tax practices agreed by the Inclusive Framework on BEPS, as well as the EU Code of Conduct Group Guidance. As a small open economy, it is in our interest for our tax rules to stand up to international scrutiny, to facilitate the continued flow of trade and investments.

Ms Chandradas asked about the interaction between the proposed amendment and BEPS Pillar 2 rules. Sir, they are not related and have different objectives. Pillar 2 Global Anti-Base Erosion Rules seeks to impose a minimum effective tax rate of 15% on large multinational enterprises or MNEs wherever they operate. On the other hand, this proposed amendment aims to address tax avoidance risks associated with foreign-sourced disposal gains, and is not confined to large MNEs.

Ms Chandradas and Ms Nadia also asked how IRAS would assess economic substance and operationalise the proposed change, while Mr Wee raised some scenarios relating to restructuring transactions, funds and family offices. The answer is that the tax treatment will depend on the facts of each case. As business practices vary across industries, it would not be possible to prescribe quantitative tests. Nevertheless, IRAS will certainly take sector-specific circumstances into account in administering the new rule. MOF and IRAS have held several engagements with the industry over the last few months to hear businesses' feedback and understand their concerns, as IRAS works out the implementation details.

IRAS will provide industry with guidance on how economic substance will be assessed to be adequate. Where possible, sector-specific circumstances and common scenarios, including those raised by Members of the House, will be considered and addressed in the guidance. I would like to assure Members that we will implement the new tax treatment carefully, to minimise the impact on genuine businesses while deterring tax avoidance by entities without real economic activities in Singapore. IRAS aims to publish the guidance by the end of this year and will refine it over time based on feedback and consultation with industry partners. IRAS will consider the suggestion from Ms Chandradas for an expedited advance ruling framework.

Let me also address two technical queries raised by Members. First, foreign tax credit will be available based on current tax rules. Second, the proposed amendment will not cover foreign entities that have no operations in Singapore other than the use of banking facilities here. IRAS will include these clarifications in their guidance.

Overall, we do not expect the new tax treatment to have a negative impact on our economy, as our focus has always been on attracting and anchoring real economic activities in Singapore. Our global competitiveness will not be affected, as these international standards are also applied in other jurisdictions, so there is a level-playing field.

Sir, let me now touch on the obligations on intermediaries for self-employed persons (SEPs). Mr Saktiandi Supaat sought clarification on whether SEPs can opt out of having their income information submitted to IRAS by their intermediaries. Ms Jean See asked how such income information would be used and safeguarded.

Intermediaries included in this initiative will need to submit income information of the SEPs whom they have made contracts with, and these SEPs cannot opt out of having their income information submitted to IRAS. The use of such income information is governed and subject to existing safeguards under the Income Tax Act.

The information obtained would be used for tax administration purposes, including pre-filling of income tax returns. This will make it more convenient for SEPs to submit their tax filings. They will be able to verify and amend the pre-filled income amount before filing their tax returns.

Beyond tax, the income information collected will also help in the administration of social schemes, such as the Workfare Income Supplement scheme, which I mentioned in my opening speech and Ms Mariam Jaafar spoke about this.

Picture a 45-year-old SEP earning $1,500 a month. He could have qualified for Workfare, but is not receiving it because he did not file his income tax returns and he did not make MediSave contributions. If the intermediary had submitted his income information to IRAS, he would have automatically qualified for $2,400 of Workfare in 2023.

Tapping on intermediaries to submit income information on SEPs could also facilitate the administration of new schemes going forward, including financial assistance during a crisis. For instance, during the COVID-19 pandemic, the SEP Income Relief Scheme (SIRS) was rolled out to support SEPs.

However, as SEP income information was incomplete, the Government was only able to automatically disburse the payouts to some SEPs, and NTUC had to process applications from SEPs who did not automatically qualify. Having the relevant data to quickly administer such support schemes will enable SEPs to receive the support more quickly, and also simplify administration of these schemes.

Mr Wee, Mr Saktiandi and Mr Parekh asked about the extension of this initiative to other intermediaries and whether the intermediaries would be provided with financial support to establish new infrastructure for regulatory reporting.

IRAS will adopt a phased implementation approach, starting with commission-paying agencies in YA 2024, as many of these agencies are already submitting income information to IRAS. For intermediaries in other industries such as ride hail service and taxi operators, food and goods delivery platform companies, IRAS will continue to engage them and work with them closely to understand and address potential operational and system issues, so as to keep the compliance burden low.

Mr Yip Hon Weng enquired on how the Government will ensure that the intermediaries comply with the requirement and the accuracy of the information obtained as well as whether penalties will be imposed in the event of non-compliance and if there will be whistle-blowing policies in place.

Sir, IRAS will issue a one-time notice to inform intermediaries of the requirement to maintain the requisite information as well as a yearly notice to inform them to submit information to IRAS. To ensure compliance, IRAS will adopt an approach similar to that for the Auto-Inclusion Scheme for employers. During the initial phase, IRAS will continue to render support to the intermediaries while adopting a light-touch approach such as issuing reminders or warning letters for non-compliance. Subsequently, actions such as composition or prosecution, which include penalties of up to $5,000, could be imposed for non-compliance.

IRAS also has compliance programmes in place to detect and identify intermediaries who have made errors in the submission. This includes assurance audits to ensure that intermediaries have adequate controls to maintain accurate information. While intermediaries will not be unduly penalised for unintended errors or mistakes detected, they may be liable for offences if errors are due to negligence or without reasonable excuse. IRAS also has an existing whistle-blowing channel which the public can use to inform IRAS of any wrongdoing.

Mr Speaker, Ms See asked whether the data used to determine the FEDRs accurately reflect the expenses incurred by delivery workers.

The FEDRs were developed using income and expense data for the different delivery modes, which IRAS obtained from its consultation with the industry and survey with the workers. The current FEDRs strike a balance between simplifying tax compliance while ensuring that the ratios are reflective of the actual expense ratios of delivery workers.

Let me reiterate, Sir, that the FEDRs are optional. For those whose actual expenses exceed the FEDRs, they can claim deductions based on the actual deductible expenses incurred.

Ms See and Ms Mariam asked whether IRAS intends to review the different FEDRs in the future to keep pace with changes in the costs of the delivery services and if the initiative on mandatory income submission by intermediaries could assist in this review. IRAS will regularly review and assess the relevance of the FEDR rates based on available data, including income information obtained from intermediaries. For example, IRAS reviewed the existing 60% FEDR for private hire car and taxi drivers, which was implemented in the YA2019; they did the review this year. The latest data showed that while drivers' expenses have increased, their revenue has also grown due to increases in meter and mileage rates. Therefore, the 60% FEDR remains relevant and sufficient for the majority of drivers. For those that this does not apply to because their expenses are higher, as I mentioned earlier, FEDR is optional; they can submit the actual expenses.

Mr Speaker, Members were concerned that the change in the Working Mother's Child Relief or WMCR will disincentivise higher-income mothers from having more children. Mr Yip and Mr Saktiandi asked if the Government has taken measures to address these concerns and if we had considered alternatives in designing or redesigning the WMCR.

Sir, this issue has been thoroughly discussed and debated at Budget this year. As Deputy Prime Minister Wong had explained then, the WMCR change should not be seen in isolation. It is part of a package of moves to support marriage and parenthood, which has been strengthened over the years. For example, we announced at Budget this year that we will be enhancing the Baby Bonus Scheme and parental leave provisions, which benefit all couples regardless of income.

The change in WMCR will be effected prospectively and apply only to working mothers with qualifying Singapore Citizen children born or adopted on or after 1 January 2024. Eligible working mothers of qualifying children born or adopted before 1 January 2024 will not be affected as they can continue to claim the WMCR based on the existing design.

As pointed out by Mr Sharael, the change in the WMCR reflects our social compact of a fairer society, one which we provide more support for the less well-off and, in this case, lower- and middle-income working mothers. We will continue to engage couples and parents to raise awareness of the package of support measures available for marriage and parenthood, including the enhancements announced during Budget 2023.

Mr Saktiandi also sought clarification on the rationale for removing Foreign Domestic Worker Levy Relief (FDWLR). The FDWLR was introduced in 1989 to support working married women who needed the help of a domestic worker, so that they could return to the workforce. Since then, the Government has introduced new schemes to directly support those caring for dependants, including working mothers.

In particular, those living with children below 16 years old, elderly or persons with disabilities may enjoy a concessionary Foreign Domestic Worker (FDW) levy of $60 per month instead of the usual levy of $300 or $450 per month for the first and subsequent FDW respectively. This concessionary levy directly benefits all families who need help with caring for their dependants, including those who do not pay income tax. Therefore, the FDWLR will be lapsed with effect from YA2025.

Mr Speaker, Mr Louis Chua asked about the GST and whether it is possible to defer the 1% increase in 2024. Sir, the proposed change and timing of our GST rate increase has been robustly debated in this House but allow me to reiterate a few key points. We consider not just the year-to-year changes, or more importantly, the medium-term trend in our expenditures and revenues where we manage our fiscal resources. As we know, Singapore has an ageing population and we must expect that with an ageing population, there will be rising healthcare costs. Government expenditure is expected to increase from the current 18% of GDP to potentially over 20% of GDP by FY2030. This has yet to account for additional spending that may arise from new policy initiatives, including the need to further invest in resilience and to strengthen our social compact and economic competitiveness.

On the revenue side, our tax revenue collections have grown broadly in line with GDP. The higher tax revenue collection in FY2022 compared to the previous year is due to our economic recovery after the COVID-19 pandemic. It is unclear whether the trend can continue, given the uncertain global macroeconomic outlook. In the medium term, revenue generally does not grow faster than GDP without tax rate changes. This is why the revenue measures announced at the recent Budgets, including the GST increase this year and next year, remain necessary to meet our medium-term spending needs. Deferring the GST increase will only store up more problems for the future, leaving us with less resources to take care of our growing fiscal needs and we cannot count on short-term upsides to fund structural needs.

When the Government has unexpected fiscal upsides, we share these surpluses with Singaporeans, including providing relief for households through Cost-of-Living Support Packages. Mr Sharael mentioned this in his speech earlier. I will just name two components, for information. Deputy Prime Minister Lawrence Wong recently announced a $1.1 billion support package, and one of these items would be an increase in the CDC vouchers that all Singaporean households will receive in January next year. So, from $300 it has increased to $500 – $250 for supermarkets and $250 for heartland shops. And we will also increase the special payments that eligible Singaporeans will receive, and there will be 2.5 million eligible Singaporeans by the end of the year. So, there will be an amount, depending on your income, but up to $800 per eligible Singaporean. And this will include many of our Singaporeans, including our retirees who are staying in private properties because this does not look at your property type. It looks at your income, as long as you do not own two or more properties.

So, we understand that Singaporeans are concerned about the GST increase and cost of living. On delaying the GST increase for one or two years, what we have done is actually better than that. With the Assurance Package, we have delayed the impact of GST increase for the majority of Singaporean households by five years and by about 10 years for lower-income households. The Government remains committed to doing so even with elevated inflation.

This is why we have substantially enhanced the Assurance Package over the past two years, and the Government has also announced additional support measures to help families with rising costs of living beyond the GST increase. The Assurance Package was most recently enhanced to now a total amount over $10 billion with the Cost-of-Living package announced by the Deputy Prime Minister last week. There is some additional relief for all Singaporeans, with more for lower- and middle-income groups.

Sir, Budget 2023 is an expansionary budget. It is less expansionary than the previous years' Budget and this is to avoid adding to elevated inflationary pressures while supporting our economy and helping families in a more uncertain global environment. We achieve this balanced outcome by focusing more of our support measures on the lower- and middle-income groups while providing some help for all Singaporeans.

Mr Speaker, several Members – Mr Don Wee, Ms Usha Chandradas, Mr Shawn Huang, Mr Keith Chua, Mr Louis Ng, Ms Nadia Samdin and Ms Mariam Jaafar – expressed support for and sought clarifications on the Philanthropy Tax Incentive Scheme, or PTIS for short. Allow me to share more about the scheme, and in doing so, address their questions.

First, under the PTIS, approved qualifying donors can claim 100% tax deductions for overseas donations made through qualifying local intermediaries. Overseas donations refer to cash donations made towards any charitable, benevolent or philanthropic purpose whose main objective is to benefit persons, events or objects outside of Singapore. These could include overseas philanthropic causes in sustainability that Mr Wee mentioned, as long as all the other criteria are met. MAS is committed to processing applications to be approved qualifying donors and local intermediaries in a timely manner.

Second, to ensure oversight as highlighted by Ms Mariam, MAS requires all participating single family offices, or SFOs, to submit annual review returns. In addition, as SFOs are required to channel their donations through local qualifying intermediaries, these intermediaries also conduct due diligence checks.

Third, to benefit from the PTIS, SFOs would have to meet two conditions: first, appoint and maintain a Philanthropy Professional at the point of application and throughout the incentive approval period; and second, incur an additional $200,000 in Local Business Spending and employ an additional local professional headcount in the financial year when the overseas donations are made.

These conditions that Ms Chandradas asked about are made known upfront to the SFO applicants and they are required to declare that they have met the conditions in their annual returns to MAS. If the conditions are not met, the legislation provides for the Government to claw back the previously granted tax deductions.

Fourth, Members spoke about ensuring that the local charity sector is not excluded from the benefits of PTIS. Indeed, it is not.

By requiring that overseas donations take place through qualifying local intermediaries and requiring that SFOs have to appoint and maintain a philanthropy professional, the PTIS serves to uplift philanthropic capabilities within the charity sector in Singapore. Qualifying local intermediaries would include Institutions of Public Character with a valid permit for "Fundraising for Foreign Charitable Purposes".

Overall, some Members advocated for more overseas philanthropic giving across a wider spectrum of society, while others spoke about the need to ensure that the philanthropic giving also supports local causes.

I am glad that Members agree that philanthropy makes our society better and, given their different views between overseas and local giving, that they appreciate that the Government needs to strike a balance between the two.

Beyond the PTIS, the Government has other tax incentive schemes to encourage local philanthropy. For instance, qualifying local donations made to Institutions of a Public Character and other eligible institutions enjoy a 250% tax deduction until 31 December 2026, which is higher than the tax deduction for overseas donations. The Government will continue to review our schemes to foster and sustain the spirit of giving.

Finally, many Members have expressed support and interest in the Enterprise Innovation Scheme (EIS) announced in Budget 2023. I thank them for their support. Mr Saktiandi asked about the rationale behind raising R&D tax deductions to 400%. The parameters of the EIS are set to provide modest but meaningful support for businesses in their drive to invest in R&D. Looking across comparable economies which offer similar tax deductions on R&D activities, a 400% tax deduction is competitive when compared to jurisdictions such as Hong Kong and Malaysia.

Mr Saktiandi, Mr Sharael and Ms Nadia asked about the effectiveness of tax deductions on innovation and its outcomes.

R&D tax measures do lead to an increase in innovation activities as they help to mitigate risks and give an additional boost to returns on investments. That said, tax deductions cannot operate in isolation and must also be complemented by a developed R&D ecosystem to promote innovation, which the Government continues to invest in through our Research, Innovation and Enterprise plans.

In Singapore, we have seen a promising increase in business expenditure on R&D over the years, from $3.8 billion to $6.6 billion between 2010 and 2020, which points to businesses' underlying desire to innovate. During the same period, we also saw almost a three-fold increase in sales revenue from commercialised products attributed to R&D performed in Singapore.

These are promising trends, but we know there is room for our economy and enterprises to invest even more in R&D so that we can be more globally competitive. The EIS, together with our broader ecosystem of grants, incentives, financing tools and R&D talent, will give businesses an additional boost.

Mr Yip, Mr Wee and Mr Huang highlighted the importance of encouraging our local SMEs to take advantage of the EIS to innovate. While SMEs have shown promising growth in R&D expenditure, we recognise that many SMEs are less likely to have the scale to undertake R&D on their own. This is why we are introducing a new tax deduction for expenditure incurred on innovation projects, which SMEs more commonly undertake, rather than R&D. The tax deduction will apply for qualifying innovation projects carried out with partner institutions such as the polytechnics, ITE and the Centres of Innovation, and could relate to business process redesign or deployment of productivity equipment.

These would not be considered "R&D" in the strictest sense, but are nonetheless useful to help SMEs to kickstart their innovation journey. Undertaking innovation projects with these partner institutions will also enable SMEs to tap on the existing expertise there instead of having to acquire or develop their own.

Mr Yip asked if the expenditure cap of $50,000 can be revised upwards to cover higher-end research with higher costs. Sir, allow me to clarify that these innovation projects will not typically exceed the $50,000 cap. Businesses that undertake research that meets the R&D definition can tap on the enhanced deductions for their higher R&D costs, which has a higher expenditure cap of $400,000.

Many of the projects undertaken in partnership with the universities would be able to qualify for the enhanced R&D or IP-related deductions. Nonetheless, we will observe the uptake of this new deduction for innovation and consider whether we could expand the list of partner institutions where appropriate.

I also thank Ms See for highlighting the cashflow concerns of businesses when they undertake innovation activities. We will monitor and study how we can further support our businesses in their innovation journey, including encouraging them to work with NTUC to form company training committees.

Ms See suggested providing some upfront subsidy for innovation, similar to what we are doing for training courses. But the context between innovation and training is quite different. Unlike training courses, which can be pre-approved and subsidised upfront, investments in innovation are varied, differing by sector, scope and the businesses' level of maturity. It is therefore difficult to pre-approve innovation expenditures or provide upfront subsidy.

Beyond Government support schemes like EIS, it is important for businesses to take the initiative and embark on the innovation journey to improve their competitiveness. They have to set aside adequate cashflow for investing in new equipment and developing the necessary capabilities.

Mr Wee and Ms Nadia asked about the development of human capital to support businesses' innovation activities. Mr Sharael also asked if the list of eligible courses should be narrowed down.

We recognise the importance of training workers to support a business' capability to innovate. Hence, the EIS introduces enhanced tax deductions for around 10,000 SkillsFuture Singapore-subsidised courses. These courses support industry transformation and workforce development needs and will support a range of enterprises from different industries at various stages of their innovation journey. They also include courses that cater to freelancers from the creative industries.

SkillsFuture Singapore will continue to monitor the relevance and effectiveness of courses eligible for EIS deductions and refine the list of courses accordingly.

Mr Sharael asked if the Government could request proof of value before the tax deduction on training is granted and if the deduction can be limited to employees who have served a minimum number of years to minimise abuse of the scheme.

Even with the 400% tax deduction, a firm will need to co-pay for training. This will help to ensure that the firm sends its employees for training only if it will create value for the firm and support its innovation efforts. The firm, the employer has skin in the game. The $400,000 training expenditure cap for tax deductions will further mitigate the risk of abuse.

The Government will monitor the take up of the EIS, businesses' investments in R&D and innovation as well as feedback on the scheme, and these will allow us to continually review the scheme's effectiveness and we will refine it along the way. Ultimately, what we want is to have a scheme that can support companies to embark on innovation because we know innovation is key to future economic growth, it is key to creating good jobs for our workers.

So, I encourage businesses to learn more about the EIS through the information available on the IRAS website and we will also work with industry partners such as our trade associations and chambers to raise awareness among businesses. Mr Speaker, I beg to move.

7.39 pm

Mr Speaker: Any clarifications for the Senior Minister of State? It was a very comprehensive 32-minute round-up. Okay, I do not see any hands.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. – [Mr Chee Hong Tat].

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

7.42 pm

Mr Speaker: Leader.