INCOME TAX (AMENDMENT) BILL

Order for Second Reading read.

3.56 p.m.

The Parliamentary Secretary to the Minister for Finance (Mr Tang See Chim): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

This Bill makes a number of important amendments to the Income Tax Ordinance. The amendments range from exemption from income tax on interest accruing to non-residents and on shipping profits, to simplifying the commencement and cessation provisions of the Act.

For the benefit of Members, I shall go through the Bill clause by clause.

Clause 1 provides for the Act to come into operation from 1st January, 1970.

Clause 2 is to permit the Comptroller to give information to the Manager of the Central Provident Fund Board, where such information is required by the latter for the performance of his duties. Under the existing provisions, this is not permissible.

Clause 3 provides for complete exemption from income tax on interest from deposits in approved banks derived in Singapore by non-residents. Members will recall that in 1967, the rate of tax was reduced from 40 per cent to 10 per cent on interest earned by non-resident depositors in approved banks. The amendment also provides for exemption from tax, of interest derived on or after 1st January, 1968, by all persons, resident or non-resident, from deposits in the Post Office Savings Bank. These exemptions are designed to make banks in Singapore even more attractive as depositories for surplus funds from outside Singapore and also to encourage people to cultivate the saving habit with the Post Office Savings Bank.

As the law now stands, any income remitted from outside Singapore to a Singapore resident is subject to tax in Singapore. Provision is also being made for the Minister to exempt from tax income remitted from abroad and received by a person resident in Singapore where relief is not provided under double taxation agreements. This will allow flexibility, so that in cases where the Minister considers it desirable, income received in Singapore from specified overseas investments may be exempted from tax.

When the Merchant Shipping (Amendment) Act, 1968, was before the House last year, it was announced that exemption from income tax would be granted to Singapore-registered ships. Clause 4 is in accordance with that statement and the amendment seeks to exempt from tax income derived from 1st January, 1969, from the operation of Singapore-registered ships. This exemption will apply whether a ship belongs to a Singapore owner or an owner resident outside Singapore and is designed to encourage the registration of ships under The Singapore flag, thereby creating employment opportunities for our citizens. The response from maritime circles has already been encouraging.

Clause 5 provides for the repeal of the provisions allowing double deductions for market development expenditure. As the Economic Incentives Act is comprehensive, covering a wide range of incentives, double deductions for market development are no longer necessary.

Clause 6 alters the existing commencement and cessation provisions which have often perplexed a number of taxpayers in the first one or two years of assessment. Under the existing provisions, while for the first year of the three-year commencement period, the income for tax purposes is the amount of income in that calendar year, in the second tax year, the income is computed by reference to the income for one year from the date of commencement, resulting in the income for the first twelve months being used as the basis for assessing tax liability in the first two years. The taxpayer, however, gets the benefit of the cessation provision by which in the year during which he ceases receiving income, his tax is not based on the full earnings during the preceding year, but on his actual earnings in the year of cessation. In addition, the income from one of the two preceding years is relieved from tax. However, this is not generally appreciated and there is a general misconception that when a person commences employment he is taxed twice.

Under the proposed amendment, the income assessed for any year of assessment shall always be that earned in the preceding year, e.g., a person commencing employment in 1970 will only be liable for tax in 1971 based on his 1970 income. This will allow for a straightforward computation of tax liability and, at the same time, curb manipulations resulting in loss of revenue by artificial commencements and cessations.

All in all, the proposed amendment, by which in each year a person is liable for tax based on his actual income in the preceding year, is simpler and more easily understood.

Transitional provisions have been made, so that those who have been liable to tax under the commencement provisions will still have the benefit of the old cessation provisions. All taxpayers who commence their trade, business or employment after 1st January, 1969, will be assessed under the new preceding-year basis. Those who have already paid tax in 1969 and who commenced employment or trade in 1969 will be subject to tax in 1970 but the tax paid in 1969 will be credited against their 1970 tax liability.

Clause 7 is a consequential amendment arising from the repeal of the old commencement and cessation provisions.

Clause 8 is aimed at restricting the carry-forward of losses to such cases where the beneficial shareholders to whom the carry-forward of losses is to be allowed are substantially the same as those in the company which incurred the losses. This is to prevent abuses resulting from the purchase by unrelated persons of companies which have substantial losses in order to derive tax benefits.

Clause 9 repeals the existing law which provides for tax at the rate of 10 per cent on interest received by non-residents from deposits in approved banks, as the new provisions in clause 3 allow complete exemption.

Clause 10 deals with the manner in which interest from tax-free bonds and stocks is dealt with for tax purposes, where the recipients are banks and financial institutions. Since such organisations receive the interest as trading receipts and are allowed to deduct, as expenses, the cost incurred in the garnering of funds, etc., the credit allowed is one-half of the tax on the income from interest which is brought to charge for tax purposes.

Clauses 11 and 13 are provisions which require the remaining partners in a partnership to keep the Comptroller informed where any partner is leaving the partnership or leaving the country. The remaining partners are made liable for the tax payable by any person who ceases to be a partner where moneys have been paid to an outgoing partner without the written permission of the Comptroller. This is to tighten up on possible avenues for tax evasion.

Clause 12 allows the Comptroller to raise advance assessments where a person's source of income ceases or when he is about to leave the country. This is a procedural amendment which is necessary to prevent tax losses, taking into account the repeal of the old cessation provisions and the introduction of the strict preceding-year basis of assessment.

Clause 14 is to permit the Comptroller to withhold the refund of any tax collected until the matter has been finally determined in the Courts of law with provision for interest to be paid on the amount so withheld. This would safeguard revenue and prevent taxpayers from being able to obtain refund of tax which the Comptroller may not be able to recover when the case is finally decided in favour of the Government.

Clause 15 lists the stocks and bonds which are tax-free at the date of publication of the Bill.

Sir, I beg to move.

Question proposed.

4.05 p.m.

Mr Hwang Soo Jin: Mr Speaker, Sir, it, is interesting to note the number of items on today's Order Paper which are of direct relevance to the commercial sector. All of these items, particularly the important Bill currently before us, when implemented, will have the effect of helping to rationalise and liberalise certain vital aspects of our commercial activities. It illustrates to my mind very clearly that in emphasising the importance of industrialisation, the Government has not overlooked the need to assist constantly in raising the standard of our traditional commercial activities in order to keep pace with changes and to maintain our position as a leading international business centre.

The Bill before us is an excellent example of what the Government can do to provide the private sector with wider scope of operation. I have in mind clauses 3 and 4.

Clause 3 concerns the banking industry and I hope that with the official encouragement now provided, our banks will proceed to attract more money from abroad to be deposited in Singapore and, perhaps in time, we shall rival Switzerland in this particular area of international banking service. In this regard, we have two very salient points, namely, our strong currency system and political stability.

Clause 4 concerns the shipping industry and is part and parcel of the incentives promised by the Minister for Communications to encourage a greater number of merchant ships to fly our flag. Since the official announcement of the Government's intention to introduce such facilities, I understand that considerable interest has been aroused the world over and there have been many inquiries from abroad. I feel sure that with the passing into law of this particular amendment to the Income Tax Ordinance, and a host of other advantages which are already in existence, such as the strategic position of our port, the highly developed port facilities, and facilities for ship-repairing and maintenance, we shall soon see an influx of applications for the registration of sea-going vessels in Singapore, resulting in expanded employment opportunities for our young people who may be interested in seafaring as a career.

Sir, the Minister for Finance has time and again demonstrated that, be it in the industrial sector or the commercial sector, he is always prepared and willing, within reason, to offer incentives in the form of tax concessions to encourage development or expansion which will be of ultimate benefit to the country. But the success or failure of such incentives to achieve the desired effect depends largely upon the initiative, ingenuity and determination that can be exercised by those concerned in the private sector.

Sir, I support the Bill.

4.10 p.m.

Mr Ho See Beng: Mr Speaker, Sir, I rise to support the amendments proposed in the Income Tax (Amendment) Bill. I am only surprised that this amendment Bill was not introduced earlier. To take one example, the commencement and cessation provisions of the Income Tax Ordinance, which are as confusing as modern abstract paintings, have led to confusion amongst laymen. A wage-earner cannot understand why if he commences employment in December in any year he has to pay income tax for two years in January of the next year. He has hardly worked for more than a month and has only been paid one month's wages, yet he is liable to pay income tax for the first year on the month of December, and for the second year of assessment, from December of the first year to November of the next year. I therefore welcome this amendment Bill and note with even greater satisfaction that those of us who have already been hit, like myself, by double taxation when we commenced employment will be given a reduction in income tax when we cease employment.

Sir, I understand that many big business companies have taken advantage of the commencement and cessation provisions to avoid paying income tax. This has been going on for several years and the Government has, as a result, lost several million dollars. May I inquire whether action can be taken to recoup these losses?

4.12 p.m.

Mr Teong Eng Siong: (In Mandarin): Mr Speaker, Sir, I would like to congratulate the Parliamentary Secretary on introducing this Bill which is a fair and progressive measure. It clearly shows that we have a very healthy economic policy.

Before the amendments were introduced, the Income Tax Ordinance was rather confusing but now it is more reasonable. Income tax will now be based on the income derived in the preceding year, and the tax to be paid next year will be based on the income derived this year. I believe that all taxpayers will be satisfied with this arrangement.

Sir, where does this fair and equitable taxation policy come from? We know that our Government practises democratic socialism. We often need to emphasise that it is our noble aim to build a more fair and more equitable society. In order to achieve this aim, we must lay down a fair and reasonable taxation policy. We must specify that the rich will bear a greater part of the tax burden and the poor will be exempted from income tax. It is only through this progressive policy that we can realise an egalitarian society.

We know that a healthy and progressive taxation policy will promote the development of our economy and improve the prosperity of the country. For example, the Bill provides that ships registered in our country as well as deposits which are put in our banks by foreigners will be exempted from income tax. I think this will encourage more foreign capital to be invested in our country. Once we have got hold of these investments they will be used to finance the various activities of our commerce and industry. This will also encourage more ships to be registered in our country. In this way, our economy will improve and more employment opportunities will be created. Therefore, we must maintain a progressive economic policy.

Mr Speaker, Sir, the amendment Bill mainly looks after the interests of the rich and big enterprises. Naturally I support this Bill because it is beneficial to our economy. But I would like to take this opportunity to remind the Minister that he must also look after the interests of the working class. For example, we should reduce the property tax rates on Housing Board flats in order to reduce their burden. All in all, this amendment Bill is a progressive and equitable measure. I support it.

4.15 p.m.

Mr N. Govindasamy: Mr Speaker, Sir, this Bill makes several important and desirable amendments to our Income Tax Ordinance. Like the Member for Bras Basah, I am also surprised that these amendments were not thought of very much earlier.

For example, tax exemption is to be given in respect of interest derived in Singapore by a non-resident individual. This will encourage him to leave his money here instead of taking it out of Singapore for investment abroad. I am also glad to know that such exemption is to be back-dated to 20th August, 1968.

I am also glad to see that the Minister will be given the power to exempt from tax any income received in Singapore from sources outside Singapore. But there is a proviso which specifies that this outside source must come from a country with which there is no arrangement for the avoidance of double taxation. I would be interested to know how many and which are the countries that Singapore has made arrangements with for the avoidance of double taxation.

I understand we have such an arrangement with Australia. Mr Speaker, Sir, we are getting closer and closer to Australia in many fields, such as trade and investment. Any Singaporean who has considerable assets in Australia will not bring back to Singapore the income derived from these assets, because if he does so he has to pay income tax in Singapore. Hence, he leaves his assets, whatever they may be, in Australia. What then is the benefit to Singapore? We should be much happier if this particular amendment could be further amended by the deletion of the proviso that limits the Minister's powers of exemption only to countries with which Singapore does not have double taxation agreements.

4.20 p.m.

Mr Tang See Chim: Mr Speaker, Sir, I wish to thank those Members who spoke in support of this Bill. They have all spoken very well of our economic policies, and I think Singapore justly deserves to be the financial centre of this part of the world. The provisions in this amendment Bill are, in fact, making this possible.

I think two Members complained that certain provisions, like the provisions for commencement and cessation, were not introduced earlier. My reply is that it is better late than never. Anyway, the present provisions for commencement and cessation are straightforward and would not lead to misunderstanding by taxpayers that they are taxed twice in the year of commencement.

I think the Member for Bras Basah wants an assurance from me that the present taxpayers who commenced business or employment before the coming into force of the Act would get the benefit of the old cessation provision. Mr Speaker, Sir, I can give this categorical assurance. In fact, it is provided in the Bill that those who commenced business or employment before the coming into force of this Act would get the benefit when their business or employment ceases.

The Member for Telok Blangah is labouring under some misapprehension. The proviso in clause 3 clearly states that the Minister will have the discretion to exempt from tax income from countries with which we have no double taxation agreement. But where there is a double taxation agreement, provision is made normally for the exemption of tax on income when it is remitted back to Singapore, because income is normally taxed at the place where it is earned. The whole idea of double taxation agreements is that they will not be taxed twice. For example, if profits are earned in Australia, the Australian Government will have the primary right to tax the profits. Normally, without double taxation agreements, when the profits are remitted back to Singapore, the Singapore Government will also exercise the right to tax such profits. However, under a double taxation agreement with, say, Australia, it is normally provided that once the profits are taxed in Australia, they are not taxed again when they are remitted back to Singapore. The proviso in clause 3, however, gives the Minister the discretion to exempt profits from tax where such profits derived from countries with which Singapore has no double taxation agreement are remitted back to Singapore. That is the position.

With regard to the remark made by the Member for Sembawang that the provisions of this Bill are only for the rich. I say that it is not true. If he will remember that an ordinary wage-earner, who has a wife and two children and earning less than $500 a month is not subject to tax, he will not make such a complaint; he will realise that the P.A.P. Government is a socialist one and does not tax workers with a small income.

The Member also touched on the question of property tax. I am very happy to announce in this House that the Government has decided to reduce property tax for all owner-occupiers of Housing Board flats to the uniform rate of 23 per cent of the annual value. This again is another manifestation of the Government's policy to encourage people to own their own homes and to create a stable and prosperous society.

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 Tang See Chim].

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

Mr Speaker: Order. I will suspend the sitting of the House and take the Chair again at 5 o'clock.

Sitting accordingly suspended at 4.30 p.m. until 5.00 p.m. Sitting resumed at 5.00 p.m.