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

Order for Second Reading read.

5.15 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."

Since the early days of Singapore's drive towards industrialisation, one of the more effective instruments of investment promotion has been exemption from income tax granted under the Economic Expansion Incentives (Relief from Income Tax) Act. Under the Act, companies implementing new and desirable projects could be granted pioneer status which exempts them from income tax for a period of five years. By the end of April, 1975, there were a total of 411 pioneer enterprises, investing some $3,100 million and manufacturing a wide range of products in Singapore.

However, as we strive towards higher levels of skills and technology in our industrialisation effort, we have found that the existing tax relief period of five years is too short to provide an effective tax incentive for the more sophisticated types of industries which we are now trying to attract to Singapore. These new industries such as machine tools, diesel engines, precision instruments, aircraft components, specialised electrical equipment and industrial machinery involve much heavier capital investments in plant and machinery and require more sophisticated manufacturing skills which are only acquired after long periods of training. Such industries have long gestation periods and take much longer time to become profitable, some breaking even only in the fourth or fifth year of production. A five-year tax relief period would therefore not benefit them to any extent and a longer period of pioneer status is now necessary to encourage such new industries to establish in Singapore.

Thus, section 6 of the Act is being amended to extend the tax relief period of a pioneer enterprise from the present fixed period of five years to a maximum of ten years. The longer period of tax relief will enable desirable industries with long gestation periods to effectively enjoy pioneer tax incentives and thus provide a more effective promotional tool for the further upgrading of manufacturing skills and technology in Singapore. The maximum ten years' tax relief will only be granted to the most deserving cases involving large capital investments and sophisticated technology and manufacturing skills. The longer period of pioneer status will only apply to pioneer certificates awarded after the date these amendments come into force.

Furthermore, to encourage the establishment of small but highly specialised supporting industries, section 5 of the Act is also being amended to dispense with the requirement that a company must incur a fixed capital expenditure of not less than $1 million before it is eligible for pioneer status. With the establishment of a widening range of large scale manufacturing plants in Singapore, there is an increasing need for specialised supporting industries to supply parts and components to the larger manufacturing plants. Such supporting industries often involve sophisticated technology and skills but owing to their smaller size their fixed capital investment may not reach $1 million. Removal of this minimum investment requirement will enable pioneer tax incentive to be used to promote the establishment of such desirable supporting industries which are now playing an increasingly important role in the further integration and development of our industries.

Consequential amendments are also being made to sections 10 and 25 of the Act.

Sir, I beg to move.

Question proposed.

Mr Teong Eng Siong: (In Mandarin): Mr Speaker, Sir, I fully support this Bill which seeks to provide greater and better tax relief incentives to certain types of industries which help to promote our industrialisation programme.

In view of the world economic recession and the fact that its effects are still being felt, and that the Government is trying its best to revive our economic activity, the Economic Development Board has more important tasks to perform. Foreign investments in Singapore have decreased this year, amounting to only one-third of that of last year. This shows that our economic position has been affected. The Economic Development Board, therefore, has the immediate .and urgent task of attracting more foreign investment into Singapore so as to promote our economy and industrialisation programme, thus creating more jobs for our people. In this respect, I would like to raise certain Un-favourable comments on the Economic Development Board for the information of the Minister.

I have received certain complaints from foreign investors who wish to invest in Singapore. One complaint is that an applicant normally has to wait for half a year to one year before he receives any reply. This delay in replying will discourage foreign' investors from investing in our local industries.

Another complaint is that the staff in the relevant department have not been giving good advice or direction to foreign investors. Perhaps it is due to the lack of commercial knowledge on the part of the public servants concerned. If that is the case, we should train them properly so that they can better handle inquiries from foreign investors. This is a very important aspect of our effort at economic development.

Sir, I support this Bill.

Mr Yeo Choo Kok: Mr Speaker, Sir, in order to safeguard our industrial sector the Bill before the House is a timely one. However, in order to attract fresh investment, the Government should continue to give every assistance arid encouragement to existing manufacturers, whether or not the nature of their particular operations has stepped out of line with our long range objectives on account of shift in emphasis. For example, the current emphasis is on higher technological and less labour-intensive type of operations. However, we should not, because of this, leave those less sophisticated and labour-intensive type of operations uncared for, or even let them feel that they are unwanted. While costs and other market factors will most probably force some such operations to close down ultimately, we should in the meantime continue to give them every assistance and support wherever possible so that their exit will be made less painful.

In saying so, I am not being sentimental. I am only concerned with the impression that has been created - that our attitude appears to be one of wooing the new, deserting the old, in our endeavours to attract more investments in our industrial sector.

Mr Hon Sui Sen: Mr Speaker, Sir, I am grateful for the advice which both Members of the House have given in regard to investments in Singapore. We realise the necessity for more investments not only from people outside Singapore but also from people who are already manufacturing here.

I am, of course, a bit taken aback by the suggestion of the Member for Sembawang that the Economic Development Board is falling down on its job because the applications have been left undecided for half a year to one year. I would have thought that the general period of time taken for a decision is more like half a month to one month. If the Member for Sembawang has any information of such applications, I for one would certainly be very glad to hear of these cases because with the emphasis that we are now placing upon industrial investment and with more intensified promotion efforts by our offices I would be very surprised that there are any applications which have been left undecided for one year or so.

As for the other criticism that some of the staff have not been giving good advice, again I would be very interested in knowing the kind of advice which is considered unsatisfactory, and I can assure, the Member for Sembawang that if his criticism is justified it will certainly be corrected by not only the Economic Development Board itself but also by, I think, an admonition from the Ministry of Finance. I do not, however, anticipate that there can be very many of these cases. The EDB is generally regarded even by foreign investors as being very efficient, and I am surprised to hear about this. It may be that this criticism emanates from existing manufacturers.

The Member for Delta suggested that we are neglecting the existing manufacturers. I can assure him that there is no intention of doing so and if they have any interest in investing more money or if they need advice in any way, whether financial or technical, the EDB and the Ministry of Finance (Development Division) will be most happy to provide any assistance they can.

Mr Teong Eng Siong: (In Mandarin): Mr Speaker, Sir, let me give an example for the information and reference of the Minister.

Mr Speaker: Mr Teong, I think it is best you give your example to the Minister in writing.

Mr Teong Eng Siong: (In Mandarin): Sir, I think it is better to say a few words here. It is about the guidance given by the staff of the Economic Development Board on the proposal to set up a textile industry here. If such an enquiry is made to the staff of the EDB, they would say that there are too many textile factories here. The investor would then say, "Please give me the kind of guidance as to what type of industry would be welcome here." The reply would be: "You can make your own assessment as to whether or not there is an international market, and then we will approve your plan." As a matter of fact the staff of the EDB should give guidance as to what types of industry would be more favourably received here, together with certain useful hints. If the applicant has taken several months to draw up a proposed plan and it is not accepted in the end, he will be wasting his time in addition to incurring great inconvenience.

Mr Hon Sui Sen: Mr Speaker, Sir, the very short answer is that we are prepared to give the advice, but perhaps what has been misunderstood is that we cannot make the decision for the investors. They have to decide whether any particular industry which they want to set up is likely to succeed. Where it is obvious that there is really not enough market, say, for textile goods, at this particular period of time, the EDB is right in advising them that perhaps textile manufacturing is not an industry to go into now.

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 Sen].

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