ECONOMIC EXPANSION INCENTIVES (RELIEF FROM INCOME TAX) (AMENDMENT NO. 2) BILL

Order for Second Reading read. 3.20 p.m.

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

Under Part IV of the present Act, 90% of the qualifying profits of an export enterprise are exempted from income tax for a specified period. The purpose of this incentive is to encourage manufacturing investment to produce for the world markets. The Comptroller of Income Tax's interpretation of section 32 regarding the deduction of capital allowance was, however, challenged in Court by one of the firms given the incentive. This firm considered that the whole of the capital allowance should be deducted against non-qualifying profits and none against qualifying profits, although the plant and machinery for which the incentive is given are used to produce both types of profits. The Comptroller's interpretation was that the capital allowance should be allocated proportionately between the non-qualifying and the qualifying profits. The Comptroller's interpretation reflected the intent of the Government when enacting the legislation in 1967, whereas the firm's interpretation gave it additional tax benefits.

The dispute was first brought before the Courts 10 years ago. The Comptroller's interpretation was upheld in the Board of Review, High Court and Court of Appeal. However, in March 1979, the Privy Council, which is the final tribunal, ruled in favour of the company. While accepting the verdict of the Privy Council in the particular case, the Government has to consider what it should do regarding a decision which gives the affected companies additional benefits against its intention and against an interpretation of the legislation by the Comptroller of Income Tax which has been widely known to investors, particularly because it has been disputed in the Courts.

The present Bill is therefore necessary to ensure that in computing the export profit of an export enterprise which qualifies for tax relief provided by section 32 of the Act, such part of the capital allowance as may be attributable to the export profit qualifying for the tax relief must be deducted. The Amendment will come into effect from the year of assessment 1980. The Government's view is that the Amendment does not change the incentives that it is granting or have granted to approved companies. What it does is to correct an imprecision in drafting that has required the full judicial process of 10 years to settle.

The Government has received representations from some companies that the Bill should not apply to those already granted export enterprise certificates, as they claim it undermines the basis on which they agreed to establish manufacturing plants in Singapore. We regret we cannot accede to their request as it was never our intention to grant the additional benefit. However, if it is proven that some were indeed misled by the uncertain wording of the present unamended Act into making investments, and hardship would fall on them by the Amendment, we are prepared to look at their case on an individual basis. I would like to reassure the investment community that the Government does not go back on any explicit commitments made by itself or its agencies. Credibility is the cornerstone of its investment policy and it will continue to demonstrate this. But it cannot be expected to preserve something which its actions through the judicial process show it never intended to give in the first place.

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.