CENTRAL PROVIDENT FUND (AMENDMENT NO. 2) BILL

Order for Second Reading read.

The Minister for Labour (Mr Lee Yock Suan): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

Before January 1990, CPF was payable on additional wages such as bonuses and commissions without limit. In contrast, CPF contribution on ordinary wages is payable only on $6,000 of wages a month. As CPF contributions are tax deductible, certain individuals were able to avoid tax by arranging to receive their income mainly in the form of additional wages. In one case, bonus amounted to about 14 years or 170 months of ordinary wages.

To prevent the use of CPF as a tax shelter, the Government has imposed from Year of Assessment 1990, a tax deductible limit on CPF contribution on additional wages. The CPF contribution payable on additional wages will also be capped in line with the tax deductible limit. I shall now ask the Clerk of Parliament to distribute a table (Cols. 503 - 504) summarising details of this limit which were announced in December last year. [Copies of table distributed to hon. Members.] table (Cols. 503 - 504)

The Bill before the House seeks to amend the CPF Act for this purpose. The Income Tax Act will also be amended to impose the tax deductible limit.

The cap will not affect the vast majority of CPF members. It will only affect the very small number whose total wages in a year exceed $100,000. For this group, no CPF contributions need to be paid for additional wages exceeding 40% of the annual ordinary wages, equivalent to almost five months of ordinary wages. Within this group, there are some borderline cases which will be better off with the limit of $100,000 on total wages instead of the 40% limit on additional wages. These are employees with annual ordinary wages not exceeding $72,000 but total wages exceeding $100,000. They will be allowed to apply the cap of $100,000 on total wages.

Some changes in the CPF collection procedures have to be made to implement the cap. Previously, the amount of CPF payable on additional wages could be determined and collected as and when such wages were paid. With the introduction of the cap, the exact amount payable can be determined only when the total ordinary and additional wages for the year are known. For practical purposes, the cap will have to be based on the total ordinary and additional wages of the preceding year and adjusted at the end of the year when total wages are known. Any under-collection of CPF will then be collected and excess contributions refunded or credited.

Clause 2 of the Bill provides for the collection of contributions on additional wages to be based on the preceding year's wages with adjustment at the end of the year. It allows an employer to recover from his employees, further contributions on additional wages if these are required, not later than six months from the end of that year. The employer can make further contributions on additional wages in anticipation of year-end adjustments and recover the employee's portion of such contributions from him. The CPF Board will be empowered to waive the payment of any contributions on additional wages that an employer is unable to recover from the wages of an employee who is no longer in his employment.

Clause 3 of the Bill provides for refund by the CPF Board of any excess contributions with interest. The Board will also be allowed to offset such amounts against any monies due to the Fund.

The cap and other implementation details will be set out in the Regulations to be made after the Bill has been passed. The Bill will come into effect from 1st January 1990.

Sir, I beg to move.

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. - [Mr Lee Yock Suan].

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