INCOME TAX

INCOME TAX:

(Arrears and deductions): 6.

Dr Lim Wee Kiak asked the Prime Minister and Minister for Finance (a) how many people were in arrears with their income tax in the last financial year; and (b) whether his Ministry will consider deducting the income tax upfront from the salary instead of waiting till the end of the financial year.

The Minister of State for Finance (Mrs Lim Hwee Hua) (for the Prime Minister and Minister for Finance: ): Sir, the number of income tax arrears incurred in FY 2005/06 was 67,364 cases as at March 2006. This is around 4% of the total number of assessments raised and represented 2.6% of the total value of tax assessed.

Sir, Singapore enjoys a high level of tax compliance and a relatively low rate of tax arrears partly because IRAS has made it convenient for taxpayers to firstly file and, secondly, to pay by providing various payment arrangements. About 55% of taxpayers have opted to pay their taxes

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through monthly instalments using GIRO. In addition, where taxpayers face financial difficulties, IRAS will work with them to increase the number of instalment payments or even to defer tax payments where warranted. By taking into account taxpayers' individual circumstances, IRAS has facilitated tax compliance.

In 2005, the Ministry of Finance considered switching to a Current Year basis of assessment, ie, having the employer deduct the tax payments from the employees' salaries and remitting it to the tax authorities directly. The reasons were to bring about a better matching of taxpayers' incomes and tax expenditures and to enhance the effectiveness of the tax system as a fiscal stabiliser.

However, the feedback from the public consultation exercise that was conducted as part of the review was not in favour of switching to a Current Year basis of assessment. Taxpayers had concerns over the practical difficulties in estimating their current year's income in order to pay their taxes upfront, as well as the high compliance costs incurred by businesses and individuals as a result of the periodic filing and the withholding of tax required under the Current Year basis. In view of the feedback, the Ministry of Finance decided not to switch to a Current Year basis. The results of the review were announced in the 2005 Budget.

Nonetheless, my Ministry is prepared to reconsider this proposal should the reasons for adopting Current Year basis become more compelling in future.