Income Tax (Amendment) Bill

Order for Second Reading read.

12.03 pm

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

The Income Tax (Amendment) Bill 2019 covers seven changes which were announced in this year's Budget, as well as 18 other changes arising from the periodic review to refine and to clarify Singapore’s income tax regime.

We sought views from the public on the draft Bill earlier this year. MOF has evaluated all the feedback received and incorporated them where they are relevant to the draft text of the Bill.

Let me start by highlighting the key changes that give effect to the announcements made at Budget 2019 this year.

First, as part of the Bicentennial Bonus, a Personal Income Tax Rebate of 50% of income tax payable capped at $200 will be granted to all tax resident individuals for Year of Assessment (YA) 2019. Clause 46 of the Bill provides for the change.

Second, the Not Ordinarily Resident (NOR) scheme, which was introduced in Budget 2002, will lapse after YA 2020. The last such NOR status will be granted for YA 2020 and expire in YA 2024, because it is a five-year scheme. Individuals who have been accorded the NOR status and continue to meet the conditions will continue to be granted the NOR tax concessions until their status expire. Clause 12 of the Bill provides for the change.

Third, to continue to grow Singapore’s asset management industry, the tax concessions relating to Qualifying Funds will be extended till 31 December 2024. These tax schemes will also be refined to keep them relevant and to ease compliance burden. Clauses 8, 15, and 17 of the Bill provide for these changes.

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

First, we will ease the compliance burden for individual tax residents who are self-employed commission agents and are earning gross annual commission income of up to $50,000. This is by introducing an option for self-employed commission agents to apply a prescribed deemed expense ratio, which is set at 25% of their gross commission income. Those who do not take up this option can continue to claim tax deduction based on the actual amount of expenses incurred in the production of their commission income. This change, found in Clause 22 of the Bill, will take effect from YA 2020 for income earned in 2019.

Second, to align with international trends, and to improve accountability and promote open justice, tax proceedings before the Courts will no longer be heard privately by default. We will also discontinue the practice of redacting taxpayers' names in published decisions of such judicial proceedings. Clause 38 of the Bill provides for the change. Similar changes will be tabled for the Goods and Services Tax Act (GSTA) in relation to proceedings before the Courts under the GSTA. The changes relating to Court proceedings, under the Income Tax Act and the GSTA, will take effect on 1 January 2020. Mr Speaker, I beg to move.

Question proposed.

12.07 pm

Ms Anthea Ong (Nominated Member): Mr Speaker, I stand in support of the Bill as it is generally procedural in nature. In particular, I welcome the amendment in clause 29 that amends section 39 of the current Act to broaden the Grandparent Care Relief to working mothers with "handicapped" and unmarried children.

However, I would like to outline some significant and urgent housekeeping changes that we must make in definitional interpretations with the current Income Tax Act and the amendments of this Bill.

The Explanatory Note of the Bill used the term "handicapped" and the amendment in clause 29(b) sub-paragraph used "incapacitated by reason of physical or mental infirmity".

Sir, I was shocked to find that under section 2(1) of the Act, an "incapacitated" person means infant, lunatic, idiot or insane person – a definition that, in my research through the legislative history, has not been changed for 72 years since the Income Tax Ordinance 1947 when income tax was first imposed. The reference is derogatory and as you would know well, is not reflective of the current narrative and ground realities of the disability community and our social policies. In case the House thinks that I am just concerned with semantics, let me share why this is more than just a euphemistic concern.

First, definitions and terminologies we use in our legislature reflect how far we have come as a society and have an impact on how the rest of the society carves out their responses and examines their attitudes. So, we must not leave definitional updates as an afterthought as we update our laws. As the Executive Director of the Disabled Persons Association or DPA shared with me when I checked with her on this particular definition, "for any law to define disability by incapacitation or to locate the inability to interact in the world within the disabled person goes against the UN Convention on the Rights of People with Disabilities or CRPD which locates the barriers in the environment and not the person". Singapore became a signatory of CPRD in August 2013.

Specifically, the term "incapacitated by reason of mental infirmity" goes against the spirit of the Mental Capacity Act introduced in 2008. In section 4(3), the Act says that a lack of capacity cannot be established merely by reference to (a) a person’s age or appearance; or (b) condition of theirs which might lead others to make unjustified assumptions about their capability.

Second, this discovery I made also unveiled the inconsistency and misalignment of the definition of "disability" across the legislature. As an example, the Women’s Charter defines an "incapacitated person" as a person who is wholly or partially incapacitated or infirm, by reason of physical or mental disability or ill-health or old age.

In general, the English-speaking disability rights movement has moved away from the term "handicapped" and reclaiming and attributing positive associations with the term "disabled" or "disabilities". It is seen as "outdated" by the community in Singapore. "Handicap" is still used across a multitude of legislation including the Health Sciences Authority Act, Health Products Act, the Copyright Act, and so on.

I am thankful for the numerous tax relief schemes that we have to support our disability and vulnerable communities, but I urge the Ministry to update the awful definition of "incapacitated" from 1947 and all references to "handicap" to reflect the current social norms. We should take the lead from the Singapore’s Enabling Masterplan which also implements the CRPD. The Masterplan’s definition and terminology of "disability" reflects the current and aspirational needs of the community. "Disability" is defined as "those whose prospects of securing, retaining places and advancing in education and training institutions, employment and recreation as equal members of the community are substantially reduced as a result of physical, sensory, intellectual and developmental impairments."

I also urge all other ministries to review and update all current provisions for our disability community, and in making new laws, to take the lead from MSF who leads and updates the Enabling Masterplan with the community.

Mr Speaker, I would now like to take this opportunity with the Bill to discuss how we can better engage our private sector towards achieving greater social impact with the Business and IPC Scheme, or BIPS and supporting the growth of social enterprises.

BIPS was approved during Budget 2016 for two and a half years from July 2016 to December 2018, and then extended for three more years till December 2021. The intent of the scheme is to encourage businesses to send their employees to volunteer and provide services in various areas such as legal, human resources and accounting, or even general voluntary services for institutions for public character (IPCs).

Yet both businesses and IPCs face an administratively onerous process in applying for BIPs thereby resulting in low usage of the scheme. In response to my Parliamentary Question in November 2018, we know then that between July 2016 and December 2017, or 1.5 years, only 48 businesses contributed about 17,000 volunteering hours through BIPS projects. To put this number in context, there are more than 500,000 business entities in Singapore.

I urge the Government to consider the three suggestions below gathered from conversations with community-based organisations and companies that are keen to realise the policy and impact intent of BIPS.

First, this scheme is only available for the 610 approved IPCs which are held to a higher governance standard out of 2,277 registered charities in 2018. Given that, the scheme could be made fully flexible through disbursing the $50,000 tax deduction limit to each IPC and allowing them to use the funds as they deem fit. A random audit could be conducted to deter abuses. This will also allow charities to distribute this $50,000 deduction tax limit across corporate partners in more meaningful ways that would better meet their beneficiary needs. With the current application process, there is a tendency to rush into partnerships on a first-come-first-serve basis.

Second, the current BIPS offers tax deductions based on the actual salary rates of the employees of the businesses which could be problematic given (a) the need to disclosure such sensitive information and (b) the BIPS do not have the industry knowledge and/or bandwidth to audit salary figures given by corporate partners to determine if they are true and fairly reported. I understand from the reply to my Parliamentary Question in August that the Government is currently considering using fixed man-hour rates for BIPS to increase the administrative ease of claiming tax deduction under the scheme. This is very much a step in the right direction.

But I would further suggest that the value of voluntary method be tied to the actual value of the voluntary service rendered, independent of the corporate volunteer’s salary. This value could be pre-set by the Government in the form.

Lastly, BIPS should also consider including food donations, particularly nutritional food donations which I shared in my speech for the Resource Sustainability Bill last month as part of our climate change strategy. Countries like the US and France have already legislated tax deductions for food donations. In the US, companies can claim 15% tax deduction of their taxable income based on the value of the donated food. In France, if a company makes a food donation to a registered charity, they can claim up to 60% of the value of the food as a tax rebate, depending on how near it is to the food’s expiry date.

Mr Speaker, between private businesses and social service agencies are social enterprises. Social enterprises are businesses that have a social and/or environmental agenda woven into its primary business. They help to reduce inequality and create livelihood opportunities for vulnerable communities by generating income through innovative products and services in the marketplace.

At this juncture, I would like to declare my interest as the founder of Hush TeaBar, a social enterprise that employs Deaf persons and persons who live with mental health conditions to provide a curated silent tea experience to promote mental wellness and social inclusion at workplaces. I am also a small-time impact investor.

The growth of social enterprises in Singapore has generally been organic because we do not yet have a clear national strategy on this, including recognition of these enterprises as separate legal entities in their own right. As such, we do not know the total number of social enterprises in Singapore but we do know from a response to my Parliamentary Question in February that 336 of them chose to be members of the Singapore Centre for Social Enterprises, or raiSE, as at March 2018. Out of these, 92 or 27% had an annual revenue of at least or more than $200,000, including Hush.

I remember having a conversation with an impact investor a few years back who shared that she would not think to invest in Singapore social enterprises since there are already grants given by the Singapore Government, through the Tote Board and administered by raiSE. As much as grants are welcome, they encourage innovations differently from investments.

Investments into social enterprises could be encouraged with tax rebates for impact investors. This may also help to shift mindset from conventional donations to investing in social enterprises and eventually building a larger ecosystem. The UK government introduced the Social Investment Tax Relief (SITR) in 2014 to help social enterprises attract capital in order to drive and grow their business.

I urge the Government to consider such legislative innovations to incentivise market-driven investments into local social enterprises. We must do more to create the right environment for more of these impact businesses to grow from micro-businesses to SMEs and eventually bringing our Singapore brand of social innovations overseas as part of our global citizenry.

To conclude, I would like to quote Deputy Prime Minister Heng Swee Keat at the Building our Future Singapore Together Dialogue in June 2019. I quote, "beyond partnering you in specific areas, we will work with you to create a shared future, one where every Singaporean will have a part to play."

Mr Speaker, this commitment must surely include every differently-abled and vulnerable Singaporean by recognising them in a respectful, dignified and consistent manner across our laws and policies, as well as creating enabling environments to invite and support every business and every social enterprise to contribute to a nation that cares. Because the Singaporean society that we want to be is not about bringing people into what already exists but about making a new and better space for everyone to thrive.

12.19 pm

Mr Lawrence Wong: Mr Speaker, I thank Ms Anthea Ong for her support of the Bill, and let me take this opportunity to address some of the points that she had raised.

First, I will touch on the Business and IPC Partnership Scheme, or BIPS. As Ms Ong mentioned, this is a relatively new scheme introduced in Budget 2016 to encourage businesses to support their employees to volunteer. Since then, MCCY and NVPC have been exploring ways to refine the scheme and to make the administrative processes more convenient and seamless for both businesses and the Institutions of a Public Characters or IPCs.

Among the enhancements made to BIPS, we will, as Ms Ong highlighted, provide an option for businesses to claim tax deductions on wages based on a fixed man-hour rate. So, this will address the issues that I think the businesses and IPCs have been raising about administrative burden and confidentiality concerns. The fixed man-hour rates will be differentiated with a higher rate for skill-based volunteerism. This will also serve to encourage businesses to tap on the expertise of their employees and their services to better support the needs of the IPCs.

To further simplify the administrative process, we will be introducing a "safe harbour" for related expenses, such that IPCs need not verify supporting documentation for related expenses that make up less than 5% of the total qualifying expenditure.

We hope these enhancements will reduce the administrative burden on both our IPCs and businesses who are part of the scheme. Ms Ong also offered other suggestions for BIPS, including having food donations recognised as part of the scheme. We will take all these suggestions into consideration as we continue to improve and fine-tune this scheme.

Of course, besides BIPS, there are other existing schemes that provide more direct support for charities and IPCs. For example, under the Bicentennial Community Fund, the Government provides up to $400,000 in matching grants for donations made to each IPC this year. The VWOs-Charities Capability Fund supports charities in areas such as governance and the adoption of technology to enhance operational efficiency. Government agencies overseeing this sector will continue to review the various schemes that we have, be it on the tax side or through grants, and find ways to continue to encourage and promote a more giving society.

Ms Ong also suggested having tax relief for investors of social enterprises. Besides grants and tax incentives, she highlighted the role of impact investors and she suggested having tax reliefs for such investors to encourage the growth of social enterprises. As Ms Ong highlighted, we are currently helping social enterprises through raiSE (the Singapore Centre for Social Enterprise), and the Minister for Social and Family Development had elaborated on this, when he responded to a question in Parliament last month on the support provided to help social enterprises to grow. We will likewise study Ms Ong's suggestion on this particular area and see how we can do more to encourage the growth of our social enterprise sector in Singapore.

Finally, I would like to thank Ms Ong for her comments on the definitions of terminologies used in the Act. I would like to first assure her that we are in full compliance with the Convention on the Rights of People with Disabilities, and if you look at the terminologies and definitions used in our Acts, there is internal consistency across all our various Acts. We have taken legal advice on this, and I think there is no doubt about that matter. Nevertheless, I agree with her that language can play an important role in promoting inclusion in society and some of the terminologies do need to be updated. So, we will consider this at the next review of the Income Tax Act.

Mr Speaker, I believe I have addressed the Member's concerns and questions, and I would like to assure all Members of this House that MOF will continue to review our tax regime and our schemes regularly to ensure their relevance and effectiveness. Mr Speaker, I beg to move.

Question put, and agreed to.

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

The House immediately resolved itself into a Committee on the Bill. – [Mr Lawrence Wong].

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