INCOME TAX (AMENDMENT NO. 2) BILL

Order for Second Reading read. 1.30 pm

The Minister for Finance (Dr Richard Hu Tsu Tau): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

The Income Tax (Amendment No. 2) Bill 1989 gives legislative effect to five income tax concessions announced in the 1989 Budget Statement. Opportunity is also taken to include six other amendments to the Act.

The first Budget concession relates to the reduction in the tax rate for companies, trustees and non-residents from 33% to 32%. This is to ensure that our tax structure remains competitive and is indicative of the direction in which corporate taxation will move if economic conditions require. Clauses 13, 16, 17 and 18 amend the Act to provide for this concession which will take effect from the Year of Assessment 1990.

The second Budget concession allows companies, donating computer equipment and peripherals to prescribed educational and research institutions, a tax deduction on such donations. This is to help to upgrade the quality of training in Information Technology in Singapore and will take effect from Year of Assessment 1990. Clause 9 amends section 37 of the Act to provide for this.

The third Budget concession allows employers who carry out building alterations or additions, so as to facilitate the mobility of their disabled workers, a deduction for such expenditure, subject to a maximum of $100,000. This is to facilitate the employment of our disabled. Clause 5 inserts a new section 14H to the Act to give effect to this.

The fourth Budget concession relates to increases in the following reliefs, effective from Year of Assessment 1990:

(a) Wife relief, from $1,000 to $1,500.

(b) Aged parent relief, from $1,000 to $2,500.

(c) Handicapped dependants' relief, from $750 to $2,500.

(d) Normal child relief for the first, second and third child, from $750 to $1,500 each. This is also extended to the fourth child born on or after 1st January 1988.

(e) Enhanced child relief for the second, third and fourth child below 12 years of age, from 10%, 15% and 15% respectively of the mothers' earned income, to 15%, 20% and 25% respectively. The maximum claim for the enhanced child relief is also raised from $10,000 to $15,000.

Clauses 10 and 20 amend section 39(2) and the Fifth Schedule to the Act to give effect to this concession which is an indication of the Government's support for family formation, care for the aged and the handicapped.

The fifth Budget concession extends the special tax rebate of $20,000 claimable either by the husband or wife against their tax liabilities to their fourth child born on or after 1st January 1988. An additional rebate equivalent to 15% of the wife's earned income claimable only by her, is also granted for the birth of the fourth child in lieu of maternity leave. Clause 12 amends section 42A of the Act to allow for this.

I will now move to the other amendments.

With effect from Year of Assessment 1990, the highest effective tax rate imposed under Part B of the Second Schedule to the Income Tax Act, will be limited to 32%. This is to ensure that those who are taxed under the existing Part B marginal rates, such as management corporations and cooperatives, will not be taxed above the effective corporate tax rate of 32%. Clause 11 amends section 42(5) of the Act to give effect to this.

To enhance Singapore as an international centre for oil refining and trading and also as a financial centre, the income of approved oil trading companies derived from transactions in petroleum, petroleum products and petroleum futures, is now taxed at a concessionary rate of 10%. This concessionary rate of tax is also granted to SIMEX members transacting in petroleum futures, with approved oil trading companies. Clauses 14 and 15 amend section 43D(1) and insert a new section 43F to the Act to provide for this.

At present, under section 78(1) of the Income Tax Act, the Minister may appoint members of the Board of Review for a fixed period of three years. To provide for greater flexibility, this section is now amended to allow the Minister to appoint members of the Board for a variable period. Clause 19 amends section 78(1) of the Act to give effect to this.

Under the present Income Tax Act, capital allowances for motor cars registered as "Q" cars are each restricted to $35,000. Deductions for running costs are also given as a proportion of $35,000. Exceptions are allowed only for taxis, motor cars used as school transport and private hire cars.

Clauses 4 and 6 amend sections 14(4) and 19(2C) of the Income Tax Act to exclude motor cars, owned by driving schools and used for providing driving instruction, from these restrictions. This is to ensure that the restrictions do not pose difficulties to those categories of taxpayers who depend on cars for their livelihood.

At present, section 14(1)(e) of the Income Tax Act imposes a limit of 10% for the deductions allowed in respect of an employer's contributions to an approved pension or provident fund. This section is now amended through clause 4, to allow for the increase in the limit previously announced by the Ministry of Labour, to 12% commencing on or after 1st July 1988 and before 1st July 1989, and 15% on or after 1st July 1989.

Finally, Mr Speaker, Sir, clause 8 amends section 35(2A) of the Income Tax Act to enable a person deriving Singapore dividends in 1988 to be assessed to tax at 33% in Year of Assessment 1989, where such dividends would, by virtue of his accounting period, be assessed to tax at 32% in Year of Assessment 1990. This is to avoid a mismatch whereby dividends derived in 1988 are taxed at 32% while tax credits of 33% are allowed on such dividends.

Sir, I beg to move.

Question proposed.

Mr Chiam See Tong: Sir, I just have two queries for the Minister.

The first is in regard to clause 12. If the Minister can look at clause 12, paragraph (iv), whereby a person is entitled to a rebate of $20,000 and also a rebate of 15% of the wife's income. It says here:

'where a person is entitled .... and his marriage is dissolved by divorce or annulment within 5 years of the birth of the third or fourth child, the rebate or balance, if any, of the unabsorbed rebate shall not be available for deduction against the tax payable for any year of assessment following the year of the order of divorce or annulment.'

To me, this is rather unfair. As the Minister would be aware, any divorce case involves two parties and usually one party is at fault. So if a wife is divorced through no fault of hers, she would have suffered a loss unnecessarily. I think this clause is unnecessary and in fact should not be included because it will cause unfairness to a party to a divorce which may not be her fault at all.

The other clause I would like a clarification from the Minister is clause 20, new paragraph 7. As for the 15% rebate of the wife, there is a proviso which limits the claims to only persons with a minimum of educational qualification of at least 3 "O" levels passed all at one sitting. Why should there be such a provision? A person may be a drop-out at primary six. But later on, by self-study, she may gain an educational level higher than 3 "O" levels, but she did not bother to go and re-sit the examinations. She may be successful in life. She may be one of those slow developers. Why punish these people? I think the academic qualifications should not be included. I hope the Minister will look into these two points.

Dr Richard Hu Tsu Tau: Sir, on the first point, I will certainly look into it. But I think the limitation was probably found necessary because people get divorced and then they get married again.

On the second point, I think it is necessary to impose some criteria for assess- ment, although it is arguable whether it should be at 3 "O" levels or otherwise. Because our aim is to try and encourage those women in the higher income groups to have as many children as possible. But I will, of course, review this since the Member has asked for it.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House. - [Dr Richard Hu Tsu Tau].

Bill considered in Committee.

[Mr Speaker in the Chair]

Clause 1 -

The Chairman: The short title will be altered to read "the Income Tax (Amendment) Act 1990."

Clause 1 ordered to stand part of the Bill.

Clauses 2 to 20 inclusive ordered to stand part of the Bill.

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