Finance (Income Taxes) Bill

Order for Second Reading read.

Mr Speaker: Second Minister for Finance.

12.32 pm

The Second Minister for Finance (Mr Jeffrey Siow): Mr Speaker, I move, "That the Bill be now read a Second time."

This past year has been challenging for many businesses. The conflict in the Strait of Hormuz has disrupted supply chains and pushed up energy costs. At the same time, artificial intelligence (AI) is transforming industries, and companies must adapt quickly to stay competitive.

This Bill does three things.

First, it brings into legal effect tax measures, that were announced at this year's Budget and during the April Parliament Sitting to help businesses cope with these cost pressures and invest in AI. Second, it introduces amendments to comply with the latest Pillar Two global minimum tax rules, which will provide greater certainty to multinational enterprises. Third, it introduces changes to simplify tax filing for taxpayers.

Let me first start with the first set of amendments on business support.

Clause 31 introduces the Corporate Income Tax Rebates and Cash Grants for the Year of Assessment (YA) 2026. At this year's Budget, the Government had announced a 40% tax rebate with a $1,500 cash grant for active companies that employed at least one local employee in 2025. The total benefit was capped at $30,000.

When the conflict in the Strait of Hormuz broke out, I shared in Parliament in April that we would raise the tax rebate to 50%, and the cash grant to $2,000, to help small and medium enterprises (SMEs) cope with cost pressures. The benefit cap was also raised to $40,000, and today's amendment brings this into legal effect.

Clause 13(1) enhances the Enterprise Innovation Scheme to support businesses in AI adoption. At Budget this year, we announced an expansion of the scheme to include AI expenditure and businesses will now be able to claim an enhanced tax deduction of 400% on up to $50,000 of qualifying AI expenditure, for YA2027 and YA2028.

The second set of amendments, Sir, concerns our Pillar Two taxes, namely the Multinational Enterprise Top-up Tax and the Domestic Top-up Tax.

In January this year, all 147 jurisdictions of the Organisation for Economic Co-operation and Development (OECD) Inclusive Framework agreed to the Side-by-Side package, which exempts the United States (US) multinational enterprises from certain Pillar Two rules.

Clauses 38 and 49(b) give effect to this agreement in Singapore. US multinational enterprises will be exempted from our Multinational Enterprise Top-up Tax. The Domestic Top-up Tax will continue to apply to all multinational enterprises in Singapore, including those from the US.

Clauses 36, 37, and 39 to 50 align our laws with other updates to international rules. For example, we will allow the exchange of Global Anti-Base Erosion (GloBE) Information Returns with other jurisdictions under Pillar Two, so that multinational enterprises only need to file these returns in one jurisdiction.

The third set of amendments make tax filing simpler for taxpayers, especially the self-employed.

Today, self-employed persons have to compile and calculate their actual business expenses when filing tax returns – and for some, this can be onerous.

The Inland Revenue Authority of Singapore (IRAS) has simplified the process by allowing some groups of self-employed taxpayers, like real estate agents, insurance brokers, or financial advisors, to deduct a fixed percentage of their gross commission revenue as expenses if they wish to.

This simplified tax filing process has been popular. So, clause 13(2) extends this option to all self-employed persons and individual sole proprietorships, with annual revenue of up to $50,000, allowing them to claim a Fixed Expense Deduction Ratio of 20%. This is an option and not compulsory. Those who still prefer to claim their actual expenses may continue to do so.

We will also require all companies to use IRAS' e-service for specific tax filing matters. Today, all companies already file tax returns using IRAS' e-service, and nearly 80% do this for objections and revisions to tax filings. Clauses 27, 28, 32, and 34, require all companies to use IRAS' e-service for filing of objections and revisions from 1 July 2027. This will allow for faster resolution of tax matters. IRAS will work closely with business associations and taxpayers to support those who need help to use the system.

Mr Speaker, in summary this Bill builds on the strong foundation of our tax system to support businesses through a difficult year and help them invest for the next. It helps keep our tax system in step with international tax developments and provide certainty to multinational enterprises. And lastly, this Bill aims to simplify tax filing for businesses and self-employed persons. Sir, I seek to move.

Question proposed.

Mr Speaker: Mr Saktiandi Supaat.

12.37 pm

Mr Saktiandi Supaat (Bishan-Toa Payoh): Mr Speaker, Sir, I rise in support of the Finance (Income Taxes) Bill 2026, which introduces tax changes to support businesses and Singaporeans amid a challenging and uncertain economic environment. I will focus on several provisions in the Bill where implementation clarity can help ensure that the intended support reaches businesses and taxpayers effectively.

First, I welcome the enhancements to the Enterprise Innovation Scheme, particularly the 400% tax deduction on up to $50,000 of qualifying AI-related expenditure for YA2027 and YA2028. This is timely as more enterprises seek to adopt AI to raise productivity and transform their operations.

I have two clarifications.

First, how will IRAS define "qualifying AI expenditure" in practice? Increasingly, commercial software incorporates some form of AI capability. It will therefore be important for businesses to understand where the line is drawn between ordinary software expenditure and expenditure on AI solutions that qualifies for the enhanced deduction. This is particularly relevant where a single expenditure contains both qualifying AI and non-qualifying components. Will IRAS provide guidance and practical illustrations on how businesses should apportion such expenditure ahead of YA2027?

Second, unlike some other qualifying activities under the Enterprise Innovation Scheme, businesses do not appear to have the option of converting qualifying AI expenditure into a non-taxable cash payout. Could the Minister explain the rationale for this distinction? This could be particularly relevant to smaller and younger enterprises which may have limited taxable income but could benefit greatly from adopting AI.

Second, I welcome the continuation of the 50% Corporate Income Tax rebate and the $2,000 cash grant for eligible companies. On the cash grant, I seek a clarification regarding the eligibility requirement relating to Central Provident Fund (CPF) contributions for local employees. The Bill allows the Comptroller to waive the relevant time requirement in certain circumstances. Could the Minister clarify the scope of this discretion and how the Government will ensure that the grant continues to benefit companies with substantive local employment?

I also welcome the increase in the expenditure cap for qualifying internationalisation activities that can be claimed without prior approval from Enterprise Singapore or the Singapore Tourism Board, from $150,000 to $400,000 per year of assessment. This should reduce administrative friction for Singapore companies seeking to expand overseas. Could the Minister elaborate briefly on the considerations behind the significant increase in the cap, and how the change is expected to facilitate the internationalisation of our enterprises?

Third, on the amendments to the Multinational Enterprise (Minimum Tax) Act, I have one clarification. As Singapore implements the GloBE Information Return exchange framework, sensitive corporate financial and tax information may be transmitted between jurisdictions. What safeguards will apply to such exchanges, particularly in relation to data protection, cybersecurity and reciprocity, to ensure that information concerning businesses operating in Singapore is appropriately protected? Mr Speaker, Sir, in Malay, please.

(In Malay): I also welcome the tax exemption for payments under the ComLink+ Progress Package, which will apply retrospectively to payments made from 1 May 2025.

Given that this amendment will apply retrospectively, could the Minister clarify whether the exemption and any necessary tax adjustments will be made automatically by IRAS, or whether recipients will need to apply?

I also seek clarification on the tax exemption for subsidies, allowances or benefits provided for an employee's child attending an MOE Kindergarten.

Could the Minister confirm how this amendment will ensure fair and consistent tax treatment for parents who receive childcare or education benefits from their employers?

( In English ): Mr Speaker, Sir, in English again. Finally, I have two brief points on tax administration.

The introduction of the Fixed Expense Deduction Ratio should simplify tax filing for self-employed persons and sole proprietors. However, different occupations and businesses can have very different cost structures. Can the Minister confirm that self-employed persons whose actual business expenses exceed the 20% ratio can continue to claim their actual allowable expenses without undue administrative friction?

Lastly, I support the move towards greater use of digital tax services, including mandatory electronic filing of objections by companies. At the same time, some traditional micro-enterprises and older business owners may still face difficulties navigating digital systems. What assistance or alternative arrangements will IRAS provide to ensure that these taxpayers are not disadvantaged as tax administration becomes increasingly digital?

Mr Speaker, Sir, effective tax legislation must strike a balance between supporting enterprise transformation, preserving Singapore's competitiveness and ensuring that our tax system remains clear and accessible. The measures in this Bill move in that direction. Providing clarity on these implementation issues will give businesses and taxpayers greater certainty as they adjust to the changes. Sir, I support the Bill.

Mr Speaker: Mr Louis Chua.

12.44 pm

Mr Chua Kheng Wee Louis (Sengkang): Mr Speaker, as with past years, the Finance (Income Taxes) Bill before this House seeks to implement the tax changes announced in Budget 2026, by amending the Income Tax Act and related legislation. My speech today will be largely domestic in focus, while my Sengkang colleague, Jamus Lim will focus on international issues, such as those relating to Base Erosion and Profit Shifting (BEPS) 2.0.

My speech today is in two parts. In part one, I will touch on key specifics of the Bill, in particular the new deduction for qualifying AI expenditure. In part two, I will set out what remains my wish list for tax changes in Singapore, which hopefully can come as soon as Budget 2027.

While the Minister and the team from the Ministry of Finance (MOF) listening in will likely find some of them familiar, these issues are, if anything, more pressing than when I last raised them in this House during the Budget 2026 debate and on last year's edition of the Finance (Income Taxes) Bill in 2025.

Let me first touch on how we can support our companies in their AI journey. Clause 13 inserts a new section 14ZK, allowing a deduction for qualifying AI expenditure for YA2027 and YA2028. Up to $50,000 of such expenditure a year qualifies, with a multiplier of 300% where the cost is already deductible and 400% where it is not. I support the intent of this new measure.

Qualifying AI expenditure includes expenditure on AI systems or a qualifying AI business service, as defined by section 14ZK(2). However, especially after the so-called "SaaS pocalypse" fears in early 2026, almost every self-respecting developer of business software will call itself AI-powered and the definitions in section 14ZK(2), which includes the provision of an online platform, are understandably broad.

This creates two opposite risks. The first is overclaiming. A firm could claim its entire Customer Relationship Management (CRM) or accounting software, because an AI assistant is built in. The second is actually the reverse – an overly narrow reading could penalise a firm that pays a premium for software to adopt AI where its staff actually work inside everyday software that is, used rather than buying a standalone chatbot.

In my view, the guidance from IRAS should address both areas explicitly. Consider what small businesses actually buy.

Looking at the major software providers today, Xero's AI agent, JAX, is currently included in existing subscriptions at no extra cost. So, there is no AI-specific price at all for now. Is the qualifying amount zero, the whole subscription or something in between? Intuit, the developer of the widely used accounting software QuickBooks has woven its AI features into QuickBooks Online and changed its subscription prices from August this year. Is the price increase the AI component? Salesforce, arguably the largest CRM player today, sells some of its Agentforce AI at separately priced add-ons and credits, which are easy to identify, but also in bundled additions, where the CRM licence and Ante AI come at a single per user price.

Then there is, of course, the additional complication of per-seat versus usage-based pricing models, which may evolve quickly alongside the rapid developments in AI.

Section 14ZK (5) requires a person who cannot, despite reasonable efforts, obtain evidence of the qualifying portion to apportion it in a manner that is reasonable in the circumstances. And if the controller is not satisfied that it is reasonable, section 14ZK(6) allows the controller to apportion according to his or her best judgement.

With respect, a sole proprietor of a five-person firm in Sengkang cannot negotiate a cost breakdown from a global software vendor. Hence, when AI is bundled into ordinary software and the vendor discloses no AI-specific price, what evidence does the Government expect a small business to obtain and what allocation will IRAS accept?

I suggest that IRAS provides additional guidance with worked examples on bundled software soon after the Bill's passing. As with other forms of claims, such as the deemed business expenses, commission agents and taxi drivers, or employment work-from-home expenses, we can also adopt the simple default percentage for smaller claims where no such pricing transparency exists.

Third, a list of common software products with accepted apportionments, much as the Productivity Solutions Grant list pre-approved solutions that qualify.

And fourth, no penalties for good faith apportionment made in line with guidance, even if later adjusted.

On a related note, I can understand the urgency to encourage AI adoption among firms, especially as a Ministry if Manpower report released on April 2026, found that 72% of firms have yet to adopt AI, and only 4% are integrating AI into their core processes. Looking forward, however, if the data breach at Bee Cheng Hiang, the first AI-related breach notified to the Personal Data Protection Commission is anything to go by, the scheme should be expanded to place greater emphasis on qualifying expenditure in the specific areas of AI governance, risk management and security so that controls and responsible use can be built up alongside adoption.

Next, let me turn to how we can better support an individual's AI journey. On course fees relief entered from YA2026, in April, I asked whether it would be reinstated from YA2027 or replaced with another personal income tax relief for skills upgrading. The Senior Minister of State replied that the Government had introduced more targeted direct support for lifelong learning and that there are no plans to do either.

I think this is a lost opportunity. As I said in November 2025 and again in February 2026, a broad-based skills investment relief, capped at deduction for out-of-pocket training expenses would reward workers who retrain on their own initiative, including for a career unrelated to the current job. The contrast with corporates is stark.

A company that spends $50,000 on AI subscriptions can deduct up to $200,000. An individual gets a single six-month subscription to a premium AI tool and only if enrolled in a selected AI course. Why does the Government give businesses an enhanced deduction for AI subscriptions, but give individuals only a time-limited cost link subsidy? AI fluency, like any skill, comes from daily practice, not from a course certificate. How will the Government support a continued access after the free six months, particularly for workers who need to practice independently or while between jobs with no employer to pay?

For these workers, they inevitably also lose out on opportunities to upskill themselves, especially if they have already exhausted their SkillsFuture credits and do not have the ongoing training provided by their firms seeking to build up human capital.

If the concern is that a flat relief favours higher earners, there are alternatives. A targeted credit or a subsidised renewal for lower-income learners would reach those who pay little or no income tax.

As I have shared in Budget 2026, Prime Minister Wong spoke in length about AI and in an era where AI is recognised as a critical driver of economic transformation. It is incongruous that personal expenditure on AI-related tools and education does not receive the same tax relief consideration as corporate AI investments.

Staying on the personal income tax front for YA2024 and YA2025, resident taxpayers have received a personal income tax rebate capped at $200. For YA2026, there is none. As I said last November, the rebate looks temporary and so it has proven to be the case. As I stated in my Budget 2026 speech, the lower- and middle-personal income tax brackets, including the $20,000 tax free threshold, have not been updated since 2001, some 25 years ago.

Since then, nominal wages and the cost of living have risen significantly, leading to the so-called bracket creep, where taxpayers are pushed into higher marginal tax brackets, even if their real purchasing power had stagnated.

In his Budget round-up speech, Prime Minister Wong said that about one in three resident workers pay no personal income tax, and that about eight in 10 of those who do, have an effective tax rate of below 6%.

In November 2020, in a Parliamentary reply, then-Deputy Prime Minister Heng Swee Keat said about half of workers paid no personal income tax, and 80% of taxpayers had effective rates below 4%.

In about five years, the share outside the tax net had declined from about half to around one in three; while the effective tax rate the Government cites for eight in 10 taxpayers had moved from below 4% to below 6%. Some of that is real wage growth, which we welcome, but part of it is also what bracket creep looks like when the $20,000 threshold has not moved since 2001.

With the earned income relief at $1,000 for workers below 55 for as long as I can recall, I hope they can institute a mechanism to regularly review both the personal income tax brackets and basic relief quota so that the system keeps pace with wages and prices.

Sticking to tax rates and this time on corporate income taxes, in our Motion on an Economy of the Future that Works for All in August, the Workers' Party argued that we must better support local SMEs, a point that I believe saw broad agreement in this House. According to the OECD's Corporate Tax Statistics 2024 report, multinational corporations (MNCs) were responsible for 73% of Singapore's corporate income tax revenue in 2021. That makes us the fourth-most dependent economy in the world on MNCs for corporate income tax behind Chile at 76%; Hong Kong at 79%; and Ireland at 87%.

In his round-up, the Prime Minister himself attributed recent elevated collections partly to better than expected contributions from multinational enterprises in a few key sectors.

The flip side is that we can better support SMEs without sacrificing much revenue. In August, the Ministry of Trade and Industry upgraded this year's growth forecast to between 4.5% and 5.5%, citing global AI-related capital expenditure. Growth led by large export-oriented firms, not your neighbourhood SME, nor are SMEs lightly taxed. As I noted in 2021, based on figures from my Parliamentary question, SMEs then accounted for a 9% of total profits before tax in YA2019, yet contributed an outsized 29% of corporate income tax paid.

As I have often shared, the current system of fluctuating corporate income tax rates, varying from 20% to 50% over the last decade, lacks the certainty and predictability needed for long-term planning. I hope the Government can introduce more structural progressivity into our corporate income tax regime and better support our SMEs, such as through reversing the cut to partial tax exemption limits that were introduced in Budget 2018, where the maximum exemption was reduced sharply from $152,500 up to YA2019, to $102,500 from YA2020 onwards; or introduce a two-tiered profits tax similar to Hong Kong's model.

Finally, on measures to address our total fertility rate. I welcome the measures announced at the National Day Rally, including the SG Child Support Package for a Singapore Citizen child, regardless of birth order and more childcare leave.

It is time our tax policies follow suit. In my Budget 2026 speech in February this year, I spoke about Hungary. To recap and update, since October 2025, Hungary has exempted qualifying mothers of three children, regardless of age, from personal income tax on their earnings from work, and its government estimated that about 250,000 women were eligible. From January this year, it removed the income tax on the existing relief for qualifying mothers under 30 and introduced a similar exemption for qualifying mothers of two born in 1986 or later. The two-child measure is scheduled to extend to older mothers in 2027 and 2028, and to all qualifying mothers of two from 2029.

I asked back then whether we are willing to be this bold. But even if we do not wish to go that far, there is a more modest step. I am comforted that this Government is not afraid of U-turns and the large family scheme was launched in Budget 2025 for the third and subsequent Singapore Citizen child, and the Prime Minister cited it again in his round-up earlier this February.

Six months later, it is being absorbed into the SG Child Support package, just 18 months after its launch. I welcome the move away from birth order arithmetic, but if the Large Family Scheme can be revisited in 18 months, surely the Working Mother's Child Relief can too.

Let me recap a point from the Workers' Party manifesto. The adjustment of the Working Mother's Child Relief to a fixed-dollar relief from YA2025, leaves a large majority of working mothers either unaffected or worse off, while offering minimal additional tax savings of about $40 a year or less to a small minority. The Working Mother's Child Relief should revert to a percentage of income. And because working mothers earning less than $22,000 a year pay no income tax and so, gain nothing from the Working Mother's Child Relief, we propose a $1,000 working mothers tax credit for all mothers earning $25,000 a year, including single mothers.

Allow me to conclude, Mr Speaker, with five asks.

First AI for businesses. IRAS should publish clear guidance on claiming tax deductions for bundled AI software and commit to no penalties for good faith apportionment.

Second, AI for workers. Introduce a skills investment relief so that Singaporeans who upskill and build AI literacy at their own expense are recognised and supported.

Third, end bracket creep. In about five years, the share of workers who do not pay income taxes has fallen from about half to about one in three, while the effective tax rate for eight in 10 taxpayers has moved from below 4% to below 6%.

Fourth, a fairer deal for SMEs. Since YA2020, the maximum partial tax exemption has been slashed by almost a third, from $152,500 to $102,500. Reverse the cut or adopt stronger progressivity.

Fifth, working mothers. If the Large Family Scheme can be revisited in 18 months, surely the Working Mothers Child Relief can be too. The fixed-dollar Working Mother's Child Relief leaves a large majority of working mothers unaffected or worse off. Restore the percentage-based relief to send the right signal to our working mothers.

Mr Speaker: Ms Elysa Chen.

12.58 pm

Ms Elysa Chen (Bishan-Toa Payoh): Sir, I rise in support of the Bill. Taxes do more than raise revenue. They are signals. They nudge businesses toward good practices, encourage generosity and help build a fairer system. This Bill makes four significant moves.

First, clause 13 gives businesses a 400% tax deduction on spending to adopt AI alongside a corporate income tax rebate to ease cost pressures. This prepares Singapore for the economy that is coming.

Second, clauses 8 and 9 make it easier for our companies to venture abroad. From YA2027, firms can claim double tax deductions on up to $400,000 of overseas expansion costs a year without prior approval up from $150,000; and more early groundwork, such as feasibility studies, will qualify automatically.

At this year's Committee of Supply, I noted that four in five SMEs hope to expand overseas, yet only 3.1% of our resident workforce has worked abroad full-time for six months or more. I ask for smoother lower-risk pathways into foreign markets, and I am glad that the Government is now saying: go out, build, come back stronger and we will share some of that risk with you.

Third, and here I declare my interest as Executive Director of CampusImpact, an Institution of Public Character (IPC). Clause 17 extends the 250% tax deduction for IPC donations due to lapse this year, to the end of 2029. Donations are vital to our social service agencies and three more years gives charities and beneficiaries the confidence to plan.

Fourth, clause 14 lets platform operators claim tax deductions when they voluntarily top up their platform workers' MediSave accounts. Until the Platform Workers Act took effect last year, operators made no CPF contributions for the riders we rely on daily, so their healthcare savings have had less time to grow. This clause helps us do right by them.

At the same time, let me ask a few clarification questions.

First, on the tax incentives for AI use. I would like to ask first, whether the Government will fund consultancy projects or an in-house matching service to help companies identify the right AI software for their business needs, lest we create white elephants.

At the same time, would the Government consider embedding a compulsory job redesign component as a prerequisite for use of these consultancy services, in order to maximise the number of Singaporeans that are able to partake in the purported economic benefits of AI, rather than being replaced by AI? In that same vein, would the Ministry commit to publishing an evaluation before any decision to extend before YA2028 by take-up by firm size and sector, and its effect on human capital, both whether claimants' productivity and wages rose, and the effects on workers whose roles the tools changed.

Second, on tax incentives for giving. Will the Ministry commit now that the 250% tax deduction will not simply lapse in 2029? If I could be so bold as to ask for the 250% tax deduction for charitable donations to social service agencies to be made a permanent feature of our tax incentives. Our social service agencies do important work. Uplifting those in our communities who need help, committing to journey with them with compassion and bringing hope to others should always be a feature of Singapore society. Let us give our social service agencies the assurance that Singapore will always have your back. Not everyone can nor should be a social worker or counsellor, but we can all stand together with our social service professionals.

I would also like to ask if the Ministry could consider enhancing the Corporate Volunteer Scheme to specifically target skills-based secondments, from finance, data, IT and consultancy to small social service agencies. Additionally, skills-based volunteers also contribute significantly to the social service sector. Would the Ministry consider a 300% tax deduction for higher-impact executive volunteering and pro-bono services rendered to charities?

Third, on the platform worker CPF top-up incentives. Firstly, would the Ministry track and report after three years, how many platform workers received voluntary top-ups and the median amount by age group, together with the opt-in rate among workers born before 1995. Secondly, one group that I would request the Minister to pay closer attention to is older platform workers who are no longer allowed to drive full-time and therefore, are not officially recognised as platform workers and cannot receive these benefits. Some of these drivers are my constituents and they have shared how they are pressed for income. And yet, they have found ways to continue driving past their statutory retirement age by using car-pooling arrangements, so that they can still get an income to manage the rising costs of living. Would the Ministry consider extending these CPF top-up incentives for this demographic of platform workers?

Going further, on a matter of granularity, would the Ministry consider incentivising operators to further direct top-ups towards older platform workers that are closer to the statutory retirement age in order to further boost their retirement adequacy?

Sir, these four clauses share one principle. Capital flows like water, and our tax system helps guide where it goes – towards innovation, enterprise, generosity and care for workers. But even as we pull capital towards productive uses, we should ask whether our tax system lets it stagnate in places that do little for the wider economy.

A home is not like other assets. If someone buys gold or shares, no young couple is worse off. But in land-scarce Singapore, when one person holds a fifth or a 10th residential property, it takes away another family's chance at a home. Anyone who has played Monopoly knows the game changes once a player owns several properties. They collect rent at every turn and that advantage helps them buy more. We already charge higher stamp duty on additional purchases, which affects the decision to buy the next property, but our current system does little to change the cost of holding the properties already owned.

Last year, a case came before our High Court which disclosed a family dispute over who owned 26 properties in Singapore, many of them residential. It found that the mother was the true owner of 25 of them, even though most had been registered partly in her children's names, in some cases, with a child holding as little as 1% on paper.

Over the 10 years from 2014 to 2024, real wages in Singapore rose meaningfully, by 27%. Over the same period, the residential property price index rose by 42%.

We have been trying to reduce inequalities. Since 2009, the Government has introduced at least 15 rounds of property cooling measures. I want to acknowledge that, and to acknowledge that these measures have worked to slow things down. This has taken the form of Additional Buyer's Stamp Duty, Seller's Stamp Duty, loan-to-value limits and more. But all of these measures only create a high barrier to entry. Once a person has already acquired the properties, the cost of simply sitting on them, year after year, decade after decade, is comparatively modest.

Singapore has no capital gains tax and no inheritance tax. So, property, once held, can appreciate significantly across an entire lifetime; and then pass to the next generation and appreciate again. The asset compounds and the advantage compounds. The young couple at the viewing, bidding against an investor who already owns four properties, is not competing on equal terms. They are competing against accumulated advantages built up over decades.

So, I would like to propose a targeted reform: a tiered, progressive tax on second and subsequent investment residential properties. This could either take the form of increased tax on rental property income, as governed by section 10 of the Income Tax Act, or a general property tax.

First, your home is untouched. Owner-occupied residential property continues to enjoy existing concessionary property tax rates. If you live in that property, you do not have to pay higher property taxes.

Second, your one investment property is untouched. The income from first non-owner-occupied residential property continues to be taxed at current rates. Some Singaporeans have bought a second property as their retirement plan, counting on a modest rental income in old age and this proposal leaves those Singaporeans alone. However, from the second investment property onwards, a significantly higher and progressive set of rental income tax rates for your property would apply, meaningfully increasing holding costs.

I am not proposing a higher property tax for your family home. That remains unchanged. For Singaporeans who have fought all their lives to hold one investment property as a legacy for their children, tax also remains unchanged. But beyond that, the more of this scarce, precious land you hold, the more you contribute for holding it.

As Singaporeans, we already accept this logic at the point of purchase, since the Additional Buyer's Stamp Duty a Singaporean pays rises with the number of homes already owned. I am asking that the same logic continues beyond the day of purchase and into the years of holding.

Sir, I want to be very clear about what this proposal is not, because some may misunderstand. This is not a call to tax the wealthy more heavily. Singapore should remain a country where people who have done well can enjoy what they have built, and I hope many more of our people will enjoy similar success. I have no wish to see us resent success.

My concern is with what we do with our wealth. Wealth parked in housing is not flowing and building anything else. If we invest that wealth in our Singapore companies, we build products, hire workers and perhaps, one day even help these companies list on our exchange. But buying a third residential unit and more does little of these things. It simply hoards that wealth and pushes up the price of residential properties for everyone else.

Only last year, we introduced a set of incentives to encourage listings on our exchange and to draw investment into Singapore-listed equities. In today's Bill, we are supporting companies to adopt AI. So, the direction is clear – we want capital to flow to enterprise.

My proposal addresses the other side of the same equation. While we offer carrots to move capital towards productive investment, would we consider a nudge for capital to move out of an attractive parking space in the economy, a scarce, appreciating necessity like residential property? Let us make it a little less attractive to hoard homes and correspondingly, more attractive to put money into venture capital, into private capital, into our SMEs, into companies listed on the Singapore Exchange, into funds managed in Singapore. That is wealth that builds Singapore, rather than wealth that merely waits at the expense of someone else's wait for a home.

I pre-empt three main difficulties with this proposal.

First, rent. Landlords holding multiple properties will try to pass higher costs to tenants. This reform should not be implemented alone. It should be paired with deliberate expansion of long-term rental and co-living supply, so the rental market has somewhere to breathe. And it should be phased with a long lead time, so the market adjusts gradually rather than abruptly.

Second, avoidance. If the tax attaches only to the person on the title, it can be side-stepped through entities, trusts, nominees and family members. For this to work, liability must reach beneficial ownership, with annual declaration of total residential holdings and firm anti-avoidance rules.

Third, market effects. Some divestment is likely and the net effect on prices and on rental supply is genuinely uncertain. This is why we need careful calibration and phasing as we implement these policies.

Sir, this Bill is chiefly about income tax, although it also reaches into the Property Tax Act to give owners more time to appeal their valuations. But every measure I have spoken on today – the AI deduction, the overseas expansion deduction, the donation tax exemption extension, the MediSave clause, and my proposal to increase the property tax for the third private residential property and beyond – has the same intention of encouraging enterprise and investment, so we build a stronger Singapore economy.

I therefore ask the Government to study a progressive holding tax on multiple investment residential properties as part of its ongoing review of our tax system and to consider it for a future Budget. To inform that study, I would be grateful if the Minister could share how many individuals today own three or more residential properties, and how that number has changed over the last decade.

Our social compact rests on a promise that has been held for 60 years – that in Singapore, if you work hard, you can own your home. Not inherit it; own it. That promise is what makes a young couple believe this country is a place where they can build a life and perhaps, a family. I do not believe that foundation is cracking, but I would like us to attend to it while it is still sound and not wait till it is too late, and Singaporeans find ourselves playing a game of Monopoly that is already stacked against them because someone has already bought up all the properties, leaving them with no chance at all.

Instead, let us continue to build that Singapore spirit which has contributed to our success – a spirit of innovation, generosity and enterprise.

Mr Speaker: Assoc Prof Jamus Lim.

1.13 pm

Assoc Prof Jamus Jerome Lim (Sengkang): Mr Speaker, this Bill has two main arms. The first implements changes to the Income Tax Act and are consonant with the announcements made in this year's Budget Statement; and the second amends the Multinational Enterprise Minimum Tax Act to align it with the latest Side-by-Side package.

I will confine my remarks on the domestic aspects of the Bill, mainly to those related to corporate tax relief, before turning to the international dimensions, comprising concerning updates to the base erosion and profit sharing of BEPS 2.0 project. My hon friend, Louis Chua, has previously addressed the Bill's more domestic elements as they relate to AI adoption as well as household tax relief.

The Bill and Budget provide additional support for firms based here in several ways, with measures to support the roll-out of AI technology in their business, expanding corporate tax rebates for firms that hire locals and extending withholding tax exemptions for the financial sector, among others. The global economic environment is undeniably uncertain, and I am sure that companies appreciate any additional support they get.

Many of these proposals have also undergone a process of public feedback and a number of these suggestions have already been accepted. These measures are therefore largely unobjectionable. However, I wish to offer some additional perspective on the proposed tax remission and associated cash grant before making a more general point about the tax treatment of corporate relative to personal income.

The Government has stated that the motivation for the 50% corporate income tax rebate provided for in clause 31 was to lend businesses a helping hand as they navigate the economic challenges arising from the ongoing conflict in the Middle East. I also note that the rebate is slightly more generous than had previously been announced in February, up from 40% in recognition of the changing energy costs and cash flow challenges faced by SMEs.

Let me first observe that the different fuel prices have actually gone in opposite directions. While petrol prices did indeed spike up in September after a period of easing, diesel prices have remained low. While diesel remains more expensive in absolute terms, one wonders if this divergent trend was due to Government action which will come over and above the cash relief granted to car and taxi drivers since April. If so, this will amount to a subsidy for industrial and military vehicles and taxi cabs, which is not enjoyed by, say, drivers of commercial private hire cars.

Moreover, as other observers have pointed out, the nature of tax-based relief as such that a support will only be enjoyed by profitable firms. However, given how local business closures have jumped by close to 13% this year to-date, it will be unsurprising if a large share of SMEs are currently struggling mightily to make ends meet and operating under loss-making conditions. I believe many in this House would have had residents share that their own businesses have not been making any money.

I am aware that IRAS allows carry-back relief for up to a year and other schemes, such as a whole suite of financial support and capability development programmes, are in place to channel financing to local firms on request. But we must recognise the insofar as this particular relief is concerned, loss-making firms are excluded. It is perhaps for this very reason that the Government has chosen in the new section 92M to also introduce an additional $2,000 cash grant available to SMEs in particular. I believe that this amount was also increased from the original $1,500 previously announced during the Budget.

The question then is whether $2,000 is a sufficient lifeline for loss-making firms, one that is broadly proportional to the extent of the support received by profitable firms. How was this amount arrived at? How many firms are expected to receive this cash injection versus the number that are estimated to benefit from the tax write-off? Is the grant listed at $2,000 in the legislation distinct from the SME 2026 Cash Grant currently listed on the IRAS website, which is capped at $2,500?

One final point pertaining to Part 3 of the new section 92, Part M. The qualification criteria appear to be so long as one local employee is on the payroll as defined by Part 7. I am left to wonder why this is not tiered such that businesses with more local employees may enjoy even larger grants. After all, assuming that the 2026 SME Cash Grant is indeed a distinct payout, IRAS appears to already have adopted this incremental tiered approach there.

Allow me to make a more general observation. In my view, most of the Budget's corporation-oriented initiatives have provided financial support to companies in the form of tax relief. In contrast, the most visible household initiative has relied on transfers, principally in the form of coupons and vouchers.

In principle, these two forms of support are comparable. Indeed, a long tradition in economics speaks of their equivalence. These two choices may also engender rather different behavioural responses.

While both ease financial constraints, tax relief makes it clear that the originator of the funds are the firms themselves. In contrast, the provenance of vouchers is muddy. It is less evident that these, likewise, also originated from tax revenue collected from households before being redistributed back to them. They may come across as an entitlement lavished by the generosity of the Government. It also could foster the culture of dependency, a coupon culture. Once granted, people come to expect them year after year. This makes them harder to remove even when the policy need has long passed.

This is another reason why the Workers' Party has previously harped on about Budget marksmanship. My other Party colleagues as well as myself have previously explained why structural levers are preferable to ad hoc voucher schemes for addressing costs of living increases and how the timing of the Goods and Services Tax (GST) hike may have had unintended consequences, such as contributing to inflation.

My argument here is distinct from these. Collecting monies when they are not needed yet before turning around and then returning them may seem innocuous. But the subtle shifts in mindset and distortions, to expectations, could well be more pernicious than they first appear.

Sir, I wish to offer a suggestion concerning as well, the initiatives in the Bill designed to nurture philanthropic activity. This is a laudable goal. Indeed, one of the motivations for the Workers' Party alluding to for proposing a wealth tax was to encourage the wealthy to give back to society.

I have developed that idea further during the debate surrounding the amendments to the Business Trust Act in 2022 by suggesting that such trust can evolve to become vehicles for encouraging a culture of philanthropy by making them grant-making institutions. While I accept that the merits of further developing our philanthropic institutions goes beyond the scope of this Bill, I would simply note here that tax benefits made available by clause 11 are limited to IPCs.

I can see why IPCs with explicit requisite that their activities benefit Singaporean society and being subject to more stringent reporting requirements that limit abuse are the gold standard for such giving; and I have little doubt that the largest donors will continue to channel their charitable contributions through such institutions. But smaller charities in Singapore are not exempt from regulation either and often, these are the ones that are most in need of assistance. While their mandates may be narrower, these smaller outfits typically do not pursue IPC status not because their work does not clearly benefit the community, nor because they are engaged in activities that they will rather avoid scrutiny over. Rather it is because being small almost by definition, they can ill afford the additional burdens associated with compliance necessary to attain IPC status.

I therefore urge the Government to consider expanding the scope of tax deductibility to include non-IPC charities that have a demonstrable record of sound operations and clear contributions to Singapore society as a whole.

Beyond providing crucial support to non-profits that are often most in greatest need of help, doing so will also lead more donors contemplating philanthropic giving since the universe of charities that they may now offer their help to will no longer be as limited.

Sir, let me move on to the international aspects of the Bill.

I am aware that the revisions to the Multinational Enterprise (Minimum Tax) Act were necessitated by the adoption of the Side-by-Side package negotiated among the members of the OECD and G20 Inclusive Framework. This in turn has largely been the result of the recalcitrance of the US to concede to GLoBE Rules and its insistence on retaining its own minimum tax regime for MNCs.

I had alluded to the possibility of such compromise in my speech on the analogous Income Tax Bill in this House late last year.

So, here we are confronting revisions to the Multinational Enterprise (Minimum Tax) Act. I believe that the proposed changes may paradoxically work to our advantage. After all, a qualified minimum top-up tax remains unaffected by the Side-by-Side framework. The main change relative to last year is that the Income Inclusion Rule and the Under Tax Profits Rule jurisdictions will no longer be able to take a second bite of the pie. But so long as we faithfully implement our own domestic top-up tax, we are assure of our own minimum collections.

Thankfully, the eroding foundation of GloBE Rules and BEPS has yet to trigger a complete surrender to less multilateral regimes, such as an EU-wide Digital Service Tax. It would, nevertheless, perhaps be valuable at this juncture for the Government to share what it expects the expected effective tax rate for MNCs to be after this proposed iteration of the Multinational Enterprise (Minimum Tax) Act, especially relative to SMEs.

Notwithstanding these clarifications, Sir, I support the Bill.

Mr Speaker: Mr Ng Shi Xuan.

1.24 pm

Mr Ng Shi Xuan (Sembawang): Mr Speaker, Sir, I spoke about the need to help our enterprises adopt AI, especially SMEs during this year's Ministry of Trade and Industry Committee of Supply. I am therefore glad that this Bill takes a practical step in that direction.

The Bill introduces a 400% tax deduction on the first $50,000 of qualifying AI expenditure for 2027 and 2028. This is intended to lower the effective cost of AI adoption and encourage businesses to invest in these capabilities.

However, we should guard against an enterprise gap in AI adoption. Larger and profitable firms are more able to invest upfront and make immediate use of a tax deduction. Startups and smaller businesses may have sound plans to adopt AI to reduce their operating costs or improve productivity but have limited cash flow and taxable profits. They may therefore be unable to make full use of the tax deduction when they first incur the cost.

Take, for example, PitStop Auto Club Pte Ltd, a traditional SME seeking to invest in AI to reduce operating costs and improve productivity or a startup at a scaling phase. Even where the investment makes good business sense, the upfront cost may be significant, while the value of a tax deduction depends on the firm having sufficient taxable profits. This illustrates why direct support may complement tax deductions, particularly for smaller firms facing cash-flow constraints.

As my Government Parliamentary Committee (GPC) Chair Saktiandi mentioned, unlike the other qualifying activities under Enterprise Innovation Scheme, qualifying AI expenditure cannot be converted into an Enterprise Innovation Scheme cash payout. Could the Minister explain why AI expenditure has been excluded from the cash payout option? Could the Government consider allowing a limited Enterprise Innovation Scheme cash conversion for young firms and startups with little taxable profit? This would then help them receive part of the benefit when they first incur the cost, rather than having to wait until they become profitable.

As a complementary form of support, could the Government also consider a capped dollar-for-dollar matching grant for qualifying AI expenditure? For every dollar invested by an eligible startup, the Government could match $1 up to a modest cap. This would provide upfront support while ensuring that the firm continues to bear part of the cost and has skin in the game.

Both forms of support can serve different needs. The Enterprise Innovation Scheme cash payout offers a simpler and broader route, while the matching grant can provide more targeted help to startups with sound plans but greater financing constraints. Appropriate safeguards could include local operations and employment, a clear AI adoption plan, proof of implementation and no double funding of that same expenditure.

Beyond the form of support, we should also track where firms face difficulties in their AI journey. Do they struggle to identify a suitable business problem, choose a vendor, prepare their data, train their workers or scale a successful pilot? If firms repeatedly stall at that same stage, our support should be refined to address that gap.

I hope that this Bill marks only the beginning of more AI support for businesses in Singapore.

I also welcome the expansion of the Double Tax Deduction for Internationalisation . The expenditure cap for claims that do not require prior approval will rise from $150,000 to $400,000 per year of assessment. Could the Minister share how many companies have benefited from the Double Tax Deduction for Internationalisation in each of the past three years, and how many have reached or came close to the old $150,000 cap? Could the Minister also provide a breakdown by company size?

Raising the cap may help firms with larger overseas expansion plans. However, smaller companies with limited taxable profits may not enjoy that full benefit. Could the Minister share which types and sizes of companies are expected to gain most from the higher cap, and how smaller firms will be supported in their international growth?

These measures should also be considered in our wider fiscal context. Corporate income tax is Singapore's largest source of operating revenue. It is estimated to contribute $37.77 billion in FY2026, or about 28% of operating revenue. This is higher than the estimated collections from GST and personal income tax. Could the Minister share the estimated revenue impact of the corporate income tax rebate, the new AI deduction and the expansion of the Double Tax Deduction for Internationalisation ?

More broadly, as we provide tax support to help firms grow, how does the Government assess the long-term path of corporate income tax revenue, especially in light of global tax changes and the uneven nature of corporate profits?

I also welcome the extension of the tax exemption for employer-subsidised childcare benefits to children attending the Ministry of Education (MOE) Kindergartens. This supports employers that wish to provide family-friendly benefits and ensures that employees are not taxed on this support.

Currently, employer subsidies for children attending licensed childcare centres are exempt from tax. Does the Government have data on how many companies provide this benefit, how many employees use it, and the value of the benefits provided each year? It will also be useful to know whether such support is mainly offered by larger companies, or whether SMEs are also using the exemption.

Could the Minister also explain why the Government has chosen to close the gap between licensed childcare centres and MOE Kindergartens now? Is this in response to feedback from employers and working parents, or part of a wider effort to encourage more employers to offer family friendly benefits?

For a Singapore Citizen child, MOE Kindergarten costs $160 a month, but because it is only a four-hour programme, working parents may also pay between $200 and $400 a month for KCare after the basic subsidy. Together, the fees can be comparable to full-day anchor operator fees. Could the Minister clarify whether the exemption will cover the whole care arrangement or only the $160 MOE Kindergarten component?

From a parent's perspective, MOE Kindergarten and KCare form one continuous care arrangement that allows the parent to remain at work. If KCare is excluded, why should the two parts receive different tax treatment?

Any potential employer subsidies for student care currently remain taxable. Yet, when a child enters primary school, the family's need for care during working hours does not disappear. It simply moves from childcare to student care. Could the Minister explain why the exemption is not being extended to KCare and student care at the same time? Will the Government consider extending it to employer subsidised student care for children aged seven to 12, so that family friendly tax support follows the childcare needs as the child grows?

Speaker, Sir, these amendments provide useful support for businesses and working families. I hope we can ensure that the benefits also reach young and small firms with limited profits, and families whose care needs extend beyond the formal school day. Subject to these clarifications, I support the Bill.

Mr Speaker: Mr Dennis Tan.

1.32 pm

Mr Dennis Tan Lip Fong (Hougang): Mr Speaker, I would like to speak briefly on the maritime related amendments in this Bill, in particular clauses 3, 5, 6 concerning sections 10, 13(a) and 13(e) of the Income Tax Act. At the outset, I declare that I am a consultant in the shipping law firm specialising in shipping and maritime legal matters.

My understanding is that these amendments are intended to streamline and consolidate the tax treatment of approved international shipping enterprises. In particular, certain income currently exempted under section 13(a) will, from YA2027 be exempted under section 13(e). Instead, with related transitional provisions dealing with capital allowances, balancing charges and losses.

These amendments appear intended to ensure continuity in the operation of the exemption regime, while simplifying its legislative structure.

As someone who has practised in the maritime sector, who has worked in the maritime sector, I support efforts to simplify and rationalise Singapore's shipping tax regime. Clarity, certainty and predictability are important considerations for international ship owners, operators, financiers and investors when deciding where to locate their commercial operations, management functions and strategic decision-making activities.

Mr Speaker, while these amendments appeared to consolidate the tax treatment of approved international shipping enterprises under section 13(e), it will be useful if the Minister could explain the policy rationale for the restructuring. What advantages does the Government expect for administering these exemptions, principally through section 13(e), rather than across both sections 13(a) and 13(e)?

More broadly, these amendments provide an opportunity to reflect on the importance of Singapore's maritime tax incentives in an evolving global landscape. Singapore competes not only for shipping, tonnages and maritime business, but also for high value functions that surround it. These include commercial management, chartering, cargo and freight operations, logistics, ship finance, marine insurance, ship broking, arbitration and maritime legal services.

The success of Singapore as an international maritime centre depends not merely on ships at our port, but on our ability to attract and retain these high value maritime businesses and activities in an increasingly competitive international environment. In that regard, I have three broader policy questions for the Minister.

First, on global competitiveness. As international tax and regulatory frameworks continue to evolve, how does the consolidation of these shipping tax provisions under section 13(e) support Singapore's continued competitiveness as an international maritime centre relative to other leading maritime hubs, such as London, Dubai and Hong Kong?

Second, on effectiveness. Could the Government share updated information on the effectiveness of Singapore's principal maritime tax incentive schemes? Specifically, what is the estimated annual tax revenue foregone under these schemes, and what measurable outcomes have they generated in terms of Singaporean employment, business spending, and the anchoring of maritime management and commercial functions in Singapore?

Has the Government studied the net benefits of these incentives, taking into account both the revenue foregone and the economic value created? If so, could the Minister share the key findings? If not, would the Government consider doing so, so that Parliament can better assess whether these incentives remain appropriately calibrated and continue to deliver good value for Singapore?

Such an assessment will also help inform what our maritime incentive framework should involve to meet the industry's changing needs.

Third, on the future of Singapore as a global maritime hub. As the maritime industry undergoes decarbonisation and digital transformation, is the Government considering future enhancements to Singapore's maritime tax incentive framework that will further support green shipping initiatives, innovation, digitalisation and the development of Singaporean maritime talent?

The answers to my questions will also help Parliament better assess the contribution of these incentives to Singapore's continuing position as a leading international maritime centre and the long-term value they create for Singapore and Singaporeans. Mr Speaker, notwithstanding the clarifications I have sought, I support the Bill.

Mr Speaker: Ms Hazlina Abdul Halim.

1.37 pm

Ms Hazlina Abdul Halim (East Coast): Thank you, Mr Speaker. I declare interest as the chief executive officer of EtonHouse Community Fund, an institution of an IPC, as well as a member of Community Chest, and Board Member as well as adviser to several IPCs.

Today, Mr Speaker, I will focus on one aspect of the Bill and touch on three key points.

The extension of the 250% tax deduction for qualifying donations to IPCs until 31 December 2029. I welcome this move which as my hon friend Ms Elysa Chen had mentioned earlier, signals Singapore's continued commitment to building a society for good.

Mr Speaker, first, monetary giving remains an important foundation of a strong culture of philanthropy. The extension of the 250% tax deduction strengthens Singapore's culture of giving and reaffirms our social compact. Second, on the Enhanced Fund-Raising Programme (EFR) which will step down, how can Singapore better support smaller charities? Third, how tax policies go beyond encouraging more giving, but more sustained giving to complement the Sustainable Philanthropy Framework and strengthen the partnership between public, people and private sectors, the Government, the social sector and the businesses?

Mr Speaker, as I mentioned earlier, I welcome the extension of the 250% tax deduction which is an important signal. As someone involved in the social sector for close to 15 years, I have seen how donations translate into support for children, families, seniors and persons with disabilities, changing lives across generations.

Monetary donations remain particularly important because they give charities the flexibility and resources to sustain programmes, respond to emerging needs, identify gaps and plan. I welcome the Government's continued support for monetary giving through the 250% deduction and will outline how this move can be complemented.

This brings me to my second point, the EFR programme. During the August Parliamentary Sitting, I asked about the impact of the EFR changes and suggested a GST-voucher type support for charities. This came about following leadership conversations I had with charity leaders.

I note the Ministry's explanation that GST is a broad-based tax, and that Government support is provided through direct grants and other schemes rather than a separate GST regime for charities. I also note the Ministry's assessment that given the recovery in donations and the range of Government support, EFR tapering is not expected to have a significant overall impact on the charitable sector.

But Mr Speaker, within an overall resilient sector, there may still well be charities that face greater pressure. We are operating in a period of continued uncertainty and cost pressures. The Government has recognised this by strengthening cost-of-living support for Singaporeans, including the Enhanced Budget 2026 Cost-of-Living Special Payment. At the same time, charities are supporting many of the same families and communities experiencing these pressures. So, I would ask whether this is also the right time to review the pace of the EFR reduction? Could the Government consider adjusting the tapering, if necessary, should conditions warrant it particularly for smaller charities and those serving communities with greater needs?

Furthermore, perhaps the EFR programme can consider a refreshed, targeted approach where support is tailored according to the size of a charity's receipt. While I understand the rationale for review, support should also remain responsive to circumstances. If we are prepared to step up support for households when cost pressures remain elevated, perhaps we should similarly ensure that the charities helping these households are not facing an abrupt reduction in their ability to raise funds.

The objective is not for Government's funds to replace philanthropy, but to ensure that our social sector has the resilience to respond when our communities need it most.

Mr Speaker, my third point is about sustainable philanthropy. Singapore should encourage giving that is more sustained and purposeful. Community Chest has led the charge on this front. In FY2025, and just announced yesterday, Community Chest channelled about $80.62 million to 340 social service programmes and projects, which benefitted more than 130,000 individuals and families.

More importantly, Community Chest also secured $113 million in multi-year commitments. This is significant. Sustained monetary giving gives social service agencies greater certainty to plan, sustain and strengthen their offerings. It reinforces why monetary donations remain a core part of sustainable philanthropy. They provide charities with the resources and flexibility to respond to needs.

The Sustainable Philanthropy Framework developed by the National Council of Social Service (NCSS) encourages businesses to move towards more sustained and purposeful philanthropy. While the framework sits within the social sector, MOF also has an important role through tax policy. The 250% tax deduction is a key instrument to encourage monetary giving, and I would emphasise that monetary donations remain a core part of sustainable philanthropy. They give charities the resources and certainty to sustain their work.

At the same time, we should encourage businesses to complement monetary giving with their expertise, networks and capabilities.

So, my question is a specific one: when the 250% tax deduction is reviewed ahead of its expiry in 2029, or perhaps as Ms Elysa Chen mentioned earlier, be made as a mainstay, could the review also look beyond the quantum of donations generated but assess whether the incentive is encouraging the type of giving we that want: regular, sustained and long term?

If the objective is to use tax policy to level up private philanthropy sustainably, we should also consider whether the design of the incentive is achieving that objective effectively. This would complement the broader Sustainable Philanthropy Framework, while keeping MOF's role focused on what it can influence to encourage sustainable giving.

Mr Speaker, there is also a broader point. Businesses do not operate separately from society. Businesses depend on resilient families, healthy communities and a workforce that can participate and contribute. When businesses contribute to a stronger society, they help create the conditions in which businesses themselves can thrive.

So, philanthropy should not be seen simply as what businesses give back after making profits. It can also be part of building the social foundations that enable our economy to remain resilient. Speaker, Sir, in Malay.

(In Malay): Mr Speaker, allow me to summarise my observations in Malay and highlight the perspectives of our community as well as those of the I and MMOs.

As someone who serves in this sector, first and foremost, I welcome the extension of the 250% tax deduction for donations to IPCs. Monetary giving remains an important foundation for building a strong and sustainable culture of giving.

For many I/MMOs and community organisations, such donations provide them with the space and resources to continue supporting families, children, seniors and others in need. Mr Speaker, the impact of such support can improve the quality of life across generations.

Secondly, as EFR support is gradually reduced, we must continue to monitor its impact on smaller charities, as they may face constraints in raising funds. Perhaps the Government could also consider reviewing its approach of tapering the EFR in light of current circumstances. Another approach could be to tailor the level of support according to the size of an SSA.

Third, through tax policy, we should continue to encourage not only more giving, but also more regular and longer-term giving. This would give I/MMOs and charities greater certainty to plan and expand their work, as well as explore new initiatives.

Ultimately, we want to build an ecosystem where the Government, businesses, charities and the community build a stronger society together.

( In English ): Mr Speaker, in summary, first, I support the extension of the 250% tax deduction. Monetary giving remains a core foundation of philanthropy and we should continue to encourage a strong culture of giving.

Second, for the Government to consider reviewing the tapering of EFR to remain responsive to circumstances and adjusting the support, should conditions warrant it. Also, to consider future EFR matching support that is targeted, such as according to size of charity's receipts.

Sir, as we look towards 2029, I hope MOF assesses whether our tax incentives are encouraging not just more giving, but more regular, sustained and longer-term giving.

Singapore have a range of tools: tax incentives, matching grants and direct support. The opportunity now is to make sure these tools work together to build a philanthropy ecosystem that is sustainable, inclusive and impactful.

Ultimately, we want charities to have the resources and certainty to serve our communities, businesses to see philanthropy as part of their contribution to building Singapore, and our tax policies to help bring these efforts together.

Mr Speaker, a thriving society is the foundation of a thriving economy. With that, Sir, I support this Bill.

Mr Speaker: Ms Diana Pang.

1.47 pm

Ms Diana Pang Li Yen (Marine Parade-Braddell Heights): Mr Speaker, Sir, I support the Bill. I will focus on two areas: helping businesses make better use of artificial intelligence (AI) and making tax matters easier to manage.

As an SME owner, I look at these measures from a practical perspective: can businesses use them easily? Will they help us to do our work better? Will they leave us with more time to run the business.

Let me start with AI.

Under clause 13, the enhanced Enterprise Innovation Scheme provides a 400% tax deduction, up to $50,000 of qualifying AI expenditure in each of the YA2027 and YA2028. I welcome this support.

An off-the-shelf tool can be useful. But a company may benefit more by adapting AI to its own processes and its unique need.

To do this well, it needs to draw and acknowledge its employees. Take a small company that wanted to use AI to process invoices. It can pay for subscription, but someone still has to connect the tool to its accounting systems, check the figures are correct and decide which invoices a person to review them. If the system reads an amount wrongly, the business still needs to catch the mistake. Or when its needs change, someone must know how to update the system.

Employees understand the day-to-pay pain points. They know where works get held up, which tasks have to be repeated and where mistakes are often made. Their knowledge can help the companies adopt AI to solve problems that matter most to the business. Much of this work can be done in-house.

This brings me to my question about qualifying expenditure.

The proposed definition covers spending on subscriptions or licences for AI systems, as well as subscriptions, acquisitions or licences for qualifying AI business services obtained from another person. This appears to focus on obtaining systems and services brought from external providers. Could the Minister clarify whether costs directly related to developing and implementing AI in-house can also qualify? For example, a company may assign its employees to develop an AI application, prepare data, test it and connect it to existing systems. It may also train staff to operate and maintain it. Would these costs qualify? If they do not, would the Government consider including directly attributing them internally to development costs, with safeguards to prevent the same costs from being claimed twice?

External vendors and consultants can certainly help. But when our own staff learn how to use, maintain and improve these tools, that knowledge stays with the business. For an SME, this matters a lot. We want staff who can keep improving the way we work even after the consultant job is done. I hope this support will help businesses both adopt AI, develop skills to use it well over time.

Mr Speaker, Sir, let me turn to tax administration.

For a small business owner or a self-employed person, filing taxes is often done after a full day's of work. They may be suffering customers in the day, sorting out receipts at night. The easier the rules are to understand, the easier it is for them to get the taxes right.

I therefore welcome the proposed 20% fixed expenses deduction ratio, which takes effect from YA2027. It applies to eligible self-employed persons and individual sole proprietors with gross income of up to $50,000 per business or trade, where existing industry-specific ratio do not apply.

Put it simply, eligible taxpayers can choose to deduct 20% of their gross business income as expenses, instead of claiming the actual allowable expenses. For example, someone with $40,000 in gross business income could use the fixed ratio to deduct $8,000 as expenses. If the actual allowable expenses are $12,000, claiming those expenses may be more beneficial.

It is helpful that this choice remains available. The question is whether taxpayers will now know which option works better for them. Could IRAS provide a simple comparison tool and work out the examples? A taxpayer should be able to enter a few figures and understand the difference. The guidance should also clearly explain which records they must still keep if they use the fixed ratio. A simpler method would be easy enough to use without needing a professional advice just to understand it.

I also welcome the aim of resolving tax matters faster. From 1 July 2027, companies will be required to use IRAS e-services for specific objections to tax assessments and revisions to the corporate income tax returns. For this to work well, the online process must be easy to follow. Company needs clear instructions and confirmation that their submission has been received and access to a person when they need help.

Imagine trying to submit a correction near a deadline only to encounter a technical problem. The immediate worry is: has my submission gone through? Will I miss the deadline? Could the Minister explain how IRAS will help companies that have difficulties using the e-service and how submissions affected by technical problems near a deadline will be handled?

As these changes are introduced, I hope IRAS will continue to hear from the small businesses, the SMEs and self-employed taxpayers about the difficulties that they are facing. Could IRAS also review whether these measures actually reduce the time spent filing income tax, filing taxes, correcting error? That will tell us whether the changes are making things easier in practice.

Mr Speaker, these measures can make a practical difference, helping companies and businesses use AI more effectively. Helping taxpayers spending less time working out their tax obligations does wonders. I support the Bill.

Mr Speaker: Assoc Prof Terence Ho.

1.52 pm

Assoc Prof Terence Ho (Nominated Member): Mr Speaker, I rise in support of the Bill. I welcome, in particular, the measures that advance important social objectives and simplify tax filing. These include the tax exemption for CPF contributions and cash payments under the ComLink+ package for employment, as well as the extension of tax deductions for employers that send employees to or provide services to IPCs.

I also welcome the introduction of a broad-based 20% fixed expense deduction for eligible self-employed individuals, as this will simplify tax filing and reduce the administrative burden of claiming individual business expenses.

I would like to focus my brief comments and questions on the enhanced tax deduction for AI expenditure.

The Bill provides an enhanced deduction for up to $50,000 of qualifying AI expenditure in YA2027 and YA2028. Qualifying expenditure is defined quite broadly, covering not only subscriptions and licences for AI systems, but also services relating to their development, deployment, operation and maintenance.

This measure could help enterprises, particularly SMEs, that may otherwise be reluctant to spend money experimenting with new AI tools when the returns are uncertain. The enhanced deduction could encourage them to experiment with more capable AI tools and discover applications to improve their operations.

However, as organisations move from experimentation and sporadic use of AI to more systematic, enterprise-wide adoption, the challenge is to translate adoption into productivity gains and business value. I would therefore like to ask the Minister to elaborate on how the new tax deduction will complement existing grants and programmes to support firms along this journey from initial experimentation to wider deployment.

My second question concerns businesses with little taxable profit, as this incentive takes the form of a tax deduction and provides no immediate benefit to a startup or business that has yet to turn profitable, even though the deduction may potentially be utilised against future taxable income. However, such firms may have just as much and perhaps even more to gain from AI adoption.

Under the Enterprise Innovation Scheme, eligible businesses can opt for a cash payout in lieu of enhanced deductions for certain qualifying activities to benefit businesses that have yet to turn profitable or have insufficient profits to maximise the deduction. However, this cash conversion option does not apply to qualifying AI expenditure. Could the Minister explain the reason for this difference in treatment and whether other measures are available to ensure that startups and businesses with little or no taxable income are similarly encouraged to adopt AI?

Third, we should ultimately judge the success of this measure not by how much qualifying expenditure businesses incur, but whether it leads to additional AI adoption and ultimately productivity improvements. I appreciate that imposing detailed reporting requirements on every business claiming the deduction could undermine the simplicity and accessibility of the scheme. But at the aggregate level, we should have a clear picture of the outcomes being achieved. How will the Government assess whether the enhanced deduction is encouraging additional AI adoption and generating productivity improvements, and what outcomes will it consider in deciding whether the scheme should be extended or modified beyond YA2028?

Finally, spending on technology alone does not guarantee productivity gains. Successful AI adoption often requires firms to redesign jobs and workflows, equip workers with the skills to use the technology effectively and develop the organisational readiness and mindsets to change established ways of working. The tax deduction should therefore complement broader efforts to support enterprise and workforce transformation. The objective should not simply be to get more companies to purchase AI tools, but to help them use these tools effectively to transform how work is done and to raise productivity.

At the Institute for Adult Learning, we are seeing strong demand from companies for support in work redesign and workforce transformation, from reskilling to workplace learning and mindset activation. The Enterprise Workforce Transformation package is an important vehicle supporting such holistic interventions. I hope that as the package is implemented, there will be sufficient support for enterprises to undertake work redesign, reskilling and workplace learning alongside their investment in AI.

The value of the enhanced tax deduction for AI will ultimately be reflected not on the amount of AI expenditure that receives tax relief, but whether it encourages businesses, including smaller firms, to experiment, adopt useful technologies, redesign work and raise productivity.

Mr Speaker, I reiterate my support for the Bill and look forward to the Minister's clarifications on the points I have raised.

Mr Speaker: Ms Gho Sze Kee.

1.58 pm

Ms Gho Sze Kee (Mountbatten): Mr Speaker, first, I would like to declare my interest as a maritime lawyer. I have been involved in the maritime sector for my entire professional life. I shall focus on this sector today.

Sir, shipping is a tough business. It is very capital intensive. Ships are expensive, investment horizons are long. It is also a brutally cyclical business, as the COVID-19 years and recent events have shown. Companies have to make careful decisions on where to base their operations, register their ships, how to finance them and so on. Taxes are, of course, an important part of those decisions.

Some years ago, we introduced the Maritime Sector Incentives (MSI). It brings together tax incentives supporting different parts of the sector, from international shipping to shipping support services and maritime leasing.

Two years ago, in response to the BEPS 2.0, the Alternative Net Tonnage Basis of Taxation (NTT) basis, was introduced for three MSI schemes.

Qualifying businesses under the Maritime Sector Incentive – Singapore Registry of Ships (MSI–SRS), Maritime Sector Incentive – Approved International Shipping Enterprise (MSI–AIS) and Maritime Sector Incentive – Maritime Leasing (MSI–ML) schemes can choose to be taxed on a deemed income basis, based on the net tonnage of their ships and the number of days the ships are in operation.

It satisfies the minimum tax requirements or BEPS 2.0. But it comes with trade-offs. Under the conventional basis, tax is directly linked to profits. If a shipping business makes no commercial profit during a downturn, it pays no corporate tax. Under the NTT basis, however, the tax liability is based on the tonnage of the fleet and the number of days the ships are in operation, regardless of whether the business is profitable. Businesses on the NTT basis also cannot use trade losses or unutilised capital allowances to reduce this NTT income.

So, even if a business is bleeding millions in a recession, it must still bear this tax cost. The NTT basis can therefore become an unforgiving drag on a business during bad times. So, clearly, there are good reasons why shipping businesses would want to be able to switch their tax basis more readily.

But there are also clear differences in the NTT election rules across the MSI schemes. For businesses under MSI–SRS, there is a fixed lock-in period of 10 years upon election into the NTT basis. For businesses that are concurrently on the MSI–AIS or MSI–ML awards, the end date of the NTT election follows the award tenure, and they can opt into the NTT basis during the award period. The award periods can be five or 10 years.

This means that, in practice, a business under these arrangements could have a much shorter effective NTT lock-in period. For example, a business could opt into NTT in year eight and remain on it only for two years before the end of the award period. And this also means companies are effectively penalised with a longer lock-in period if they elect early.

Sir, 10 years is a long time in a famously cyclical business. The maritime sector did not have to deal with COVID-19, shifting supply chains and disruptive geopolitical conflicts a decade ago. It continues to face major uncertainties going forward. Now, it also has to contend with climate change, the AI revolution and the green transition.

A business may make its tax decision based on a particular set of assumptions about its business and operating environment, but it may easily find itself operating in a much more difficult environment shortly down the road. So, when we ask a shipping business to commit to a particular basis of taxation for an extended period of time, we are asking it to make a long-term commitment in an industry where the operating environment can change very quickly.

This basically makes the choice of tax regimes a higher stakes gamble for our maritime businesses.

To be clear, I understand the need for a meaningful lock-in period. There is a good reason for doing so. Allowing businesses to switch at will creates opportunities for tax arbitrage. But we also do not want our tax framework to trap our maritime businesses when the tide turns against them. I think we can do better.

Sir, I propose that we harmonise the NTT election criteria across all three MSI schemes, with a uniform five-year election cycle. Businesses should be allowed to opt into the NTT basis at any time during that cycle, with the lock-in period ending when the cycle ends. I note that five years is already an established award tenure under the MSI–ML scheme. So, five years is a threshold that the Government already accepts.

This suggestion does two things. First, it mitigates the penalty of early choice. Whether a company elects to use NTT in the first or in the fourth year, they end up in the same review point at year five. Second, a maximum lock-in period of five years gives our maritime businesses more room to respond, especially during a prolonged downturn. This further enhances the predictability and competitiveness of our tax regime.

Sir, as we tidy up the legislative tails of section 13 of the Income Tax Act with this Bill before us, I hope the Government will look into my suggestion too. The maritime sector ebbs and flows like the tide. We must not only ensure that our tax framework stays predictable and competitive during the good years, but also agile and flexible for our maritime businesses during the bad. I support the Bill, Mr Speaker.

Mr Speaker: Mr Yip Hon Weng.

2.05 pm

Mr Yip Hon Weng (Yio Chu Kang): Mr Speaker, Sir, I declare that I work in a global investment firm with investments in AI technologies, where I track technological disruption and work on AI diffusion and capability development.

In the course of my work at Temasek, I came across two very different views of the future. The US public policy think tank RAND's research suggests that AI's impact on work will be significant but uneven. Veteran Silicon Valley technologist and investor Vinod Khosla predicts something far more radical: that over the next 25 years, AI could perform 80% of the work in 80% of today's jobs. That is quite a range. Nobody knows precisely where reality will land.

But with this Bill, Singapore is not waiting to find out. We are using the tax system deliberately to accelerate AI adoption. Through the new section 14ZK, businesses can claim enhanced deductions on up to $50,000 of qualifying AI expenditure for YA2027 and YA2028, at 300% where the expenditure is already deductible under section 14, and 400% where it is not.

I support that strategic direction. But AI adoption is not the destination. Productivity is. And its gains must be shared. If taxpayers are helping businesses adopt AI, we should ask whether this incentive actually changes what businesses do, raises productivity and ultimately, strengthens both enterprises and workers.

Mr Speaker, Sir, this is a wide-ranging Bill. I focus on section 14ZK because it seeks to shape tomorrow's capabilities. Its drafting contains an important insight. Qualifying expenditure is not confined to AI software. It includes subscriptions and licences, but can also include system development, consultancy and strategy, data and analytics, engineering and compliance, and training.

The Bill recognises that buying AI and transforming a business are not the same thing. I have three questions on the Bill. Who adopts? What works? And does it spread?

First, Mr Speaker, Sir, who adopts? Think about the owner of a 10- or 20-person SME, perhaps a precision engineering company, logistics firm or professional-services business. The question is not whether AI will transform the global economy. It is much more immediate: what should I use it for on a Monday morning?

The constraint may not simply be price. It may be knowing where and how to deploy AI productively – which process to change, what data is needed, which tool works and how employees should use it. A tax deduction lowers the cost of buying AI. But it does not automatically answer the question: what should I actually do with it? That is a different cost. The cost of discovery.

Section 14ZK recognises part of this by covering consultancy, strategy, data and training. But every firm should not have to rediscover what similar firms have already learned. The experience generated across this incentive can reduce that cost further. There is also a fundamental finance question: a tax deduction is not an end in itself.

Government is giving up tax revenue because we want businesses to behave differently. So the question is not simply how much was claimed. Did the incentive actually change what businesses did? Did it encourage investments that otherwise might not have happened? And did those investments make businesses more productive?

Indeed, section 14ZK itself reflects this fiscal discipline. Expenditure is excluded to the extent that it is already subsidised by a Government or Statutory Board grant or subsidy. That rightly guards against double public support. If we are careful about where the public dollar goes in, we should be equally interested in what additional value comes out.

But there is a longer-term finance question too. Recent analysis by The Economist highlights a paradox worth considering. AI could make economies more productive while, over time, placing pressure on traditional tax bases if economic returns shift significantly from labour towards capital. The fiscal question is therefore not only whether AI makes the economic pie larger. It is where the new income lands.

This is not an argument to slow AI adoption. Singapore cannot protect itself from technological disruption by standing still. But that is another reason why the quality and distribution of productivity gains matter.

If AI raises output while weakening labour income, the consequences may eventually extend beyond jobs and wages to the fiscal foundations supporting our social compact. I therefore ask whether the Government will publish take-up of section 14ZK by enterprise size and sector. If adoption is concentrated among firms already digitally sophisticated, the incentive may help the leaders move faster without sufficiently raising the rest. Singapore's productivity challenge is also to help thousands of ordinary companies become better companies.

Second, Mr Speaker, Sir, what works? Section 14ZK allows very different kinds of expenditure. One company may purchase an AI subscription. Another may combine AI with data preparation. A third may redesign workflows. A fourth may combine technology, redesign and worker training. All may qualify, but their economic outcomes may differ.

The drafting itself recognises a measurement challenge. Where a single expenditure contains both qualifying and non-qualifying components, section 14ZK requires reasonable apportionment, where the Comptroller is able to intervene if that apportionment is not reasonable.

But if we are prepared to ask carefully what portion of expenditure qualifies, we should eventually ask an equally important question: what did that expenditure achieve? My main proposal is straightforward: design the evaluation before the incentive begins. Could the Government decide now, how section 14ZK will be evaluated, rather than reconstruct the evidence after it ends?

I recognise the difficulty. Businesses using the incentive may already be more digitally capable or productive, so I am not suggesting simplistic attribution. Nor am I asking companies to fill in another form. Where practicable, use existing administrative data and decide in advance what evidence we need.

When the two-year window ends, we should be able to answer three questions. First, which businesses became more productive? Second, which combinations of technology, workflow redesign and training worked best? And third, did the incentive cause investments that otherwise would not have happened?

Then, where robust analysis permits, we can examine what happened to jobs, skills and wages. The purpose is to discover what worked, because that should influence where the next public dollar goes. We should subsidise what works, not merely what qualifies. So, I ask the Government to design the evaluation now, and after the two-year window, publish what we have learned about the forms of AI adoption most associated with genuine productivity improvements and business transformation.

Third, Mr Speaker, Sir, does it spread? If we identify what works, the value is not merely knowing it. It is reducing the cost of discovery for the next SME. The first precision engineering company may have to work out which processes, tools and jobs should change. The 100th similar company should not have to start from zero. Public policy can turn individual experiments into collective know-how. I am not proposing another scheme. Use what we discover through section 14ZK to make the next firm's transformation easier, faster and less costly. That is how a temporary tax incentive can build permanent national capability.

Mr Speaker, Sir, a few months ago, the House debated an AI transition with no jobless growth. We reached important common ground: enterprises and workers should advance together, anchored in fairness, resilience and opportunity for all. In my speech for that Motion, I argued that AI adoption must become AI fluency; fluency must lead to workflow redesign; workflow redesign to job redesign; and job redesign, ultimately, to tangible outcomes for workers.

Section 14ZK gives us a practical test of that ambition. The Bill can subsidise adoption. Our wider policies must complete the journey from adoption to better work. And there is a fiscal dimension to this too. If AI increasingly shifts economic returns from labour towards capital, ensuring that workers continue to participate meaningfully in economic growth, it is not merely a question of fairness. It also matters to the breadth and resilience of the economic and fiscal base on which our social compact rests.

The two-year design can therefore be a strength. AI is developing too quickly for policy to be put on autopilot. Today's constraint may not be tomorrow's. The window gives us a natural review point. But a review is only as good as the evidence we prepare to collect. The time to think about that evaluation is not after the window closes. It is now.

In conclusion, Mr Speaker, Sir, let me return to RAND and Khosla. They offer very different futures. Perhaps reality will resemble one. Perhaps the other. Most likely, it will be somewhere in between.

Singapore does not need to predict the future perfectly to prepare intelligently for it. But we should learn deliberately from what we are about to subsidise. Over the next two years, companies will buy AI tools, redesign workflows and train workers. Some experiments will fail. Others may transform businesses. The first firm may have to discover what works. The next should not always have to start again.

So, when this incentive ends, let us ask not simply: how much AI did Singapore buy?

Let us ask: what worked? For whom? Did it make our businesses more productive? Did our workers advance with them? And over time, did those gains remain broad enough to strengthen the economic and fiscal foundations on which our society depends?

Because AI adoption is not the destination. Productivity is, and its gains must be shared. The fiscal question is not only whether AI makes the economic pie larger. It is where the new income lands.

RAND and Khosla may disagree about the future. Our job is not to predict which one is right. Our job is to make Singapore ready for either – economically, socially and fiscally. Mr Speaker, Sir, I support the Bill.

Mr Speaker: Mr Victor Lye.

2.16 pm

Mr Victor Lye (Ang Mo Kio): Mr Speaker, I rise in support of the Finance (Income Taxes) Bill and I will focus on clause 13, which provides a 400% deduction on up to $50,000 of qualifying AI expenditure for YA2027 and YA2028.

I welcome that it recognises AI adoption as more than subscribing to an AI model. Nonetheless, my key concern is to go beyond encouraging AI spending. We should ask: what economic capability do we want this expenditure to create?

For this, I offer three considerations. First, connect AI capability with internationalisation. Consider two Singaporean companies. One subscribes to an overseas AI service and becomes more productive. That is valuable. Another uses AI to develop proprietary technology, applications, datasets, intellectual property (IP) or services that can be sold internationally.

Both use AI, but the second creates more enduring economic value for Singapore.

This matters especially for our SMEs. Singapore has a small domestic market. In the past, internationalisation often required substantial physical presence, manpower and capital deployed overseas. AI changes these constraints. A Singapore SME can now use AI for research, translation, marketing, software development and customer support.

How to reach customers far beyond Singapore? I say we should consider two objectives. One, give our SMEs AI capability; and at the same time, two, help them use that capability to reach beyond Singapore.

I note the Bill's enhancement of the Double Tax Deduction for Internationalisation. I welcome that. But in this regard, could the Government evaluate the AI incentive together with our internationalisation schemes – not merely by expenditure claimed, but by whether SMEs create new products, develop IP, export services and conduct overseas ventures?

Second consideration is to maximise productivity, not to maximise AI spending. A company that achieves substantially more with $10,000 of AI spend may create greater value than one that spends the full $50,000 qualifying amount.

An expenditure-based deduction is administratively straightforward. But our objective should not be to maximise AI spending. It should be to maximise productivity and strategic economic value. I am not suggesting another reporting burden for SMEs, nor that IRAS prescribe which AI models companies should buy. But at the programme level, can the Government assess outcomes, such as productivity, revenue growth, manpower leverage, IP creation and ultimately, internationalisation?

The third consideration is to ensure that the incentive works for firms at different stages of growth. AI expenditure, unlike other qualifying Enterprise Innovation Scheme activities, will not be eligible for conversion into a cash payout. Could the Minister explain the reason for this distinction?

A profitable company can benefit readily from an enhanced tax deduction. A young or pre-profit company investing aggressively in AI may have less taxable income against which to use it. These may include precisely some of the innovative firms that we want to grow and encourage. I am not asking for a cash payout. But I hope the Government will examine whether the structure provides useful support across different stages of growth, and whether the firms we most want to transform can benefit meaningfully from it.

Finally, this enhancement runs for YA2027 and YA2028. By 2028, I suggest we should be able to answer three simple questions.

First, productivity: are our companies producing more with the same resources? Second, innovation: are we creating proprietary products, IP and valuable AI capabilities from Singapore? Third, reach: is AI helping our SMEs overcome the limits of our small domestic market and earn more revenue overseas?

AI can give small enterprises capabilities and global reach previously available only to much larger companies. Clause 13 is a sensible start. But it should not be merely to encourage AI spending or to subsidise it. Rather, it should help Singapore SMEs use AI to be more productive, more innovative and reach beyond Singapore. Sir, I support the Bill.

Mr Speaker: Mr Shawn Loh.

2.23 pm

Mr Shawn Loh: Mr Speaker, I support the Finance (Income Taxes) Bill. Before I begin, I declare that I am the Group Managing Director of Commonwealth Capital Group. We operate businesses that collectively earn more than $200 million in annual revenues and steward more than 1,000 livelihoods. So, naturally, tax changes can be significant.

Mr Speaker, in broad terms, our tax policies contribute towards three goals. One, collecting enough revenue, so that the Government has sufficient resources to support its agenda. Two, ensuring a conducive business environment so that businesses can thrive, which in turn, helps to create and sustain jobs for Singaporeans. And three, shaping society according to the values that we want to nurture. Taxes change the effective price of certain behaviours. Shaping behaviour leads to shaping beliefs, which then leads to shaping values.

I will comment on each, in relation to the Bill on hand. First, on collecting enough revenue. The Government is in a fortunate position to collect sufficient revenue to support its agenda in the near term. In fact, with better-than-expected gross domestic product (GDP) results in the last two years, I fully expect corporate income tax collections to continue to be more buoyant than earlier expected.

This is a good thing, and we should sustain it for as long as we can. So, if a higher rate of corporate income tax must be paid by MNCs, according to global minimum tax rules, then Singapore must be the best place to pay such taxes. I spoke about this in detail last year.

In this speech, I would add that it must be as easy as possible to comply with global minimum tax rules, and to pay such taxes in Singapore. To that end, I support the amendments to the Multinational Enterprise (Minimum Tax) Act. I also note the MOF's reply to a recent Parliamentary Question that I filed, which committed to providing an update of their fiscal projections by the second half of 2027. This would be helpful to inform public discussion over future tax changes.

Second, on ensuring a conducive business environment. I support the Government's continued bets on maintaining Singapore's position as an international financial and trading hub. Through incentives in the global commodities trade, finance and treasury sub-sector, and the maritime sector. I also support the Government's direction to encourage internationalisation of our companies, by expanding the Double Tax Deduction for Internationalisation scheme.

I find that the range of activities qualifying for deduction is sensible. And the higher expenditure cap for claims without prior approval from economic agencies will be welcome by companies.

However, I have two comments on the Corporate Income Tax rebates.

First, on some reflection after this year's Budget debate, I am not sure whether the $2,000 floor on the corporate income tax rebate is necessary. This floor effectively gives $2,000 to each unprofitable company. I very much prefer for only profitable companies that pay tax to get this rebate. And should we want to give a grant to all companies, it would be better to tie it to jobs, such as time-limited wage subsidies for hiring, especially hiring those who are long-term unemployed. We just discussed this in Parliament earlier today, so that the more you hire, the more grant you can get.

My second comment is a practical one. The rebate is given to each company at the Unique Entity Number (UEN)-level. Some businesses have multiple UENs for a single operating entity, such as if they have multiple outlets and if each outlet has its own UEN. Such businesses would benefit disproportionately from the corporate income tax rebate. I wonder if this has led to a proliferation of micro companies over time. This practical concern over corporate structuring would also apply to Mr Louis Chua's suggestion for more progressive corporate taxes.

I hope the Government will factor these considerations in for future corporate income tax rebates.

Finally, tax policy allows us to shape society according to the values that we want to nurture. This should become increasingly important as a policy goal – values, such as giving back if you do well. On this, like Ms Hazlina, I fully support the extension of tax deductions for giving towards IPCs, as well as to support corporate volunteerism.

Going forward, we could consider sweetening the deduction further for contributions toward a small number of national priorities, which could benefit from more localised and bespoke support. Perhaps a priority, such as ComLink+.

Corporates would then have a greater incentive to align their corporate social responsibility strategies with the Government.

The Government may find that the private and non-profit sectors are able to deliver more tailor-made interventions and therefore deliver more bang for the buck.

Another area that tax policy can help shape our future society, is to reduce wealth inequality across the generations. I have mentioned before that the need to address the growing wealth divide is one of the greatest challenges of our time. This will get worse and more entrenched as wealth gets passed down from generation to generation.

A large part of wealth in Singapore is stored in property. If the reason for the increase in property values is not due to the effort or expense of the property owner alone, but due to the nation's collective success, it follows that part of the increase in property value should be shared with those that have less.

If we accept this argument, then I think we should consider a few ideas.

First, property taxes are rightfully progressive. If wealth inequality worsens, the Government should be prepared to increase property taxes further, especially on higher-value properties that are for investments. Ms Elysa Chen spoke about this earlier.

Second, wealth that is not earned but inherited should be taxed, if it is feasible to do so. Given that property is an immobile asset, the Government could apply an inheritance tax for high value properties, perhaps the most expensive 1% of properties, without worrying about tax leakage.

Third, I am mindful that some property owners affected by such proposals could be asset-rich but cash-poor. So, the Government could consider a deferred tax mechanism in tandem. We could accrue the taxes owed with interest. This amount owed can be charged against the property and it can be paid only when the property value is realised, such as when it is eventually sold. We already do this for CPF funds used for property purchases and we can consider extending this approach to property taxes owed. And of course, should such property owners wish to reduce their tax obligations, they would be welcome to contribute on their own to charitable causes, similar to what is provided for within this Bill.

Mr Speaker, taxation is a politically sensitive policy area as it involves Government taking from some and redistributing it to others. No one can be entirely happy about this.

But we must accept that no one is successful on his or her own. We must accept that we need to support one another, and ensure fair access to opportunities for those who are not related to us by blood or name, but who are part of this same country that we live and work in. And we must accept that they contribute to our collective success.

So, we have had successful tax policies that speak to shared values. The Bill takes a step in the direction of more actively reflecting the values that we want to see in society.

I support the Bill and hope that the Government will take further steps in this direction and consider some of my suggestions over time.

Mr Speaker: Mr Lee Hong Chuang.

2.33 pm

Mr Lee Hong Chuang (Jurong East-Bukit Batok): Mr Speaker, I will begin my speech in Mandarin and I will conclude in English.

(In Mandarin): I support the Finance (Income Tax) Bill.

The Bill sets out measures relating to AI and internationalisation, providing support for businesses to build capabilities and expand their operations. I would like the Minister to explain three aspects of implementation on how SMEs can better leverage these measures.

First, support for investments in AI.

The Bill proposes that for the YA2027 and YA2028, qualifying AI expenditure, net of grants from the Government or statutory boards, will enjoy a total tax deduction of 400% on the first $50,000 of such expenditure per YA. This deduction applies in the computation of taxable income. According to the IRAS' published arrangements, this new category does not include a cash conversion option.

This measure helps to encourage businesses to adopt AI. I would like the Minister to further explain the policy considerations for not providing a cash conversion option. For small enterprises that may not be able to fully utilise the tax deduction in the short term, how can existing assistance schemes complement this measure to help them progressively embark on AI investments?

During the two years of implementation, how will the Government assess the take up by small enterprises and the actual effectiveness of this measure?

Second, guidance on cost apportionment for claims.

Where a single expenditure comprises both qualifying AI expenditure and other costs, the Bill proposes that if a business has made reasonable efforts but is still unable to obtain evidence to determine the qualifying portion, the expenditure should be apportioned reasonably based on the circumstances.

This helps to address practical situations involving bundled quotations. On this basis, could the tax authority consider providing additional examples of documentation to help small enterprises understand how to substantiate reasonable estimates when itemised quotations or comparable alternatives are unavailable?

Third, beneficiaries of internationalisation support.

From the YA2027, the cap on qualifying expenditure that does not require prior approval will be raised from $150,000 to $400,000 per YA. The Bill also expands the scope of such expenditure. According to the tax authority's published arrangements, newly included activities cover market research, feasibility studies and investment due diligence, with the qualifying period extended to 31 December 2030.

These adjustments provide greater convenience for businesses planning overseas expansion. As the measures are implemented, could the Government consider leveraging existing data and appropriate sample surveys to understand the benefits enjoyed by first time users as well as existing participants, to inform future reviews, while keeping reporting requirements as simple as possible?

I look forward to these measures helping more businesses translate investments into operational capabilities and lay a strong foundation for long-term development.

( In English ): I will now conclude in English. For this Bill, I would also like to highlight how these measures can help businesses build lasting capabilities.

For AI adoption, a small firm may subscribe to or license a qualifying AI system and need guidance to adapt its workflow and train its employees. Could the Minister share how this tax measure can complement existing implementation support, particularly in helping smaller firms use AI effectively and improve productivity?

For internationalisation, market research and due diligence can help businesses make informed decisions before committing capital. The expanded automatic claim arrangements should encourage this preparation and help firms manage the risks of overseas expansion.

As these measures take effect, it would be useful to learn how they contribute to stronger operating processes, employee capabilities and better-informed investment decisions. I hope these measures will help more businesses improve productivity and pursue overseas growth with greater confidence. With that, Mr Speaker, I support the Bill.

Mr Speaker: Minister Jeffrey Siow.

2.38 pm

Mr Jeffrey Siow: Mr Speaker, first of all, let me thank the Members for supporting the Bill as well as offering a variety of meritorious suggestions on how to improve our tax system. I would like to seek Members' understanding that I am not able to address every single suggestion and question raised today. Some of the topics, such as those on property taxes, wealth taxes and personal income taxes, actually go beyond the scope of this Bill.

Several measures in the Bill were also extensively debated at this year's Budget. So, I will therefore focus my response on the points raised by Members that relate directly to the amendments in this Bill, and I invite Members whose questions are not addressed or taken to file Parliamentary Questions at a later Sitting,

Mr Speaker, on the amendments to support businesses, I am glad that Members broadly agree on the need for such measures. I want to thank Mr Saktiandi Supaat, Ms Elysa Chen, Mr Ng Shi Xuan as well as other Members for their support for the Corporate Income Tax Rebates and Cash Grant.

Mr Ng asked about the revenue impact of the schemes. We estimate that this will cost around $1.5 billion. Specifically on the cash grant, Assoc Prof Jamus Lim asked whether the amount of $2,000 is sufficient for SMEs. Mr Shawn Loh conversely suggested limiting the Corporate Income Tax Rebate only to profitable companies. So, there are differing views even in this House.

The tax rebate and cash grant is meant to provide responsive broad-based support to all businesses facing short-term cost pressures, such as those arising from the recent Middle East situation. And the cash grant is also only one of many measures to support SMEs on cash flow, and should be seen in this context and not viewed in isolation.

Next, I want to thank Ms Gho Sze Kee, Mr Dennis Tan and Mr Loh for supporting our sectoral incentives to attract and anchor businesses in Singapore.

To Mr Tan's question on the rationale for the maritime sector incentive amendments, indeed, it is meant to streamline the various schemes.

Ms Gho spoke passionately about the net tonnage tax under the maritime sector initiative. I want to reassure her that the maritime sector is very important for our economy. And so, we will continue to review these schemes and consider Members' suggestions, including hers, to improve the schemes and to ensure that our maritime sector remains competitive.

Several Members asked about enhancements to the Double Tax Deduction for Internationalisation scheme. Previously, we allowed automatic claims for certain qualifying activities for expenditure up to a cap of $150,000 and any higher amount required Enterprise Singapore's approval. To further simplify the claims process, we will raise this expenditure cap to $400,000 and expand the list of activities that will qualify for such claims. For claims above $400,000, or for other qualifying activities outside of this list, Enterprise Singapore's approval is still required.

Mr Ng noted that smaller firms with limited taxable profits may not enjoy the full benefit of the enhancement and asked what more we can do for them. SMEs may tap on other schemes to support their overseas growth. For example, at this year's Budget, the Prime Minister announced increased support for grants, helping companies to internationalise and enhancements to the Enterprise Financing Scheme as well to provide better access to financing.

On including AI expenditure under the Enterprise Innovation Scheme, which several Members spoke about, I want to thank Members for their support, especially Mr Saktiandi, Assoc Prof Terence Ho, who spoke extensively about it, and Mr Yip Hon Weng, who spoke about how we can help more businesses go further, translate enterprise-wide AI adoption into productivity gains and business value – very important end goals.

Our businesses, all of them, are at different stages of AI adoption. The revised Enterprise Innovation Scheme provides broad-based support for businesses, including consultancy services, which Ms Elysa Chen had asked about.

Mr Saktiandi and Mr Louis Chua asked if IRAS could provide guidance or worked examples for businesses on how much to claim. I think these are good suggestions. IRAS will try its best to improve the e-Tax Guide on the Enterprise Innovation Scheme, which explains in more detail what expenditures will be supported and how they should be apportioned.

Beyond the scheme, businesses can also purchase off-the-shelf AI solutions using Enterprise Singapore's EDGE Grant. Those that require more customised AI solutions can tap on the Enterprise Compute Initiative, which supports the development of AI systems and associated training, which Ms Diana Pang asked about.

Several Members, including Mr Lee Hong Chuang and Mr Victor Lye, also asked if a cash payout option could be provided for AI expenditures. There is a cash payout option for existing qualifying activities under the scheme, which businesses can opt for in lieu of tax deductions. These activities are, however, more tightly scoped to minimise spurious or fraudulent claims. For example, claims for training can only be made for pre-approved courses aligned with the Skills Framework. Claims for innovation projects must be certified by a polytechnic, the Institute of Technical Education or selected qualified partners

However, for AI activities., we wanted to give more flexibility in the first instance and allow businesses to claim for a broader range of expenditures without the need for pre-approval. Hence, we decided not to provide a cash payout option for now. But I note the various suggestions, including Mr Lye's suggestion of how to help startups access more support for AI, and we will take a look.

On evaluating the Enterprise Innovation Scheme against its intended objectives, we will monitor overall the take-up and effectiveness of these enhancements and make adjustments where needed later. But let us get on with the scheme first and see what the take-up is like.

Mr Chua suggested providing similar relief to individuals who pursue AI skills training at their own expense. We support businesses and workers in AI adoption through different ways. For workers, training support is provided regardless of their taxable income, mainly through targeted subsidies for course fees and SkillsFuture Credits.

Let me now address the questions on Pillar Two rules. As Assoc Prof Lim observed, Singapore's Domestic Top-up Tax will continue to apply to US multinational enterprises. The effective tax rate for multinational enterprises here will therefore be at least 15%, as set out under the Pillar Two rules. And to Mr Saktiandi's question on data protection under the GloBE Information Return exchange framework, the exchange of information is subject to strict safeguards that are agreed internationally. For example, tax authorities will have to ensure that the information is only used for tax administration purposes.

Let me turn finally to tax administration. Over the years, IRAS has earned a deserved reputation for being one of the most efficient tax authorities in the world. Its digital services are seamless, efficient and taxpayer-centric.

Since 2020, companies have been successfully using IRAS' e-service to file corporate income tax returns.

But we recognise Mr Saktiandi and Ms Pang's concerns that micro-enterprises and less digitally literate business owners may need help in filing objections or revisions digitally. And this is why we have designed this e-service to have a similar user interface and are prepared to allow other filing modes if technical issues arise. And taxpayers may also contact IRAS for further assistance and support, if needed.

I thank Mr Saktiandi and Ms Pang for their support for the new 20% Fixed Expense Deduction Ratio. For those who opt to claim actual expenses, the current claim process remains unchanged. On Ms Pang's suggestion to provide more guidance for taxpayers to decide whether to use the ratio or to use actual expenses, IRAS' website provides worked examples of allowable business expenses that will help taxpayers make a better and more informed choice. IRAS will also publish more guidance on its website, including on record-keeping requirements.

Finally, Mr Speaker, let me briefly address other suggestions made by Members.

I want to thank Mr Ng Shi Xuan for supporting the extension of tax exemption for employer-subsidised childcare benefits to MOE Kindergartens. This tax exemption previously applied only to childcare centres licensed under the Early Childhood Development Centres Act, which does not cover MOE Kindergartens. And so, we are extending the tax exemption to MOE Kindergartens to encourage employers to provide family-friendly benefits. And this tax exemption will also apply to KCare, since it is provided in the same premises as MOE Kindergartens.

Mr Ng suggested extending the tax exemption for employer-subsidised childcare benefits to student care services to support parents with older children. For the student care sector, the Government is undertaking a broader fee review to ensure affordability. The Prime Minister announced this review at the National Day Rally. The Government will announce more details when the review is completed.

Mr Saktiandi asked about the tax exemption for payouts under the ComLink+ package for employment. Most ComLink+ recipients do not pay income tax. For the small group that does, the tax exemption for the payouts will apply automatically. They did not declare such payouts as income going forward and they will receive the full amount of the payouts. Those who have previously declared and paid tax on the payouts in the Year of Assessment 2026 will receive refunds, and the Ministry of Social and Family Development will contact them directly.

Let me thank Ms Chen, Mr Loh, Assoc Prof Lim and Ms Hazlina Abdul Halim for their suggestions on the 250% tax deduction scheme for qualifying donations and corporate volunteerism.

At 250%, Singapore's tax deduction rate is already one of the most generous internationally, and it is complemented by matching grants for donations and capability development grants for charities and social service agencies. Together, these form the foundation of our "we first" society. We regularly review our support for the charity sector, and we will consider our Members' suggestions today. I also assure Ms Chen that any changes to the tax deduction rate will be announced with enough lead time.

And finally, Ms Chen suggested tracking and reporting statistics on the CPF cash top-up by platform operators on behalf of platform workers. As this tax deduction only started this year, the Government will report the relevant indicators when more data is available.

Mr Speaker, the amendments in today's Bill are part of our continuing efforts to keep our tax system relevant and competitive as the global environment evolves. I thank Members today for all of your suggestions. For suggestions we have not been able to address or take in this round, we will consider them as we review and strengthen our tax system for the future. Sir, I seek to move.

2.51 pm

Mr Speaker: Are there any clarifications for the Minister? None.

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 Jeffrey Siow].

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

Mr Speaker: Order. I propose to take a break now. Minister of State Alvin Tan, you will have the session later. So, I propose to take a break now. I suspend the Sitting and will take the Chair at 3.15 pm.

Sitting accordingly suspended

at 2.54 pm until 3.15 pm.

Sitting resumed at 3.15 pm.

[Deputy Speaker (Mr Xie Yao Quan) in the Chair]