TAX INCENTIVES

I shall now describe the tax incentives for YA88.

Service industries, particularly those requiring intellectual skills, are areas which we must promote if our economy is to continue to grow in the face of increasing competition and protectionism in export markets for manufactured goods. In line with our policy to develop the service sector, I have decided to extend a number of incentives under the Income Tax Act to services.

Extension of Double Deduction of R & D Expenses to Services

The EDB administers an incentive scheme where manufacturing companies may, on a case-by-case basis, deduct twice the approved research and development (R&D) expenses incurred in any R & D project. I have decided to extend the incentive to the following selected services with effect from YA88:

(a) Computer software;

(b) Information services;

(c) Agrotechnological services;

(d) Laboratory and testing services;

(e) Medical research services.

(f) Any other services or activities as may be prescribed by the Minister.

The EDB will continue to administer the scheme on a case-by-case basis.

Extension of Industrial Building Allowances to Services

Industrial Building Allowances are currently available to companies engaged in manufacturing, certain warehousing and other selected activities. In the past, we have not extended them to the service sector largely because, unlike manufacturing industries, buildings used by such service activities have a tendency to appreciate in value. A general extension would, furthermore, lead to a substantial revenue loss.

In order to help certain service industries develop in size and sophistication, I have decided to extend the allowance to approved companies in the following industries:

(a) agrotechnology;

(b) horticulture;

(c) aquaculture; and

(d) other approved services with specialised structures.

Unlike commercial buildings, the specialised structures required for these selected industries have little or no alternative use. The extension is to be effective from YA88.

Incentive for Overseas Investment

An incentive for venture capital was announced in the 1986 Budget Statement. The incentive provided for any loss incurred by an eligible investor from the sale of shares in or the liquidation of the approved venture project to be deducted against his statutory income. Approved overseas investment in new technology areas could qualify for this incentive.

To encourage local companies to invest overseas, I have decided to introduce a new incentive for overseas investment which will allow a deduction of losses similar to that available under the incentive scheme for venture capital. Thus, losses from sale of shares in or liquidation of the approved overseas investment will be allowed as a deduction to the eligible investor. The incentive is targeted at overseas investments which provide signifi- cant economic spin-offs to the Singapore economy.

These spin-offs should include one or more of the following:

(1) allow access to overseas technology. These would include access to design and engineering facilities, equipment, engineering and scientific personnel, designs, patents or other specialised knowhow;

(2) create high value-added engineering and technical employment;

(3) provide access to overseas markets such that it would substantially increase the company's activities or extend its scope of operations in Singapore.

Companies incorporated in Singapore which have invested or intend to invest overseas, are eligible to apply for the incentive.

The incentive is effective from YA88. It will be administered by the EDB on a case-by-case basis.

Tax Concession on Royalty Income for Product Design and Development

In order to promote innovation, I have decided to extend the existing incentive which provides for 90% tax exemption on royalty income earned by authors and composers to income from approved inventions and product innovation. The income can be in the form of a royalty or incentive payment.

Only individuals will be covered under the incentive. The applicant must be a Singapore citizen or permanent resident, and the originator or one of the originators of the invention. The activities covered under the incentive include the development of new products or processes, significant improvements on existing products or processes or significant design improvements. The design must be capable of industrial application and it must be capable of being patented or copyright protected.

The incentive will take effect from YA88. It will be approved on a case-by-case basis and will be administered by the EDB. Extension of Tax Holiday for SIMEX

The Government granted the Singapore International Monetary Exchange (SIMEX) a 5-year tax holiday when it was established in 1984. Since then, the performance of SIMEX has been encouraging. The average number of contracts traded in the Exchange has more than quadrupled from 1,500 in 1984 to more than 8,500 last year.

Although SIMEX has progressed satisfactorily since its establishment, it will have to compete harder in the international market in view of the opening up of other foreign exchanges. The policy of SIMEX in building up its financial strength has enabled the Exchange to weather the crash in October 1987, without serious after-effects. In line with the Government's continuing support for the development of the Exchange, I have, therefore, decided to extend the tax holiday granted to SIMEX for another 5 years. This will allow the Exchange to build up its reserves, thereby increasing its attractiveness to international investors who wish to make use of its services.