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

Order for Second Reading read. 6.52 p.m.

The Minister for Trade and Industry (Mr Goh Chok Tong): Mr Deputy Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

This Bill will give legislative authority to two major tax concessions announced in the 1978 Budget Statement. These are the investment tax credit scheme for companies engaged in an approved manufacturing or related technical servicing project; and the 20% concessionary tax rate for companies engaged in regional warehousing and servicing of technical products, providing consultancy and technical services overseas, export of approved Singapore manufactured products, and offshore trading in non-traditional commodities.

The Economic Expansion Incentives Act has been one of our key policy instruments for industrial promotion. As in the past, the latest amendment is necessary because of our need to be flexible and to adapt to changes in domestic and external economic conditions. As Members are aware, the world economy, upset by the 1974 recession, has not fully recovered. Singapore therefore faces greater difficulty and keener competition in getting investments from abroad. While foreign investments will continue to be vital for economic growth in Singapore, local entrepreneurs must also be encouraged to invest more. We will continue to attract multi-national companies to expand and invest in higher value-added production. At the same time, more of our local companies should improve and diversify their business into the manufacturing of better kinds of products.

Thus an investment allowance scheme is provided for companies investing in projects for the manufacture or increased manufacture of any product or for the provision of specialised engineering or technical services.

A new Part VIA (comprising sections 46A to 46I) is introduced for this purpose. The investment allowance granted will be up to half of the fixed capital expenditure incurred within a specific period not exceeding five years. During the qualifying period and within two years after the end of the period, the company shall not sell, lease or dispose assets acquired under such expenditure. The investment allowance will be credited against the chargeable income of the company and could be carried over to subsequent years until it is exhausted. Dividends which are distributed to shareholders out of such exempt income will also be exempted from tax.

The scheme will complement the existing pioneer and export incentive schemes. It will benefit projects with long gestation periods and which do not generate profits in the initial years of operation. Manufacturing companies can make use of the scheme to expand and improve their operations. Existing profitable trading or servicing companies can also benefit from the scheme to diversify into manufacturing. The scheme will further encourage industries to use newer and better plant and machinery to raise productivity.

The services sector has been doing well despite the recession. Export of services has been less vulnerable to protectionism. With the fast expansion of our financial, transport and communication and other services, this sector will continue to sustain our economic growth, complementing the contribution of the manufacturing sector. The prospect for further expansion of the services sector is promising. We shall encourage the development of warehousing and servicing, international trading, and consultancy activities.

To build up a more diversified services sector, the 20% concession tax rate is being introduced under the new Parts IVA, VIB and VIC. Part IVA (comprising sections 37A to 37L) deals with the incentive scheme for international trading companies which increase their exports of qualifying Singapore manufactured goods and domestic produce. It also applies to international trading companies doing entrepot trade of qualifying non-traditional commodities, i.e. other than commodities such as tin, natural rubber, crude palm oil and pepper. A company may apply to be an international trading company if:-

(a) its exports of qualifying manufactured goods or Singapore domestic produce separately or together exceed $10 million per year; or

(b) its export sales of qualifying non-traditional entrepot trade commodities exceed $20 million per year.

If approved, its income from annual incremental export sales will be taxed at 20% for a period of five years. Dividends declared out of such exempt income will also enjoy tax exemption.

Part VI B (comprising sections 46J to 46S) deals with the incentive scheme for companies engaged in regional warehousing and servicing activities. To qualify for this incentive, a company must be spending not less than $2 million on building (excluding land) and capital equipment in Singapore. The portion of its export income which exceeds a base value derived from its average income of the preceding three years will enjoy the tax concession of 20% for a period of five years. Where the company has less than three years of operation, the base value shall be such amount as the Minister may specify, taking into account the export earnings of other warehousing or servicing companies. Tax exemption will be extended to dividends distributed out .of the exempt income.

Part VIC (comprising sections 46T to 46AA) provides for incentive scheme for consultancy services performed on approved overseas projects. Such consultancy services include technical, construction or engineering consultation, design and engineering, fabrication of machinery and equipment, and the management and supervision of the installation or construction of any project. To qualify for the incentive, a company must have gross revenue (excluding costs of materials used or subcontracts made) exceeding $1 million per annum. Again, the incremental income above a base derived from its average income of the preceding three years will enjoy the tax concession of 20% for a period of five years. Where the company has less than three years' operation, the base period shall be such amount as the Minister may specify, taking into account the revenue of other consultancy companies. Dividends paid out of such income will similarly be tax-free.

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 Goh Chok Tong].

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