INCOME TAX (AMENDMENT) BILL

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INCOME TAX (AMENDMENT) BILL: Order for Second Reading read.

3.19 pm

The Senior Minister of State for Finance (Mrs Lim Hwee Hua): Mr Speaker, Sir, I

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beg to move, "That the Bill be now read a Second time."

The Income Tax (Amendment) Bill 2008 comprises three groups of legislative changes. The first group provides for the income tax changes announced in the 2008 Budget Statement. The second group gives legislative effect to the tax changes under the recently enhanced Marriage and Parenthood (M&P) Package. The third group covers other amendments to the Income Tax Act arising from regular reviews to improve our income tax system.

The Income Tax (Amendment) Bill was released for public consultation from 27th June to 28th July this year. The Bill has been revised to incorporate public feedback accordingly.

Sir, I will now touch on tax policy changes announced in the 2008 Budget Statement, which the Bill provides for. Six key tax changes are as follows:

Firstly, personal income tax rebate of 20% for the Year of Assessment 2008, up to a cap of $2,000. This is provided by clause 56 of the Bill;

Secondly, tax changes to encourage companies, including the smaller ones, to carry out research and development in Singapore. Clauses 2, 20, 21, 22, 26 to 29, 32 to 34, and 53 of the Bill provide for this change;

Thirdly, a new deduction for qualifying renovation or refurbishment expenditure. The deduction is aimed at helping businesses upgrade their business premises, especially small companies in the retail and service sector. Clauses 24, 25 and 32 of the Bill provide for this change;

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Fourthly, liberalisation of the start-up tax exemption scheme to encourage entrepreneurship, as effected through clause 39;

Fifthly, various incentives for the financial and maritime sectors. These are covered in various clauses of the Bill such as clause 18 for family-owned investment holding companies and clause 42 for container leasing entities; and

Lastly, enhancement of tax reliefs for the CPF and SRS contributions to encourage voluntary savings for retirement and healthcare. These changes are covered by clauses 5, 25 and 35.

Sir, I shall now move on to the legislative changes to effect the three tax changes under the Marriage and Parenthood Package (M&P Package) announced in August this year.

The first tax change is the enhancement of the Qualifying Child Relief (QCR) and the Handicapped Child Relief (HCR). With effect from the Year of Assessment (YA) 2009, the quantum for QCR will be increased from $2,000 to $4,000, and for HCR, from $3,500 to $5,500. QCR will also be extended to all qualifying children, beyond the fourth child. Clauses 35(a) and 54(a) of the Bill provide for these changes.

The second tax change is the enhancement of the Working Mother’s Child Relief (WMCR). This relief, which is computed as a certain percentage of the qualifying mother’s earned income, will be enhanced and is now extended to all her qualifying Singaporean children, including the fifth child and beyond. Working mothers can claim this relief up to 100% of their earned income for all qualifying Singaporean children. The cap for the total amount of Qualifying Child Relief or Handicapped Child Relief and the Working

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Mother's Child Relief claimable in respect of the same child by all qualifying individuals has been doubled to $50,000. Clause 54 of the Bill provides for these changes.

The third tax change is the enhancement of the Parenthood Tax Rebate (PTR). The rebate of $5,000 will now be extended to the first child and $20,000 to each child beyond the fourth child. Clause 38 of the Bill provides for this change.

Sir, I shall now deal with the third group of tax changes which require amendments to the Act arising from our ongoing regular review of our existing tax policies and administration. Let me highlight two of these changes as the rest are either technical or relate to improvements to our tax administration.

Firstly, exempting selected groups of taxpayers from income tax filing under the No-Filing Service of IRAS. The No-Filing Service is an initiative where taxpayers, who are selected by IRAS based on pre-determined criteria, will receive their notices of assessment, without having to submit any income tax return. The selected taxpayers will not be required to file a tax return if, firstly, there are no additional sources of income (other than employment income received from employers under the auto-inclusion scheme) during the year; and secondly, the tax reliefs which they intend to claim are the same as those claimed in the previous year. However, they will be required to declare to IRAS if there is any inaccuracy of the information in the notice of assessment issued to them or if there has been any change in their circumstances, such as a change in their claims of tax reliefs.

The No-Filing Service will result in benefits for approximately 300,000 taxpayers as well as for the Government. As these selected taxpayers need not file

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their returns, others who have to do so will enjoy a faster and smoother tax filing process. For the Government, it will alleviate the filing load during the peak period and reduce tax administration costs such as the issuance of PIN mailers and paper returns. Clauses 47, 48, 49, 50, 51 and 52 effect the No-Filing Service.

Secondly, extending tax incentives to General Partnerships and Limited Liability Partnerships (LLPs). Typically, tax incentives have been awarded to companies. However, as a general principle, we should not discriminate among the different business forms when awarding tax incentives. As business forms other than companies are becoming more prevalent and businesses often seek to structure themselves as partnerships for legitimate commercial reasons, we have decided to extend tax incentives to General Partnerships and LLPs. Nonetheless, we need to proceed carefully on opening up tax incentives to general partnerships and LLPs, because income of partnerships are taxed in the hands of the partners who can be corporate or individuals, and individuals are taxed under personal income tax schedule. Nonetheless, for a start, specific tax incentives such as writing down allowance for acquisition of intellectual property rights, aircraft leasing and further deductions for R&D expenditure will be extended to General Partnerships and Limited Liability Partnerships, subject to conditions. Clause 30 effects this change.

Sir, for the remaining nine legislative changes arising from our periodic review of the income tax system, I will not put Members through details of these changes. They are either technical in nature or relate to improvements in administration.

With the above changes, the Income Tax Act will be enhanced and updated to better achieve our economic and social objectives.

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Sir, I beg to move.

Question proposed.

3.27 pm

Mdm Ho Geok Choo: Mr Speaker, Sir, I rise in support of the Income Tax (Amendment) Bill.

Sir, the new definition of 'research and development' in section 2 of the Income Tax Act is restricted to science or technology – why are social sciences and humanities not included? For instance, research on consumer behaviour or even on human capital planning, which could be very useful in developing Singapore's economy as well, would not come under the definition of 'research and development' as proposed in the Bill. If the hesitance to include social sciences or humanities is due to the difficulty of ensuring that the research is legitimate, may I request that potential researchers seeking tax exemption be then required to seek prior authorisation from the Minister or from IRAS before embarking on the research. Sir, perhaps a set of guidelines can also be set out in the subsidiary legislation to establish the parameters to guide decisions on whether a particular piece of research can be tax-exempted.

Sir, the new section 14Q allows for tax deduction on renovation or refurbishment works for the purposes of the person's trade, profession or business. Such tax-deductible expenditure is capped at $150,000 over three consecutive basis periods. Sir, indeed this will be very helpful for both new businesses and those seeking to upgrade their current premises, and I commend the new inclusion in light of the current recession.

Sir, the changes to the Fifth Schedule on the Working Mother's Child Relief allows a mother to claim more tax deduction for her children, up to 100% of

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her earned income. On behalf of all women in Singapore, I commend this amendment as this will indeed go a long way to giving families more financial support, while also operating as a long-term incentive and encouragement to have bigger families.

On this note, I support the Bill.

Mrs Lim Hwee Hua: Mr Speaker, Sir, I would like to thank Mdm Ho Geok Choo for her support of the Bill as well as her feedback on the various initiatives. I would like to respond to her points about the R&D. If I may recap, in terms of explaining the policy intent under the revised definition of R&D, previously R&D referred to systematic or intensive study and this has created ambiguity for taxpayers. Therefore, we have this definition to cover systematic, investigative and experimental study. The change is not to make the definition more restrictive but, by its very nature, R&D is indeed systematic, investigative and experimental.

As regards her point as to why we are limiting it only to the field of science and technology and not to include social sciences and humanities, let me explain that this is really in line with the importance of science and technology that we are currently attaching to our economic strategy. It is not unique to us. Major jurisdictions such as the UK and Ireland also focus their R&D incentives on science and technology. But if I may finally recap, if there is research in social sciences and humanities which are undertaken to support a qualifying R&D project, then we will certainly allow the expenses incurred for this supporting research.

Finally, if I may make an important point as regards the spirit of handing out

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this R&D tax incentive. It is really not the taxpayer's ability to claim the R&D concession only when his R&D succeeds. Rather, it is our policy intent that the tax concessions will help to encourage projects that are intended to have novel outcomes or to involve attempts to resolve some scientific or technological uncertainty, and that is really built into the definition of the qualifying R&D.

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. – [Mrs Lim Hwee Hua].

Bill considered in Committee.

Mrs Lim Hwee Hua: Clause 1 –

Mrs Lim Hwee Hua: Sir, I beg to move,

In page 2, line 27, to leave out "53(b)", and insert "53(a)".

Amendment agreed to .

Clause 1 , as amended, ordered to stand part of the Bill.

Clauses 2 to 57 inclusive ordered to stand part of the Bill.

Bill reported with an amendment, read a Third time and passed.