INCOME TAX (AMENDMENT) BILL

Order for Second Reading read.

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

The Income Tax (Amendment) Bill 1992 gives legislative effect to the income tax changes announced in the 1991 Budget Statement and nine other tax changes not announced in that Statement.

One of the tax incentives announced was to allow tax exemption on dividends paid out of foreign income. Under our current tax laws, Singapore tax paid by a company will be imputed to its shareholders upon payment of dividends. However, the tax to be imputed to its shareholders must have already been paid by the company. If the income of the company has not been subject to full Singapore tax, the company will not be able to distribute the entire income as dividends without incurring additional tax. This would happen in the case of foreign income remitted to Singapore where a foreign tax credit has been given against Singapore tax payable. To resolve the problem, I have announced that dividends paid out of foreign income, for which there is insufficient franking credit due to the foreign tax credit given, will be exempt from further Singapore tax with effect from Year of Assessment 1992. Clause 5 inserts a new section 13E to provide for tax exemption on dividends paid out of foreign income.

Another incentive introduced was to develop Singapore into an international maritime centre and to encourage major international shipowners to locate in Singapore. The income of an approved international shipping enterprise derived from the operations of non-Singapore flag ships outside Singapore will be exempt from tax with effect from 1st April 1991. Dividends declared out of such income will be exempt from tax. Clauses 3 and 5 insert new section 13(1)(o) and 13F and clause 2 amends section 10(4) to provide for this incentive.

Currently, tax deduction is only allowed for specific provisions for bad and doubtful debt. To further encourage banks to maintain adequate provisions to cushion themselves against unforeseen losses in their loan and investment portfolios and thus promote the overall soundness and stability of our financial system, I have announced that with effect from Year of Assessment 1992, general provisions made by banks and merchant banks will be tax deductible. Clause 7 inserts a new section 14I to provide for this change.

At present, approved securities companies and banks are taxed at a concessionary rate of 10% on their income from financial trustee activities. To develop Singapore further as a centre for international trustee activities for investments in the regional financial markets, I have announced that the 10% concessionary rate will be extended to cover income derived by Approved Trust Companies from providing specified trustee services to non-residents. This will take effect from the Year of Assessment 1992. Clause 11 inserts a new section 43J to provide for this extension of the incentive.

To reward effort and enterprise, I have announced a 5% one-off and across-the-board rebate on personal income tax payable for Year of Assessment 1991. Clause 20 provides for this rebate.

To encourage families to care for their aged and handicapped dependants, a relief of $3,500 is currently available to a taxpayer who maintains his aged dependants, handicapped children and siblings. This relief is now extended to include support of a handicapped spouse with effect from the Year of Assessment 1992. For purpose of claiming handicapped spouse relief, the handicapped spouse is not required to stay in the same household as the taxpayer as a person has the legal obligation to provide for the maintenance of his spouse, regardless of where the spouse stays. Such residential requirement is currently imposed for claiming the relief for the aged dependants, handicapped children and siblings.

However, in recognition that such dependants may require institutional medical care, it is proposed that the residential requirement be liberalised also for claiming the relief for aged dependants, handicapped children and siblings. Hence, with effect from the Year of Assessment 1992, the taxpayer may claim tax relief for supporting his aged or handicapped dependants who are confined to hospitals or nursing homes on medical grounds, provided that their doctors certify that they are in need of such institutional care. Clause 10 amends section 39 to give effect to these changes.

To encourage a self-employed person to save more to provide for his own needs when he retires, Government has allowed tax deduction 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 1992 will be raised to 16 1/2% of assessable income from self-employment, subject to a maximum of $11,880. The previous limit was 15% of assessable income, subject to a maximum of $10,800. Clause 10 amends section 39 to increase the limit for such tax deduction.

I shall now deal with the other nine tax changes not announced in the 1991 Budget Statement. Six of the amendments are necessary to fine tune the existing provisions in our tax legislation. The remaining three are consequential amendments needed as a result of our tax incentive for services provided by Trust Companies; tax deduction for general provisions made by banks; and deductions allowed in respect of an employer's contributions to an approved fund.

The first tax change relates to the waiver of small assessments. Currently, section 73A of the Income Tax Act empowers the Comptroller to waive assessments where the amount of tax does not exceed $5. This waiver limit is now revised upwards to $15. Clause 15 amends section 73A such that the Minister will be given the discretion to vary the limit periodically via subsidiary legislation in response to changes in the cost of assessment.

The second amendment relates to the recovery of penalties. It is expressly provided in section 33 of the Limitation Act that recovery of tax and interest on the tax will not be subject to the limitation of time in the Act. However, the sum imposed on non-payment of tax is currently defined as "penalty" under the Income Tax Act. As a result, recovery of such interest penalty is subject to the limitation period of one year. To remove the anomaly, clause 19 amends section 98A of the Income Tax Act to treat the penalty interest as if it is interest on tax for the purpose of the Limitation Act. This will enable the sums imposed on outstanding tax on or after 1st January 1992 to be recoverable in the same manner as the tax due.

The next amendment relates to the submission of Income Tax Returns by a specified date. At present, Income Tax Returns are sent by ordinary post to all taxpayers at the beginning of each year and taxpayers are required to submit their returns within 21 days from the postmark date. For taxpayers who have not submitted their returns by the due date, a second return has to be issued as a reminder by AR Registered post. Over the last three years, the number of AR Registered returns sent has increased from 242,000 to 330,000. This represents about 30% of total individual taxpayers.

Paying taxes is a social obligation of every citizen. Taxpayers in developed countries, such as the United States, Canada and Australia, are required to submit their Income Tax Returns by a fixed date. To promote greater social responsibility among taxpayers in filing their returns, it is proposed that all individual taxpayers be required to submit their Income Tax Returns by a date to be specified in the Gazette. This will be 15th April of each year. Subsequent to this, IRD will no longer issue AR Registered returns to taxpayers.

The amendment will in fact provide greater convenience to taxpayers who are not at home to receive the registered mail. Also many taxpayers would not have received their statements of remuneration from their employers by the first two months of the year. The new gazetted deadline of 15th April will now allow taxpayers sufficient time to prepare their returns.

Clauses 13, 14 and 18 amend section 63(1), section 71(1), section 94(2) of the Income Tax Act to provide for the submission of Income Tax Returns by a specified date. As this will take effect from 1st January 1993, the Department will inform the public of the new procedure towards the end of this year to prepare them for the change.

The fourth amendment concerns notices of assessment. Currently, a Notice of Assessment is raised and served by registered post after a Return is received from a taxpayer, specifying the amount of tax the taxpayer has to pay for a certain year. For the benefit of taxpayers who are usually not at home to receive the registered mail, clause 16 amends section 76(1) of the Income Tax Act to allow the Inland Revenue Department to send Notices of Assessment by ordinary mail. However, the Department will continue to send such Notices by registered mail to taxpayers who specifically request for such service. This will take effect from 1st January 1993.

Clause 6 amends section 14(1)(e) of the Income Tax Act to raise the limit imposed on the deduction allowed in respect of an employer's contributions to an approved pension or provident fund from 16 1/2% to 17 1/2%. This would enable the limit to be in line with the increase in the employer's CPF contribution rate. The change will take effect from 1st July 1991.

Clauses 4 and 12 are consequential amendments relating to the tax incentive for services provided by Trust Companies. Clause 8 is a consequential amendment pertaining to tax deduction for general provisions made by banks. Clause 9 allows the Minister to delegate his authority to approve certain industrial buildings or structures for the purpose of qualifying for capital allowances under sections 16 and 17 of the Income Tax Act.

Finally, clause 17 is a technical amendment in respect of section 90(3) of the Income Tax Act which deals with the recovery of tax and penalty imposed under the Act.

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.