Economic Expansion Incentives (Relief from Income Tax) (Amendment) Bill

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Order for Second Reading read.

The Minister for Trade and Industry (Mr Lim Hng Kiang): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time".

The Economic Expansion Incentives relief from Income Tax (Amendment) Bill, 2011, comprises three key legislative changes. These amendments put into legal effect the income tax change announced in the 2010 Budget Statement as well as other amendments arising from the regular review of our tax incentive regime.

Let me summarise the three key changes.

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The first change is to remove the minimum tax relief period for Pioneer Service Incentive. The Pioneer Service Incentive was introduced in 1984 to encourage companies to engage in high value-added activities, such as consultancy and research and development in Singapore. The legislation currently stipulates a minimum tax relief period of five years for companies awarded the Pioneer Incentive Service scheme. The minimum tax relief period will be removed to grant more flexibility to our economic agencies in the award of an incentive package to better meet the needs of companies. Clause 3 of the Bill amends section 18 of the Act to give legislative effect to this.

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

The second change is enhancement of the Development and Expansion Incentive (DEI). The Development and Expansion Incentive (DEI) was introduced in 1996 to encourage companies to expand by investing in technology and major upgrading of equipment and operations. To ensure that only expansionary activities are incentivised, a base income is imposed on existing activities and the concessionary tax rate is applied, only to profits above the base income. The base income is re-calculated on every extension of the DEI after year 10. Re-calculating the base income, however, transits companies to a much higher effective tax rate and makes the DEI less competitive in encouraging companies to continue to expand and stay rooted in Singapore.

To provide companies with greater tax certainty, we will remove the need for the base income to be re-calculated after year 10. Instead, the concessionary tax rate will be increased by at least 0.5 percentage points at the beginning of the 11th year and the 16th year to ensure that tax revenues will not be eroded. Clause 4 of the Bill amends section 19J of the Act to give legislative effect to this enhancement.

The third change is DEI for international legal services. The DEI for international legal services was introduced in 2010 Budget Statement to encourage law practices to do more international legal services work from Singapore and to attract international law practices to set up offices in Singapore. This scheme will be reviewed after five years and can only be awarded for up to five years of tax relief at a concessionary tax rate of 10%. Clause 6 of the Bill inserts a new section 19KA of the Act to effect these specific features of the scheme.

Mr Deputy Speaker, Sir, the remaining legislative changes arising from our periodic review of the income tax system are either technical in nature or relate to improvements in tax administration. The proposed changes to the Economic Expansion Incentives Act seek to stimulate more economic activities in Singapore. These changes also reflect the Government's commitment to monitor the effectiveness of our tax incentive regime and to keep it relevant as economic conditions change.

Mr Deputy Speaker, Sir, I beg to move.

Question proposed.

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Mrs Lina Chiam (Non-Constituency Member): Thank you, Sir. I would like to ask the Minister, with clause 3 in this Amendment Bill, there seems to be now more flexibility in the tax relief period that pioneer services companies can enjoy. I am not sure why the minimum requirement of five years of tax relief is being removed. Nevertheless, my interest in this lies in whether our local enterprises are benefiting from this Pioneer Status Scheme. Could I therefore ask the Minister, how many certificates have been given to local SMEs versus those given to foreign companies and MNCs?

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Mr Lim Hng Kiang: Sir, why we remove the minimum period of five years is to give our economic agencies the flexibility to award less than five years if the kind of activities brought in do not justify for five years. Whereas the current registration requires us to give a minimum of five years so we are committed to at least five years. So this gives us the flexibility. Pioneer incentives are available to all companies who qualify. And the third point is, I do not have the specific statistics, if the Member would file a Question for Oral Answer, we will provide the numbers.

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 Lim Hng Kiang ].

Bill considered in Committee.

The Chairman: The citation year "2011" will be changed to "2012", as indicated in the Order Paper Supplement.

Clauses 1 to 7 inclusive ordered to stand part of the Bill.

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

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