INCOME TAX (AMENDMENT) BILL

Order for Second Reading read. 5.37 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 to a number of tax concessions previously announced and, second, to streamline procedures and improve existing legislation.

Let me first deal with the concessions. In my 1977 Budget Statement, I announced that to further develop Singapore as a financial centre, the 10% concessionary tax will be extended to cover all offshore income derived from Asian Dollar Market operations, other than exchange profits and transactions with domestic banking units and residents. Clause 13 of the Bill now provides for this concession by re-enacting section 43A of the Income Tax Act so as to confer greater flexibility in specifying the types of offshore income which will qualify for the 10% concessionary tax. This concession takes effect from Year of Assessment 1978.

Also taking effect from Year of Assessment 1978, tax on income from reinsurance business will be reduced from 40% to 10%. This concession is designed to develop Singapore as a centre for reinsurance business and to encourage reinsurance companies to remit back into Singapore premia earned from parties overseas. Clause 14 makes provision for this, by legislating a new section 43C to the Income Tax Act. As a consequential amendment, clause 9 seeks to amend section 26 of the Income Tax Act to provide for maintenance of separate accounts by insurance companies in order to ascertain income derived from reinsurance business.

Income derived from Asian Currency Unit operations and offshore reinsurance is taxed at the concessionary rate of 10%. Clause 2 provides for a new section 13B to exempt from tax the dividends declared by a financial institution or an insurance company engaged in such activity so that the dividends when received by the shareholders are not taxed further. The 10% concessionary tax is the final tax.

Export promotion has been the cornerstone of our trade development policies. The double tax deduction benefits currently given to participation in approved overseas trade fairs and trade missions have been of assistance to our manufacturers. In order to further encourage these efforts in export promotion, three concessions have been granted. First, with effect from 13th September, 1977, the double tax deduction benefits are extended to manufacturers who participate in approved local trade fairs which are organised to promote the export of Singapore-made goods. This concession, however, does not apply to enterprises which are already enjoying export or other incentives under the Economic Expansion Incentives (Relief from Income Tax) Act. Second, the eligibility for claiming double tax deduction in respect of participation in overseas trade fairs has now been extended to include traders and banks. Thirdly, with effect from 1st January, 1978, the double tax deduction benefits have also been extended to resident companies in Singapore, engaged in the manufacture of goods in Singapore or the export of goods manufactured in Singapore, for expenses incurred in maintaining an approved overseas trade office established exclusively for the purpose of promoting the export of Singapore manufactured goods. This concession which was announced in my 1978 Budget Statement is aimed at encouraging our exporters to undertake direct and intensive export promotional activities. These three additional concessions are incorporated in clause 4 of the Bill.

Industrial and farm buildings are currently eligible for depreciation at an initial allowance of 10%, with the balance of the capital depreciated over 45 years. To lessen the tax burden on owners of industrial buildings I had, in my 1978 Budget Statement, increased the initial allowance of 10% to 25% and reduced the depreciation period to 25 years with effect from Year of Assessment 1979. Since farm buildings are exposed to more rapid wear and tear, such buildings will be allowed an even faster rate of depreciation, over 15 years, besides the initial allowance of 25%. Clause 6 seeks to amend Section 16 of the Income Tax Act to provide for this. This amendment also provides for the granting of initial allowances to purchasers of an unused industrial building or structure, including the purchase of a leasehold interest therein of not less than 25 years, which was not occupied previously and for which no initial allowance has been granted.

The reduction in the personal income tax rates applicable to individuals and Hindu joint families which was announced in my 1978 Budget Statement is provided under clauses 12 and 21. Clause 12 also limits the rate of tax on remitted income of the individual or a Hindu joint family to 40%.

I now come to the amendments in the Bill designed to streamline procedures and improve existing legislation.

The definitions of "business service passenger vehicles" and "private motorcars" under the Motor Vehicles (Registration and Licensing) Rules, 1972, have brought about an anomalous situation. A sole proprietor or a partner of a professional firm can register his motor car as a private vehicle, use it in connection with his business, and claim tax deduction for expenses under section 14 of the Income Tax Act without having to pay the double road tax and Area Licence Fees applicable to business vehicles. To rectify this anomaly, clause 5 of the Bill seeks to amend section 15 of the Act to restrict the deduction for expenses only to motor cars which are registered as business service passenger vehicles. This amendment will take effect from 1st April, 1979. Clause 8 makes a consequential amendment to section 19 of the Act to restrict the granting of capital allowances only to cars which are registered as business service passenger vehicles.

In recent years, there have been increasing instances of companies with accumulated trading losses acquiring the entire shareholdings of profit-making companies for the sole purpose of off-setting dividends declared by the acquired company against the accumulated trading losses of the "loss" company. To plug the exist4ng loophole in tax, it is proposed to amend the Act by introducing a new section 37A to disallow a deduction for any losses incurred by a company against dividends received by it from an associated company. This is provided under clause 10. The proposed section 37A also has provisions to ensure that bona fide companies are not thwarted in making acquisitions for normal commercial reasons.

Under the Income Tax Act, an employer's contribution to CPF is an allowable deduction in ascertaining income, provided the CPF contribution does not exceed 15% of the remuneration paid by the employer to the employee. In July, 1977, the maximum CPF contribution was raised from 15% to 15 1/2%. In July, 1978, the Government again raised the maximum CPF contribution from 15 1/2% to 16 1/2%. To reflect these changes, clause 3 of the Bill seeks to correspondingly raise the employer's maximum contribution to 15 1/2% and to 16 1/2% for the purpose of tax deduction for the relevant periods. This clause has retrospective effect from 1st July, 1977, and from 1st July, 1978.

In the course of administrating the Act, the Comptroller of Income Tax has been faced with the difficulty of collecting the 40% tax on director's fees paid to non-resident directors of Singapore companies. At present, although the tax liability exists, there is no provision in the Act to instruct the paying company to deduct the 40% tax at the time of payment of such fees. To enforce collection procedure, it is proposed to amend the Act to introduce a new section 45B to allow deduction of the non-resident director's tax liability at the time of payment. This is provided under clause 16. Clause 17 makes a consequential amendment to section 46 of the Act as a result of the insertion of the new section 45B.

Clause 20 of the Bill amends section 79 of the Act to ensure that no peremptory objection can be made to the Chairman of the Board of Review in the hearing of an income tax appeal. This amendment is to tighten up the existing legislation in order to ensure effective functioning of the Board of Review.

Sir, I beg to move.

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

[Mr Speaker in the Chair]

Clauses 1 to 21 inclusive ordered to stand part of the Bill.

New Clause - "Amendment Section 78 of the principal Act is of section amended by inserting, immediately 78. after the word - "Chairman" in the last line of subsection (5) thereof, the words "of the Board or any other member presiding".". - [Mr Hon Sui Sen].

Brought up, and read the First time.

Mr Hon Sui Sen: Sir, I beg to move, "That the clause be read a Second time."

Sir, the new clause seeks to amend section 78(5) of the Act to clarify that the word "Chairman" refers to the Chairman of the Board of Review and to enable any other member of the Board, chairing in his absence, to have a second or casting vote in the event of an equality of votes. This is a technical amendment which will reinforce the amendment made to section 79 as contained in clause 20 of the Bill.

Question put, and agreed to.

Clause read a Second time and added to the Bill.

The Chairman: This new clause will be inserted immediately after clause 19.

Amendments will also be made to renumber clauses 20 and 21 as clauses 21 and 22, respectively, consequent upon the addition of the new clause.

Bill reported with an amendment, read a Third time and passed.