INCOME TAX (AMENDMENT) BILL

Order for Second Reading read.

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) Bill 1991 gives legislative effect to income tax changes announced in the 1990 Budget Statement and four other tax changes not announced in that Statement. I announced a reduction in the corporate tax rate from 32% to 31% with effect from Year of Assessment 1991 to ensure that our tax structure remains competitive. The reduced rate will also apply to trustees and non-residents. As a corollary to the reduction, any dividend paid on or after 1st January 1990 will carry a credit of 31%. Clauses 13, 17, 18 and 19 amend sections 43, 44, 45 and 46 respectively to give effect to these changes.

A tax incentive was proposed to encourage multinational corporations to setup Finance and Treasury Centres (FTCs) in Singapore to perform their treasury, investment and financial services for their own account and for companies in their group. With effect from Year of Assessment 1991, income accruing to an approved FTC from trading in foreign exchange, offshore investments and provision of financial services to related companies will be taxed at a concessionary rate of 10%. Dividends declared out of such income will be exempt from tax. Clause 16 inserts a new section 43G to enable the Minister to make regulations providing for this incentive and clause 4 amends section 13B to provide for the tax exemption on dividends.

Another tax incentive was introduced to develop Singapore as a global entrepot and to promote international trading of major commodities in Singapore. The income of an approved international commodity trading company derived from transactions in commodities and commodity futures will be taxed at a concessionary rate of 10% with effect from Year of Assessment 1991. Dividends declared out of such income will be exempt from tax. Clause 16 inserts a new section 43H to enable the Minister to make regulations providing for this incentive and clause 4 amends section 13B to provide for tax exemption on dividends.

Guidelines were drawn up to regulate the tax treatment of finance leasing transactions. They would determine, for example, whether a finance lease of a machinery or plant should be treated for tax purposes as a genuine lease or as a sale, and whether capital allowances for the asset should bemade to the lessor or lessee. Clause 2 inserts a new section 10D to enable the Minister to make regulations relating to the tax treatment which will apply to finance leases entered into on or after 1st April 1990.

To encourage offshore leasing activities, clause 16 inserts a new section 43I to provide that the income of a leasing company derived from offshore leasing of machinery or plant shall be taxed at the concessionary rate of 10% with effect from Year of Assessment 1991. Dividends declared out of such income will be exempt from tax and clause 4 amends section 13B for this purpose.

Currently, underwriting profits derived by an insurance company from insuring offshore general risks and the interest and dividends derived from investing such profits are taxed at a concessionary rate of 10%. To promote further growth, I announced that with effect from Year of Assessment 1991, the 10% concessionary rate will apply to offshore interest and dividends derived from investing the whole of the shareholders' funds which are used to support the offshore insurance business. Clause 8 amends section 26 to provide for this change.

A similar incentive was proposed to promote offshore life insurance business. With effect from Year of Assessment 1991, a concessionary tax rate of 10% will apply to offshore interest and dividends derived by an insurance company from investing its offshore life fund and shareholders' funds supporting the offshore life business. Clause 14 amends section 43C to enable the Minister to make regulations providing for the incentive. Clause 8 amends section 26 to deal with income from offshore life insurance business and to require insurance companies to maintain separate accounts for such income.

Currently, Approved Operational Headquarters (OHQs) are taxed at a concessionary rate of 10% on their income from providing management, technical or other supporting services to their related companies. In the course of providing such services, OHQs may also derive income from trading in foreign exchange and offshore investments, on their own account. To encourage these high value-added treasury, investment and financial activities, the 10% concessionary rate will be extended to income derived from such activities with effect from Year of Assessment 1991. Clause 15 amends section 43E to provide for this extension of the OHQ incentive.

Tax incentives are given to OHQs and FTCs to service the needs of their related companies, including managing their funds. However, overseas companies would not have their funds managed from Singapore if income arising from these funds were to be taxed. Therefore, as a feature of the OHQ and FTC incentives, income of a non-resident person arising from funds managed by an OHQ or FTC will be exempt from tax. Clause 5 amends section 13C to enable the regulations to be made to provide for the tax exemption.

To encourage families to have their second child earlier, a special tax rebate will be given from Year of Assessment 1991 for a second child born on or after 1st January 1990 before the mother reaches 31 years of age. The rebate will be $20,000 if at the time of birth of the child, the mother is below 28 years of age, or $15,000 if she is below 29, $10,000 if she is below 30, and $5,000 if she is below 31. The rebate can be used to set off against either or both of the parents' income tax liabilities, but must be utilised within seven years. The time limit within which the existing tax rebates in respect of a third child and a fourth child may be claimed is also extended from five years to seven years. Clause 12 amends section 42A to give effect to these changes in tax rebates.

From Year of Assessment 1991, the tax relief in respect of an aged parent or grandparent or a disabled sibling or child will be increased from $2,500 to $3,500. This is to further encourage families to care for their aged and handicapped dependants. Clause 10 amends section 39 to increase the tax reliefs. To encourage married women to continue working and raise families, a relief for the foreign maid levy will be given against the earned income of a married woman. This relief is also available to separated, divorced or widowed women with children. It is twice the amount of maid levy paid in a year in respect of one foreign maid and is available from Year of Assessment 1991. Clause 10 amends section 39 to provide for the relief.

To encourage a self-employed person to save more to provide for his own needs when he retires, tax deduction has beenallowed for his voluntary contributions to the Central Provident Fund, subject to a limit. I have announced that the limit for the tax deduction for Year of Assessment 1991 will be raised to 15% of assessable income from self-employment, subject to a maximum of $10,000. In comparison, the previous limit was 10% of assessable income, subject to a maximum of $7,200. Clause 10 amends section 39 to increase the limit for tax deduction.

I shall now move on to four other tax changes which were not announced in the 1990 Budget Statement. Two of them are consequential amendments needed as a result of the reduction in the corporate tax rate to 31%. The other two amendments are necessary to fine tune the existing provisions in our tax legislation.

First, clause 9 amends section 35(2A) to provide for Singapore dividends derived by a person during 1989 to be assessed to tax at 32% for Year of Assessment 1990 in cases where such dividends would otherwise, by virtue of his accounting period, be assessed to tax at 31% for Year of Assessment 1991. This is to avoid a mismatch arising from the reduction in the corporate tax rate whereby dividends derived in 1989 are taxed at 31% while tax credits of 32% are allowed on such dividends. This is a consequential amendment required to be made together with a reduction in the corporate tax rate.

Another amendment consequential to the reduction in the corporate tax rate limits the highest effective tax rate imposed underPart B of the Second Schedule to the Income Tax Act to 31%. This will ensure that those who are taxed under the existing Part B rates, such as management corporations and clubs, will in effect not be taxed above the corporate tax rate of 31%. This was announced in a press release immediately following the 1990 Budget Statement. Clause 11 amends section 42(5) for this purpose.

The third amendment concerns tax exemption for a shipping enterprise. Currently, section 13A provides for tax exemption on the income of a shipping enterprise derived from the carriage of passengers or goods by Singapore ships. As a logical extension and in order to encourage Singapore ships to provide similar offshore services, clause 3 amends section 13A to extend the tax exemption to include income from towing or salvage operations carried out by Singapore ships. The extension will take effect from Year of Assessment 1991.

Finally, capital expenditure incurred on installing a stand-by generator will be allowed to be written off in one year. A stand-by generator would be useful in providing electrical power in an emergency situation as well as for normal business operation. As an encouragement for the installation of a stand-by generator in an office or factory to supply electrical power in the event of a power failure, clause 7 amends section 19A to provide for an allowance of 100% in respect of the capital expenditure incurred. This will take effect from Year of Assessment 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. - [Dr Richard Hu Tsu Tau].

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