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

Order for Second Reading read. 3.05 pm

The Minister for Finance and Minister for Trade and Industry (Dr Tony Tan Keng Yam): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

The Bill proposes to amend the Economic Expansion Incentives (Relief from Income Tax) Act to effect the investment allowance scheme announced in the 1984 Budget Statement, to encourage local companies to invest in new technology projects.

Sir, many of the established local companies have accumulated substantial reserves through investing in traditional industries. With rising wages and increasingly stiff international competition, the local companies will have to diversify into new industries and services to maintain their growth. Some have already done so. For instance, National Iron and Steel Mills and Wearnes Brothers have gone into computer equipment; Fraser and Neave into using biotechnology methods to cultivate mushrooms; and ACMA into personal computers, However, these are few and far between.

New technology industries are inherently more risky. Incentives must therefore be given to encourage our local investors to venture into new frontiers of technological advancement and help to broaden our technological base.

The Bill creates a new Part, Part VID on "Investments in New Technology Companies" to deal with the incentive scheme for investments in new technology companies. Under the proposed scheme, a local company which invests in an approved new technology project can deduct its share of losses in the project against its other income, subject to a maximum of 50% of its equity investment.

A company is defined as a local company if 50% or more of its equity is owned by Singapore citizens or permanent residents.

The deduction will only be granted if the new project does not make any cumulative profit during the first three years.

Sir, I beg to move.

Question proposed.

Dr Augustine Tan: Mr Speaker, Sir, just a couple of points for clarification. As the Bill is presented, there seems to be the assumption that the so-called new technology companies have holding companies or parent companies which own them. What about companies which are new ventures altogether?

Secondly, there does not seem to be a definition of "new technology" or what "new technology" implies. Clause 46zc(2) simply states:

'Where the Minister is satisfied that the technology, if introduced in Singapore, would promote or enhance the economic or technological development of Singapore, he may approve the company as a technology company and issue a certificate to that company subject to such conditions as he thinks fit.'

I suppose that, for the purposes of implementation, he would have to draw up a set of criteria to determine the eligibility of such companies. I just wonder whether he has such a list available for this House right now.

Dr Tony Tan Kong Yam: Mr Speaker, Sir, let me answer the questions as they are asked in turn. First of all, with regard to entirely new ventures, if these are invested by a number of investors other than the parent company, it does not fall within this Bill. The particular feature of this Bill is that for a company which deliberately sets out to invest in new technology companies, then it would be entitled to deduct against its own profits a share of the losses of the company in which it has invested.

For the second question as to what constitutes new technology, Mr Speaker, Sir, I would prefer not to define this too strictly at this stage. It is a matter of trial and error and, I think for the first few companies, the EDB and the Income Tax Department would be fairly generous with regard to the definition.

Dr Augustine Tan: Mr Speaker, Sir, I suppose the Minister would be aware that there is a danger that a holding company, in its relationship with the new subsidiary, such as this new technology company, might be tempted because of the provisions of this amendment to engage in transfer arrangements, pricing arrangements, to make the new company bear the losses that might otherwise be borne by the holding company and therefore be entitled to the exemption under this provision.

Coming back to my original question in point, surely the Minister would also be interested in promoting new companies apart from subsidiaries of present companies.

Dr Tony Tan Keng Yam: Mr Speaker, Sir, with regard to the first question, I have complete confidence that the reputation of the Income Tax Department is such that it would deter companies from undertaking the type of practice suggested by the Member for Whampoa.

With regard to the promotion of entirely new companies, I would point out that we already have a very generous range of tax incentives to encourage the incorporation of new companies in Singapore.

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. - [Dr Tony Tan Keng Yam].

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