TAX CHANGES FOR COMPANIES

Payroll Tax and Tax on Telecoms Telephone Bills

I now move on to the tax changes. In an Addendum to the President's Address at the Opening of Parliament, I stated that one of the objectives of the Ministry of Finance was to simplify the tax structure wherever possible. In line with this objective and to alleviate the burden of costs on companies, I have decided to suspend, with effect from 1 April 1985, the collection of:

(i) Payroll tax and,

(ii) Tax on telephone services and on trunk-call services to West Malaysia.

The loss in revenue from these two sources is estimated at $176 million for FY 85.

In Section I of my Budget Statement, I mentioned that the greatest promise for Singapore in future years lies in the area of sophisticated services, particularly banking and finance, tourism and technical services. I intend to give incentives to encourage the growth of these activities.

10% Concessionary Tax Rate for Asian Currency Unit (ACU) Income

When the 10% concessionary tax rate for ACUs was introduced in 1972, it was limited to income from the booking of offshore loans in Singapore. With the growth of financial services, the concession was similarly extended to cover new instruments and activities.

Banking services have diversified from more traditional areas into fee-based activities. I am therefore extending the 10% concessionary tax on ACU offshore income to cover the following categories of income with effect from Year of Assessment 1986:

(a) Income earned by ACUs from providing offshore guarantees, performance bonds and standby letters of credit,

(b) Commissions and other income such as custodian and nominee fees, handling and registration charges earned in respect of transactions on behalf of non-residents (excluding permanent establishments in Singapore) in foreign stocks and shares and other securities denominated in foreign currency and issued by foreign companies defined for the purpose of this concession to be companies which are not incorporated in Singapore or Malaysia,

(c) Commissions and other income earned in respect of offshore remittances, and

(d) Income earned in respect of offshore transactions involving interest rate and currency swaps.

Stamp Duty

Stamp duty on offshore loan agreements was abolished in 1980. The exemption covered stamp duty payable in respect of assignments of an interest in such offshore loan agreements, provided that the assignor was an ACU in Singapore. Thus, an assignment made by a person outside Singapore to an ACU in Singapore, for example, would not enjoy the stamp duty exemption. In order to further promote the growth of the Asian Dollar market and to encourage banks to use Singapore as their regional loans management centre, I am removing the restriction that the assignor must be an ACU in Singapore, with immediate effect.

In view of the rapid changes in financial services offered by banks and the intro- duction of innovative financial facilities, there is also a need to extend the stamp duty exemptions. I am therefore exempting with immediate effect not only offshore loan documents from stamp duty but also documents involving other offshore credit facilities such as under-writing facilities, letters of credit (including standby letters of credit), guarantees and performance bonds.

Entertainments Duty

To encourage the tourist industry in Singapore I have decided that, with effect from 1 April 1985, duties on entertainments, with the exception of racing of animals, vehicles, motor vessels or aircraft, will be reduced to 10%. With your permission, Sir, I would like to table a schedule showing the revised duties (Appendix I (Cols. 505 - 506). [Copies distributed to Members.] The revenue loss for FY 85 is estimated at $26 million. Appendix I - ENTERTAINMENTS DUTIES (Cols. 505 - 506)

I also propose to remove the existing legislative control on cinema admission prices so that prices will be dictated by market forces. This is in line with our policy of less Government regulation of private enterprises. It will also remove the existing anomaly whereby cinemas are the only form of entertainment which is subject to price control.

Income from Professional Services rendered Overseas

To encourage our firms and professionals to be more aggressive in exporting their expertise and services, I intend to give more favourable treatment than at present to income repatriated from certain countries.

Currently, all income earned abroad and remitted back to Singapore is subject to Singapore tax. Where there is an Agreement for the Avoidance of Double Taxation (DTA) with the country of income source, Singapore will give a tax credit for taxes suffered overseas. This tax credit will be offset against the Singapore tax payable on the "grossed-up" foreign source income.

However, there is no tax credit if income is remitted from a non-DTA country. In such cases, Singapore will tax the net income which has been remitted. Therefore, income which has been remitted from a non-DTA country suffers additional tax in Singapore.

I now propose to extend a unilateral tax credit to service income remitted from certain non-DTA countries. With such a tax credit, where the income is remitted from a country with a rate of tax equal to or higher than Singapore's, no additional tax will be paid in Singapore if taxes have been paid overseas.

Where, however, the income is remitted from a country with a lower rate of tax, it will be subject to Singapore tax, but credit will be given for overseas taxes paid. Even if some Singapore tax is payable, it will be less than what is due under the present system.

This concession which will take effect from Year of Assessment 1986 will cover income from professional services such as accounting, legal, medical, engineering, architectural, computer-related, technical and other consultancy services rendered by firms and individuals.

Tax Changes for Individuals

In last year's Budget Statement, I announced substantial reductions in personal income tax rates and estate duty. With these reductions I am satisfied that the taxation of personal income and capital in Singapore today is equitable and not unduly onerous. I therefore do not propose to make any major tax changes for individuals this year. However, I would like to assure Honourable Members that the Government will review on a continuing basis the level and distribution of the tax burden. We will make adjustments when necessary to correct for inflation and to ensure that initiative and enterprise are not blunted by too high levels of income taxation.

Tax Deductibility of Certain Educational Expenses for Individuals

There is, however, one area of personal initiative which, in my view, deserves encouragement. Individuals who take the time, effort and expense to improve their skills and knowledge should be rewarded. In particular, those individuals who are in employment and take up pan-time or correspondence courses, or those who give up their jobs temporarily to further their education should be helped. I have therefore decided to allow tax deductibility of expenses incurred by individuals in pursuit of further academic and professional qualifications, or vocational qualifications related to their business, trade or employment.

Tax deduction will be allowed for compulsory course fees, including examination fees, and will be subject to a maximum of $2,000 with effect from Year of Assessment 1986. No claims for textbooks, travelling or living expenses will be entertained.