ECONOMIC EXPANSION INCENTIVES (RELIEF FROM INCOME TAX) (AMENDMENT) BILL

Order for Second Reading read.

4.15 p.m.

The Minister for Finance (Dr Goh Keng Swee): Mr Speaker, Sir,I beg to move, "That the Bill be now read a Second time."

This Bill seeks to amend the Economic Expansion Incentives Act of 1967. The Act itself was intended to meet the situation prevailing in the years immediately preceding 1967, when the economic future of Singapore was clouded in some uncertainty as a result of our expulsion from Malaysia.

More than two years have passed since the passage of the Act and these two years have seen some improvement, a great deal of which was the result of the operation of the Act itself. The time therefore has come to take a fresh look at the situation, more especially so as several observers from aboard, including the International Monetary Fund and a mission sent by the Massachusetts Institute of Technology, have commented on the generosity of our tax incentives.

I will deal with the main changes which are provided for by this amending Bill and leave out minor and technical matters. The principal effect of the Bill, in so far as it affects intending investors, is a reduction in the period of tax incentives for export enterprises from 15 years to eight years. This will apply to the general run of business, but in exceptional circumstances as defined in the Bill, the 15-year period will still be available. These are for very large enterprises with a capital investment of $ I billion or more or those with a capital investment of $150 million, of which more than half is owned by permanent residents of the Republic.

As regards the 5-year tax relief provided for pioneer industries, this incentive is henceforth available only to large enterprises with a fixed capital investment of not less than $1 million. Smaller enterprises may apply for export incentives, but if they produce only for the domestic market they will get nothing as it is not the policy of the Government to give Pioneer Certificates to manufacturers who produce for the domestic market, whatever their size.

There are also amendments regarding depreciation allowances. Hitherto, these can be carried forward to the post-pioneer period at accelerated rates, which in effect means an extension of the pioneer period beyond five years to six years or even seven years.

Of course, those who have been granted tax concessions under the 1967 Act will continue to enjoy them.

The intention of the Government to make changes in our tax incentive laws has been known for some time both to local industrialists and industries abroad. This has been somewhat helpful to our investment promotion efforts. In the last four or five months, there have been a series of negotiations between the Government and a number .of large well-known international firms who wanted to take advantage of the 15-year tax incentive while the going was still good. I am happy to announce to Members that most of these negotiations have been successfully concluded, the last one at 4 p.m, yesterday. As a result, we shall see some very large manufacturing operations established in Singapore using advanced technology and employing large numbers of skilled workers, technicians and engineers.

Among the larger and more important of these investors are General Electric of the United States of America, Philips of Holland and Rollei-Werke of Germany, producers of the famous Rolleiflex cameras. Each of these companies will establish enterprises in Singapore which will employ in their plants between 3,500 and 5,000 workers by 1975. The value of the aggregate output of these plants by 1975 is expected to exceed $600 million. The range of products manufactured is very wide and includes consumer electrical supplies, home appliances, radios, tape recorders, production machinery, tools and dyes, cameras, lenses and optical equipment. These are production operations and not mere assembly. A training programme has already been started to produce the skilled craftsmen and technicians who are needed in these new enterprises. They are being trained both in Singapore and abroad. I am sure that Members will want me to express our appreciation to those who were responsible for getting these very large enterprises introduced in Singapore. The persons concerned are the very dedicated officers of the Economic Development Board, who have put in long and sustained hours of work both in Singapore and in promotion offices in Europe and America.

Getting these large firms to agree to set up these big projects in Singapore does not mean that everything is over bar the shouting. In fact, the real work begins as from now. We have to ensure that large numbers of skilled workmen, technicians and engineers are made available in the quantity required and up to the standard of excellence which these companies have been led to believe we can achieve. If we fail to produce these workers with the requisite skills, diligence and ability, then the whole foundation of our industrialisation programme would be undermined. This requires a major effort not only by the Ministry of Finance, whose work is really done by now, and the Economic Development Board and other agencies, but it will need sustained effort by the Technical Education Department of the Ministry of Education, the Polytechnic, the University of Singapore, Nanyang University, the National Trades Union Congress - indeed the whole community.

Sir, I beg to move.

Question proposed

4.22 p.m.

Dr Augustine H. H. Tan: Mr Speaker. Sir, I am happy to see this Bill. It has features that should encourage more joint ventures, greater size of industries and, most important of all, export-orientation. Joint ventures are particularly significant to an economy like ours, because when tax exemption is given, at least some of the profits accrue to our Gross National Product. There is a very real danger that where an enterprise is solely foreign-owned and is tax-exempt, the contribution to our Gross National Product during the pioneer period may be negligible, if we take into account the real cost of providing the economic infrastructure.

However, the Bill gives encouragement to joint ventures only of enterprises worth at least $150 million. It seems to me to be desirable to have a graduated scale between the minimum qualification of $1 million for pioneer status and the $150 million qualification for special depreciation allowances and export-tax benefits of 15 years in order to encourage those industries that are joint ventures but which range in between $1 million and $150 million.

In addition, we may want to build in a feature to encourage management and technical training to local people. Perhaps an index of the proportion of payroll which is paid to local personnel could be used in determining the amount of pioneer, depreciation and export-tax benefits, again on a graduated scale. It may be noted that salaries paid to non-local staff may add to our Gross Domestic Product but not to our Gross National Product which is the more accurate measure of national economic welfare.

As for raising the qualifying capital expenditure for an expanding enterprise from $1 million to over $10 million, I think it may be desirable again to have a graduated scale, with so much exemption given for so many million dollars worth of additional capital expenditure. It is not clear to me why, if we allow pioneer benefits with $1 million capital expenditure initially, we should require reinvestment of $10 million in order to provide continuing benefits.

Mr Speaker, Sir, the principle of the Bill is well considered and I support it.

4.25 p.m.

Mr Teong Eng Siong: (In Mandarin): Mr Speaker, Sir, the Bill is in relation to the economic expansion incentives and relief from income tax. The Minister has talked at length in this House on various aspects relating to the status of pioneer industries, tax exemption and other matters. According to him, the Bill can help our economy to progress further. However, I have several questions which I would like him to clarify.

First, if the amendment Bill is passed, will it have any adverse effect on those industries with a smaller capital? For instance, as a result of this Bill, investors with a smaller capital will not invest here.

Second, what are the reasons behind the introduction of this amendment Bill?

Third, how much revenue can our country get every year after the Bill is passed?

Dr Goh Keng Swee: The Member for Whampoa has made what, to me, appears to be quite a valid point. It is only a question of whether this is the right moment to apply the policy he recommends. For instance, he is recommending a clear distinction in treatment between the wholly foreign-owned enterprises and those in which local capital is allowed participation. I am wholly in sympathy with this policy. The only question is whether we should introduce it now or wait until our industrial base is so firmly established that we can afford to risk some adverse comment which is bound to arise in the investing countries. When the time comes, when we are more self-sufficient in technology and know-how, and possibly even in markets, this policy will not only make sense but can be introduced with less risk than is the position today.

As regards giving preference for employment of local management personnel, may I say that the demand for management personnel is so much in excess of supply that, far from encouraging foreign investors to employ local personnel, I have often had to urge them to bring their own personnel and not to disrupt the tight market situation now existing. In fact, it has been necessary for me to enter into a gentleman's agreement with some of the larger American and British companies not to pinch each other's executive staff. Here again if the supply and demand position changes, we can have a try at it, but it is likely that the demand for good executives of ability and high engineering skills will remain in short supply for a very long time.

The Member for Whampoa asked why $10 million for expansion when there is only $1 million for a pioneer firm. The rationale behind it is that if a pioneer firm has been running for some time and has had experience, it has got good value for its money. And if it really wants more concessions, then the size of the increment should be much greater than is the case with a new venture. We thought that $10 million was a convenient figure, but any other figure will do.

The Member for Sembawang asked whether there would be any adverse effects on smaller industries. I assure him that there will be no adverse effects. Smaller industries will not be persecuted. They will still continue to flourish, one hopes.

The Member also asked why we introduced this amending Bill. Perhaps I did not make it very clear in my Second Reading speech. The point is that the original Act has been too generous. We gave people 15 years' lax exemption, whereas we think now that with eight years' tax exemption we will get them coming in. Similarly, there is no reason why we should give pioneer status to very small companies as we are doing now. It is a lot of work and quite often these small companies do not profit anyway. So the pioneer status is quite meaningless to them.

The Member for Sembawang also wants to know how much more revenue we will collect from this. I really do not know. There is no way of making this calculation because it all depends on how many new firms come in and what profits they make. The only thing that I know is that we will collect more revenue under this amending Bill than under the old one.

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. -[Dr Goh Keng Swee].

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