ECONOMIC EXPANSION INCENTIVES (RELIEF FROM INCOME TAX) (AMENDMENT) BILL

Order for Second Reading read.

The Minister for Trade and Industry (BG Lee Hsien Loong): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

The Economic Expansion Incentives (Relief from Income Tax) (Amendment) Bill 1991 gives legislative effect to income tax changes announced in the 1990 Budget Statement. In addition, four other tax changes, which aim to update and improve upon the Economic Expansion Incentives Act, are also proposed.

First, the extension of tax relief period of a post-pioneer company. The existing 5-year post-pioneer incentive was introduced to encourage pioneer companies to expand and upgrade their activities after the pioneer tax relief period. It allows post-pioneer companies to be taxed at a concessionary tax rate of not less than 10% for up to five years. In the 1990 Budget Statement, the Government announced its intention to allow the Minister to extend the tax relief period of post-pioneer companies for such further periods as he may determine, subject to a total tax relief period not exceeding 10 years.

The proposed amendment will enhance Singapore's competitiveness as an investment region, and further encourage companies to upgrade their operations and sink their roots in Singapore beyond the pioneer status years. Clause 3 amends section 19C of the Economic Expansion Incentives Act by inserting a new subsection (2) to give effect to the proposed amendment.

I shall now move on to the other four proposed changes to the Economic Expansion Incentives Act.

The existing provisions of the Act require all qualifying companies to claim capital allowances during the tax relief period and maintain proper apportionment of income and expenditure between their tax relief period and the period after that. However, this requirement is not made explicit for the post-pioneer incentive. Clauses 4 and 5 of the amendment Bill will insert two new sections (sections 19G and 19H) to ensure that the post-pioneer incentive provisions are consistent with the other incentives in the Economic Expansion Incentives Act, with respect to claiming of capital allowances and apportionment of income and expenditure.

The next amendment in the Bill concerns the automatic right given to pioneer companies with fixed investments of $1 billion or more, to carry forward their capital expenditure allowances until after the pioneer status years. This means that such companies can effectively lengthen their pioneer status tax relief period beyond that which is actually awarded.

In the original 1959 Act, all pioneer companies were given this right. This was a special concession made to encourage much needed investments and capital and technological inflow to the country. In 1970, this concession was removed, except for companies with fixed investments of $1 billion or more or companies which are more than 50% owned by Singaporeans and have incurred, or intend to incur, fixed capital investment greater than $150 million. The objective was to encourage capital intensive investment projects with long gestation periods, which will upgrade Singapore's industrial base. Such large capital investments were then rare and were well sought after.

In the 1990s, the economic situation has changed. Large investments by foreign multinationals are no longer uncommon. The above concession is no longer needed. It is therefore proposed to remove it. The concession given to pioneer companies which are more than 50% owned by Singaporeans and invest at least $150 million will be retained to encourage local companies to expand and upgrade their activities. The concession to allow flow-through of capital expenditure will be made subject to the Minister's approval and such other conditions that he sees fit to impose. This tightens up the existing provisions. Clause 2 amends section 10(3) by substituting it with new subsections to give effect to these changes.

The two final amendments streamline the present system of administration for approval of changes to the shareholding of export or expanding enterprises. Presently, the Minister must approve the respective shareholdings of an export or expanding enterprise at the same time that the expansion certificate or export certificate is issued in order for flow-through of the tax exempt dividends to be allowed. Should the shareholders of the companies meanwhile be changed, the Minister does not have the authority to approve flow-through of tax exempt dividends to the new shareholders. Clauses 5 and 6 remove this requirement and allow the Minister to approve the shareholding at any time during or after the tax relief period.

Mr Speaker, Sir, the proposed changes to the Economic Expansion Incentives Act reflect the Government's commitment to monitor the effectiveness of our tax incentives and to update them when economic conditions change.

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. - [BG Lee Hsien Loong].

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