CPF CONTRIBUTIONS AND TAX RELIEF ON LIFE INSURANCE PREMIUM (Revision of limits)

Mr P. Selvadurai asked the Minister for Finance (a) whether the current Central Provident Fund rate of contribution of 15 per cent is the ultimate limit; if not, whether it is intended to increase the rate of contribution yet further; and (b) whether he will consider increasing the Income Tax reliefs relating to CPF and Life Assurance payments from its present limit of $4,000.

Mr Hon Sui Sen: Sir, my colleague, the Minister for Labour has prescribed in the Schedule to the Central Provident Fund Act (Chapter 121) certain rates of contribution payable in respect of certain types of wages. The Act does not impose an ultimate limit of 15% nor is such limit imposed by economic or other circumstances. What rate is appropriate at any given time must depend on all the circumstances, including the state of the economy, at that time. If any variation in the rate is deemed justifiable or appropriate by me or other colleagues of the Minister for Labour, I have no doubt that he will give consideration to the arguments for such variation.

With regard to the second part of the question, I have already, in the Budget Debate, answered it in the negative. It may well be that CPF contributions take up most of the $4,000 but this applies only to a small minority of taxpayers who are in the higher income group. Those who, as a result of the operation of this limit, are denied full tax relief on life insurance-premia are taxpayers who earn in excess of $24,000 a year, as their CPF contributions alone would be $3,600 a year. They, however, form only 10% or about 20,000 of the taxpaying population. The remaining 90% can still enjoy tax relief in varying degree should they take up life insurance policies. For many of them, the combined CPF contributions and life insurance premia are not likely to pierce the $4,000 ceiling.

The maximum deduction of $4,000 which was first allowed in 1948 was grossly over- generous at that time as evidenced by the mere handful of taxpayers who took advantage of the allowance. Since 1968, contributions to the CPF have been raised progressively with the result that more and more taxpayers are now claiming deductions and the ceiling of $4,000 is still considered to be sufficient for income tax relief. This ceiling of $4,000 is by far the highest among ASEAN countries. Even in a developed country like Australia, the maximum tax relief given for superannuation contributions and life insurance premia is equivalent to $3,700.