COOPERATIVE SOCIETIES (Tax-exempt status)

Mr Choo Wee Khiang asked the Minister for Trade and Industry whether the Government intends to alter the tax-exempt status of cooperative societies since commercial firms in the same business do not enjoy such status.

BG Lee Hsien Loong: Mr Speaker, Sir, cooperative societies were first granted tax-exempt status to help them get off the ground and to promote their development. As their operations then were relatively small, the implications of their tax-exempt status were not great. However, some of these cooperatives have grown in size and scale of operations over the years. Hence the economic distortions of their tax-exempt status are no longer insignificant as they compete for business from the public just like any commercial company.

At the same time, cooperatives have been successful in serving the needs of their members. In particular, the larger and more successful cooperatives, which were started by NTUC, such as Fairprice, Income, Comfort, have been instrumental in helping to keep down the cost of living, and providing a decent livelihood to their members. Their success in serving their members and the general public alike is a tribute to their managements and to the unions which started them.

MTI has studied the issue together with the Ministries of Community Development, Finance and Labour. The Government has decided not to change the tax-exempt status of cooperatives. Instead, it will increase the levy on the annual surplus of cooperatives, which they already pay to the Central Cooperative Fund. Presently, the rate is 5%. The Government will raise this to 20%, but only on that part of the surplus of a cooperative exceeding $0.5 million. Cooperatives can opt to pay this sum to the Singapore Labour Foundation (SLF) if they wish, instead of to the Central Cooperative Fund. This will require amending the Cooperative Societies Act.

The higher contribution rate of 20% on the second tier of surplus (meaning that part of the surplus beyond $0.5 million) would be closer to, but still less than, the current corporate tax rate, which is 32%. This should ensure that cooperative societies compete on a more equal footing with commercial companies, without significantly affecting their viability. At the same time, the higher 20% contribution would provide a predictable and steady income stream to the SLF to fund worthwhile projects like the proposed Labour College, and various social and recreational amenities for the benefit of workers.