Income Tax (Amendment No. 3) Bill

Order for Second Reading read.

The Senior Minister of State for Finance (Ms Indranee Rajah): Mdm Speaker, I beg to move that the Bill be now read a Second time.

The Income Tax (Amendment No 3) Bill of 2016, or "the Bill" in short, covers income tax changes announced in the 2016 Budget Statement, an amendment to implement country-by-country reporting, as well as other changes arising from the periodic review of our income tax regime. We sought views from the public on the draft Bill from 8 July to 29 July 2016. MOF has evaluated all the feedback received and, where relevant, accepted the suggestions.

Madam, the tax changes announced in the 2016 Budget Statement have already been debated in this House. These changes seek to transform our economy through enterprise and innovation, as well as to build a more caring and resilient society. Let me highlight the key changes.

First, the existing Corporate Income Tax rebate will be raised from 30% to 50% of tax payable, with a cap of $20,000 rebate each year for Years of Assessment 2016 and 2017. This will provide greater support to help all qualifying companies, especially SMEs, to address immediate concerns, while encouraging restructuring. Clause 51 of the Bill provides for the change.

Second, to support more mergers and acquisitions, the M&A scheme was enhanced to allow 25% tax allowance on the first $40 million of the cost of qualifying share acquisitions incurred each year, up from $20 million. Companies can, therefore, enjoy a maximum tax allowance of $10 million on their qualifying share acquisitions, up from $5 million. Clauses 23 and 63 of the Bill provide for the changes.

Third, to provide upfront certainty to companies for their corporate restructuring, the non-taxation of companies' gains on disposal of their equity investments has been extended until 31 May 2022. Clause 11 of the Bill provides for the change.

Fourth, to support firms, especially SMEs, to seek new markets and new growth opportunities overseas, the Double Tax Deduction for Internationalisation scheme has been extended till 31 March 2020. Clauses 13 and 14 of the Bill provide for the changes.

Fifth, to enhance progressivity of our personal income tax systems, the total amount of personal income tax reliefs an individual can claim will be capped at $80,000 per Year of Assessment. This change will take effect from Year of Assessment 2018. Clauses 25 to 28 of the Bill provide for the changes.

Sixth, to encourage volunteerism among businesses, a pilot Business and Institutions of Public Character (IPCs) Partnership Scheme was introduced from 1 July 2016 till end 2018. Businesses that organise their employees to volunteer and provide services to IPCs, including secondments, will receive a total of 250% tax deduction on qualifying expenditure incurred, subject to the receiving IPC's agreement. The qualifying expenditure will be subject to a yearly cap of $250,000 per business and $50,000 per IPC. Clauses 17 and 18 of the Bill provide for the changes.

Madam, Singapore has joined the inclusive framework for the global implementation of the Base Erosion and Profit Shifting (BEPS) project. As a BEPS associate, Singapore has committed to implementing country-by-country reporting, a minimum standard under the G20/OECD action plan to counter BEPS.

Singapore-headquartered multinational enterprise groups with global consolidated revenues exceeding $1.125 billion will be required to submit to the Inland Revenue Authority of Singapore (IRAS) an annual report containing the income, taxes paid and other indicators of their level of economic activities in every tax jurisdiction where they operate, from their financial years commencing on or after 1 January 2017. IRAS will then exchange the reports bilaterally with jurisdictions with whom Singapore has concluded Competent Authority Agreements. Clauses 53, 54, 55, 56 and 58 of the Bill provide for the implementation of country-by-country reporting.

Madam, MOF regularly reviews and refines the income tax regime. I shall now outline two other key changes arising from MOF's periodic review of the tax regime.

First, we will delink the income tax relief limit for CPF cash top-ups from the CPF top-up limit from 1 January 2016. The CPF top-up limit to the Retirement Account has been raised from the Full Retirement Sum (FRS) to the Enhanced Retirement Sum which is 1.5 times of the FRS, from 1 January 2016. To keep tax benefits focused on supporting basic retirement needs, the limit on tax relief for cash top-ups will be maintained at the FRS. Clause 24 of the Bill provides for the change.

Second, we will grant tax deduction of up to 200% for qualifying expenditure incurred on qualifying retail bonds issued from 19 May 2016 to 18 May 2021. Such qualifying expenditure include professional fees, origination, underwriting and distribution fees, as well as advertising and marketing expenses. This will further encourage the issuance of retail bonds and broaden the range of investment options available to retail investors. Clauses 16 and 18 of the Bill provide for the changes.

The remaining legislative changes are mostly technical in nature or relate to improvements in tax administration. Mdm Speaker, I beg to move.

Question proposed.

12.36 pm

Mr Louis Ng Kok Kwang (Nee Soon): Madam, I stand in support of this Bill. I welcome these progressive and timely amendments to the Income Tax Act, which support domestic businesses and spur economic growth, especially in view of the forecasted sluggish growth in 2017.

In its twice-yearly Macroeconomic Review released on 25 October 2016, MAS stated that global growth is expected to come in at 3.7% this year and edge up slightly to 3.8% next year, as business investments in major economies stay sluggish due to the elevated economic uncertainty.

The central bank also said that business sentiment remains negative, especially among small and medium-sized enterprises.

As a nation, we have to face the upcoming tough challenges together in the year ahead. However, it is encouraging that Government policy continues to be relevant to meet the needs of the finance sector and other businesses.

Here, let me highlight two aspects of this Bill.

As the Senior Minister of State had mentioned, Corporate Income Tax Rebate is given to all companies to help them with rising business costs and is applicable for Years of Assessment 2013 to 2017.

For Years of Assessment 2013 to 2015, companies received 30% income tax rebate, capped at $30,000.

For Years of Assessment 2016 to 2017, companies were to receive 30%, capped at $20,000. The cap reduced the maximum rebate by $10,000 from what it was previously.

The current Bill seeks to increase the rebate rate for Years of Assessment 2016 to 2017 from 30% to 50%, but retains the cap at $20,000.

Can the Senior Minister of State clarify the rationale behind reducing the cap by $10,000? And in view of the sluggish economy ahead, will the Senior Minister of State also consider not just increasing the rebate rate but also increasing the cap?

Secondly, in sections 8A and 63, the Bill has sought to introduce mandatory electronic filing for corporate income tax returns in stages for all companies eventually, by 2020.

I welcome this change as this is in line with the Government's direction for more effective delivery of public service. This is also in line with the Government's Smart Nation vision to harness technology to enhance productivity. While I commend our move to lead a life more empowered by technology, this may be difficult for some of the staff members, particularly those in the older generation, who may be unfamiliar with such computer systems. This may impede their productivity, or even cause them to be replaced by businesses if they are unable to rise to the task.

As such, I would suggest that the phasing out be taken at a slower pace, especially for traditional businesses, which should have the option of opting-out of mandatory e-filing with good reasons. This is also as we have seen an increase in the number of retrenchments. IRAS can consider these applications on a case-by-case basis, taking into consideration the age and capabilities of administrative staff members of the company.

These comments notwithstanding, Madam, this Bill can only serve the interests of Singapore's businesses and economy, and I stand in support of it.

12.39 pm

Ms Indranee Rajah: Mdm Speaker, I thank the Member for his support of the Bill. With regard to Mr Louis Ng's query on the rationale behind the reduction of the Corporate Income Tax (CIT) rebate quantum cap by $10,000, it may be helpful if I explain the circumstances.

In Budget 2013, a three-year CIT rebate of 30% of tax payable, capped at $30,000 per Year of Assessment (YA) from YA 2013 to YA 2015 was given as part of the three-year transition support package to support firms in their restructuring efforts. So, that was 2013.

In Budget 2015, the CIT rebate was further extended for another two years, that is, for YAs 2016 and 2017, at the same rate of 30% of tax payable, but up to a lower cap of $20,000 per Year of Assessment. The intent was to continue to support firms in the period of restructuring, while phasing out the support gradually.

I note Mr Louis Ng's concern on the current economic climate. In light of the difficult and uncertain business conditions amidst the economic slowdown, the CIT rebate was further enhanced in Budget 2016 from 30% of tax payable to 50% of tax payable, but the cap of $20,000 rebate for each year for YA 2016 to 2017 was maintained. And the intent was to address the immediate concerns while encouraging companies, especially the SMEs, to restructure.

The cap remains at $20,000 per Year of Assessment to ensure the focus remains on SMEs. Apart from the CIT rebate, however, businesses can also benefit from other grant schemes, for example, the Wage Credit Scheme and the Capability Development Grant, which are targeted at smaller businesses. We will continue to monitor closely the economic outlook and consider further business assistance measures if necessary.

With regard to electronic filing, we agree with Mr Louis Ng on the need to consider the difficulties that may be faced by small and traditional businesses with the introduction of mandatory electronic-filing or "e-filing" for corporate income tax returns. To assist companies, especially small and traditional ones, the mandatory e-filing will be introduced in a phased approach as follows.

First, companies with turnover of more than $10 million in YA 2017 will be required to e-file for YA 2018;

Second, companies with turnover of more than $1 million in YA 2018 will be required to e-file for YA 2019;

Third, all other small companies will only be required to e-file their corporate income tax returns from YA 2020.

We would also like to assure Mr Louis Ng that IRAS will help companies transit to e-filing.

First, IRAS will be holding e-filing workshops for SMEs and tax agents where participants can experience e-filing using a demonstration kit.

Second, there is a hotline available to answer questions regarding e-filing services.

Third, SMEs can visit the IRAS taxpayer service centre for one-to-one assistance.

Fourth, IRAS will also reach out to taxpayers to provide assistance where necessary for the companies to e-file.

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. – [Ms Indranee Rajah].

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