INCOME TAX (AMENDMENT) BILL

Order for Second Reading read.

5.10 p.m.

The Minister for Finance (Mr Hon Sui Sen): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

This Income Tax (Amendment) Bill is necessary, first, to give legislative authority for a number of income tax concessions; second, to further strengthen the law against income tax offenders; and third, to streamline procedures and improve existing legislation.

A number of tax concessions were announced by me previously in Parliament. These included income tax relief for supporting parents and grandparents and child relief for supporting handicapped children over 16 years. Clause 8 of the Bill provides for these concessions which need no further elaboration.

Another announced concession was that with effect from the year of assessment 1975, annuity payments will be taxed only on that portion deemed to be income, the balance being considered capital and not taxable. Clause 3 (b) will provide for this using a simple rule adopted by actuaries in some countries to determine the income portion of an annuity payment. I will not trouble Honourable Members with details on how this rule works except to say that the method of apportionment is reasonable and is favoured because of its simplicity in calculation both for the Inland Revenue Department and the annuitant.

Clause 3 (b) will also provide for the method of taxing gains from Negotiable Certificates of Deposits (NCDs) which I hope will soon make its appearance in the Singapore money market. An announcement on this will be made very shortly. Because of the current uncertainty in the financial world, the introduction of NCDs in Singapore has been delayed but I am confident that eventually NCDs will be an instrument commonly traded in the Singapore money market.

Because of our desire to consolidate the development of Singapore as a maritime centre, it has been our policy to give fiscal incentives to encourage shipowners to register their ships in Singapore. I announced previously that the balancing charge which may arise on the sale of a Singapore ship will not be subject to tax and that there will be income tax exemption for crews working on board Singapore registered ships. Clauses 3 (a) and 4 (a) provide for these concessions. In addition, I am proposing a new concession under clause 5. Hitherto, although income from a Singapore ship is exempt from tax, depreciation allowances on the ship are still required to be charged against the exempt income. The effect is to reduce the amount of tax exempt dividends that could be declared by shipping companies. I propose to lift this requirement and allow Singapore ships the option to claim or not to claim depreciation allowances. However, should a ship leave the Singapore registry and become liable to Singapore income tax, any unclaimed depreciation allowances accumulated during the period of its Singapore registration will not be allowed. At the same time, it is also proposed that tax exempt shipping income be separated from other taxable income or losses of the same company. In the past, shipping losses may be used to offset against non-shipping taxable income which is undesirable.

Clause 7 is also concerned with depreciation allowances and provides for accelerated depreciation over three years on capital investment in antipollution devices. This concession is in keeping with Government's policy to promote a cleaner and healthier atmosphere in industrial estates and in the community as a whole.

The export of our manufactured goods is the basis of our industrial strategy. I am pleased to see the number of trade missions organised recently to visit potential markets to push exports of Singapore-made goods. To assist these efforts in export promotion, I announced that double deduction will be allowed for expenses incurred in approved overseas trade fairs, exhibitions or trade missions organised to promote the exports of Singapore-manufactured goods. This concession, however, will not apply to enterprises which are already enjoying export or other incentives under the Economic Expansion Incentives Act. Clause 6 of the Bill provides for the double deduction concession which will have retrospective effect from 1st April, 1973.

I now come to the amendments in the Bill designed to tighten the law against income tax offenders. Income tax is the mainstay of our revenue structure accounting for more than one-third of total revenue. Compliance by taxpayers is therefore of paramount importance and Government must see to it that every person who is liable pays his fair share.

The design of a penalty system for tax evasion which without excessive harshness would yet be punitive enough to deter would-be offenders is no easy task. Some guidance is provided by experience in the day-to-day administration of the law. And such experience has shown that certain modifications in the law dealing with offenders should be made.

Clause 13 of the Bill provides for modification of the penalty for failure to make an income tax return or furnish particulars. There have been too many cases where a fourth, fifth or sixth conviction has not had the desired effect of getting the taxpayer to submit his returns or accounts. The present penalty of a maximum fine of $1,000 appears ineffective. It is now proposed that if the conviction is a second or subsequent conviction relating to the same year of assessment, the taxpayer shall be made to suffer a further penalty of $50 a day for every day that the offence is continued after conviction.

It is also proposed to remove the requirement of a possible minimum of six months' imprisonment in addition to a fine for taxpayers who are convicted for omitting or making false returns without reasonable excuse or through fraud. A minimum six months' imprisonment seems too harsh in this case and invariably this has led to offenders being let off with only a fine. Clauses 14 and 15 of the Bill will allow for the length of imprisonment to he decided by the Court. However, for cases of fraudulent evasion for more than three years, a minimum six months' sentence will remain.

At present, only the High Court may impose the full penalty in respect of offences under the Income Tax Act. As a good number of income tax cases are dealt with in the District or Magistrate's Court, clause 16 will empower the District or Magistrate's Court to impose the full penalty as well.

Clause 10 will require a married woman to sign and furnish a return in respect of income assessable in her husband's name, if deemed necessary by the Comptroller. This will make it possible for the Comptroller to take action against the wife where she derives unearned income which is assessable only in her husband's name and which has not been declared to the Comptroller. Hitherto, it was not possible to prosecute the husband since he may genuinely be unaware of the wife's undeclared income. At the time it is not possible to prosecute the wife since she is not assessable on this income. The amendment will plug this loophole.

In the past, provisions in the Income Tax Act regarding the general secrecy of income tax matters prevented the Comptroller from making a complaint to any Professional Body even if he is aware of blatant unprofessional practices. This is an obstruction to the course of justice. Clause 2 will take out this fetter on the Comptroller to allow him to make a complaint to the appropriate Professional Body of professional misconduct against a person in his professional dealings with the Comptroller.

Finally, I come to those amendments which are intended to streamline procedures and improve existing legislation.

Clause 18 will restrict the double child relief given to taxpayers whose children are studying abroad. It has been found that a number of parents want their children to be "expatriates" at an early age by sending them to expensive school abroad. In the past, double relief could be claimed for these children but there seems no reason why Government should continue to doubly subsidize such unnecessary expenditure. Clause 18 therefore provides that double relief will only he allowed where the course of study abroad pursued by the child is either not available in Singapore or the child is unable to gain admission to an institution of higher learning in Singapore.

Income of public entertainers is exempted from tax if their visits are supported from public funds of foreign governments. Sometimes, the financial support from foreign governments is purely nominal. Clause 4 (b) proposes to make it clear that exemption will apply only if the visits of public entertainers are substantially supported from public funds of foreign governments.

To simplify procedures, clause 17 proposes to vest the Minister with powers to amend the First, Third and Fourth Schedules to the Income Tax Act. The First Schedule deals with income tax exemption for statutory boards and other institutions. The Third Schedule concerns tax on income held by the Custodian of Enemy Property. The Fourth Schedule lists the Government loan stocks where interest earned therefore will be subject to half the tax. As the Minister is already empowered to reduce tax or give exemption in the main Act, it would simplify procedures to vest in him the powers to amend these three Schedules as well. It is intended that the remaining two Schedules in the Act, the Second and the Fifth Schedules, which deal with the rates of income tax and amount of child reliefs respectively should continue to be amended only by Parliament as these two Schedules would affect a great number of people.

The remaining amendments are either consequential in nature or are meant to tidy up procedural matters.

Sir, I beg to move.

Question proposed.

5.18 p.m.

Mr P. Selvadurai (Kuo Chuan): Mr Speaker, Sir, I merely would like to say a few words on clause 2 of this Bill, which provision may have quite unforeseen consequences in its implementation. One could foresee a situation in which a professional man may have committed professional misconduct, justifying the Comptroller laying a complaint before the appropriate professional body authorised to take disciplinary action but whose client may be entirely innocent. In such a situation any complaint laid by the Comptroller would result in the confidential tax problem of the client being discussed by other professional men who sit in the appropriate disciplinary committee and who may well represent other clients with conflicting vested interests in the same matter. Such a situation would nullify the protection afforded to a taxpayer by the secrecy provision of the Income Tax Act.

Whilst I agree that clause 2 is desirable for preventing a particular form of professional abuse, the machinery for its implementation, as it now stands, is wholly inappropriate in the context of a taxpayer's rights. This particular problem should be looked into in greater depth, in fact, Sir, on second thought, I really wonder what prevents the Comptroller from laying such a complaint before the appropriate disciplinary body in a given case regardless of the provision of the proposed clause 2.

Apart from these comments, Sir, I support the Bill.

Mr Rodrigo: Mr Speaker, Sir, I just wish to make observations on some of the clauses in this Bill. On clause 3 (a) of the Bill, I am sure the shipping community will welcome this proviso which no doubt will give a fillip to shipping activity in Singapore. This proviso excludes from tax the balancing charge arising on the sale of a Singapore ship. Up to now, because of the absence of such a provision, the Comptroller has sought to tax this charge. This measure has to some extent defeated the purpose of section 13 (A) of the Act, that is, to exempt from tax the income derived from the employment or charter of a Singapore registered ship.

The other clause that I wish to dwell on is clause 4 (a) of the Bill. I feel that this new amendment will no doubt further assist Singapore shipping but something should he said in respect of the drafting of this clause. In clause 4 (a) paragraph (w) the use of the term "substantially" can give rise to problems of construction especially in the absence of a definition of the term in this Bill or in the Income Tax Act. I am led to wonder why the draftsmen have not chosen to employ a phraseology giving a definite number of days in a year instead, as in clause 4 (b) where the words "sixty days in the year" are used.

Lastly, on clause 5 (a), (b) and (c) of the Bill, this is another favourable development. This amendment no longer makes it mandatory for capital allowances to be deducted from the income of a shipping enterprise. At present, this is necessary in determining the exempt profits, the resultant of which is that in many cases, as the Minister quite rightly said, the huge allowances cancel the profits leaving little or nothing for dividend distribution.

Mr Hon Sui Sen: Sir, I am in some difficulty in replying to these criticisms because they are matters of technical detail. On the first proposal about revealing information on taxpayers' matters I thought that we had taken care of the problem which was presented and that this had been carefully drafted. I do not know in what way this provision can be improved. If the Member for Kuo Chuan has any special change in the drafting, perhaps this could be moved in the Committee stage.

I thought that this provision was satisfactory. I assume that professional bodies often get information which they must keep confidential even in their proceedings before the professional body. The names of the particular taxpayer could be suppressed. Names could be omitted or replaced by alphabetical symbols and the details of the taxpayer need not be given. The nature of the misconduct probably relates only to a particular act which may not concern the whole of the taxpayer's financial affairs. I would be prepared to listen to any desirable amendment in Committee.

With regard to the comments by the Member for Serangoon Gardens on balancing charges, I think he welcomes clause 3. But he thought that under clause 4 (a) (w) the word "substantially" should be defined. I will give consideration to some administrative definition of the word "substantially", but I do not know whether in fact a line can be drawn as we have drawn for clause 4 (b) (new subsection (4) ) where 60 days were given. This is a well recognised limitation for that particular purpose -employment exercised in Singapore by short-term visiting employees. I doubt whether there can be a very much closer definition than the word "substantially". The point is that in some cases the seaman is from Singapore and he goes on a ship. The ship probably operates elsewhere but the seaman comes for an indeterminate period, I suppose on leave or for other purposes, back in Singapore. Administratively, it is possible to come to some satisfactory arrangement but I do not know whether we can do much better in the legal definition in stating the total number of days.

The Member made another comment on clause 5 (a) which I was not clear about. This is in respect of allowances which leave nothing for income distribution. I thought that was a desirable amendment.

Mr Rodrigo: Sir, I did mention that was a desirable amendment. I only referred to clause 4 (b).

Mr Hon Sui Sen: Sir, since that is a desirable amendment, I do not have any particular comment then.

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 Hon Sui Semi].

Bill considered in Committee.

[Mr Speaker in the Chair]

5.31 p.m.

Clause I ordered to stand part of the Bill. Clause 2 -

Question proposed, "That clause 2 stand part of the Bill."

Mr Selvadurai: Mr Speaker, Sir, I was wondering whether we can really delete the whole of clause 2 for the time being and come back to it when Parliament sits at a future date if at all necessary, because if the information which the Comptroller would like to lay before the Disciplinary Committee does not involve a confidential type of matter then, of course, the secrecy provisions of the Act will not apply at all. He could just as well lay the complaint before the Committee. So I do not see how clause 2 is really going to make any difference to the present situation.

Mr Hon Sui Sen: Sir, it is a question of interpretation. The Comptroller has been very scrupulous in believing that he cannot even lay a complaint. But this clause will enable him to lay a complaint in a way which will not reveal very much of the taxpayer's financial affairs. We want to be sure that we can, in fact, lay a complaint. We thought that at the moment this was debarred because of the secrecy provisions.

Mr Selvadurai: This would really imply that the nature of complaints that the Comptroller may lay before the Disciplinary Committee will involve confidential tax matters. That is why he had a doubt in his own mind as to whether he could do it or not. This is where the problem is because once it goes before other professional men then, of course, a conflict between respective clients becomes relevant.

The Chairman: Perhaps, Mr Hon, we can postpone the Committee stage and reconsider the Bill later.

Mr Hon Sui Sen: Sir, I think this is a matter of principle. I believe that if the Member takes the view that making a complaint means that we must reveal information, then it means that we cannot make a complaint of misconduct. My point is that the complaint can be laid, the name of the taxpayer suppressed, and the details of his tax affairs need not be revealed except to the extent of that particular piece of misconduct. At the moment the interpretation of the Comptroller is that he cannot even lay a complaint because of the prohibition in the Act which provides that there should be nothing which would indicate that a taxpayer's affairs have been dealt with in such a complaint. I think we want to relax it to the extent that a complaint can be laid but we would, as we have done previously, be quite scrupulous in trying to omit details which would give information to other people about the affairs of the taxpayer.

I do not know whether we can resolve it by just postponing consideration in Committee. It is not a matter of drafting. It is a matter of whether, in fact, the principle must be preserved - that nothing should be revealed at all so that we cannot even lay a complaint.

Mr Selvadurai: That is so, Mr Speaker, Sir, but if the client concerned is completely innocent then, of course, it is going to be very hard on him just because his professional adviser has mis-conducted himself. The whole question relates to the nature of the evidence that is going to be placed before the professional body.

Mr Hon Sui Sen: On this matter, may I give the assurance that we will take the greatest pains to prevent any revelation of tax matters relating to taxpayers. But we will in fact only do it to the extent that complaints can be laid against certain professional men in the discharge of their duties.

Mr Selvadurai: Thank you very much, Mr Speaker, Sir. We will accept that for the time being, and perhaps we will take it up in a different context if the problems were to arise on a scale to warrant it.

Mr Hon Sui Sen: Sir, I would be prepared to accept suggestions for administering this particular section which would satisfy both the professional bodies and my Ministry as to the ability to make representations.

Question put, and agreed to.

Clause 2 ordered to stand part of the Bill.

Clauses 3 to 5 inclusive ordered to stand part of the Bill. Clause 6 -

The Chairman: In page 5, in lines 33 and 34, the word "subsistance" appearing therein will be corrected to read "subsistence", that is, with an "e" instead of an "a". This will be done.

Clause 6 ordered to stand part of the Bill.

Clauses 7 to 18 inclusive ordered to stand part of the Bill.

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