INLAND REVENUE AUTHORITY OF SINGAPORE BILL

Order for Second Reading read. 1.34 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 Bill before this House seeks to establish a statutory board to be known as the Inland Revenue Authority of Singapore. The new Authority will take over the existing functions of the Inland Revenue Department (IRD) and act as agent of the Government in administering, assessing, collecting and enforcing payment of income tax, property tax, stamp duties, estate duties and other taxes.

IRD implements the Government's taxation policies. It plays a key role in collecting revenue to finance the operations of the Government. In 1991, IRD collected $7.85 billion or 56.4% of total Government operating revenue. From the Government's viewpoint, it is therefore very critical that IRD be prompt in its assessment and collection of taxes. IRD must be well managed and efficiently run. To enable IRD to respond to the changing operating environment, its line managers must be given sufficient manpower resources and expertise and the flexibility to manage them. There must also be adequate resources if IRD is to safeguard the integrity of the tax system.

In its operations, the IRD has to deal with some 1.2 million income taxpayers and some 700,000 property taxpayers. This tax base is growing every year. As the tax payer population covers a wide spectrum of the public, ranging from individual taxpayers to big corporations, IRD must be able to provide a high standard of public service and be responsive to their needs.

As a statutory board, IRD will be able to perform its functions more effectively. With the flexibility to formulate its own personnel policies and offer more competitive wages, it will be in a better position than as a Government department to compete with the private sector for its fair share of available talent in the market. It will be better able to attract and retain the right people to enhance its management and professional competence.

These changes and improvements will result in tax revenue for the Government being collected more promptly. They will also benefit the public. Taxpayers can expect more responsive and better quality service. The conversion will, however, not affect the amount of taxes the public has to pay. The amount of taxes depends on tax policies and tax rates as decided by the Ministry and approved by Parliament.

Sir, I would now like to draw the attention of the House to the main clauses of the Bill. Clause 3 establishes the Authority as a body corporate. Clause 5 provides that the Minister for Finance will be the ex-officio Chairman of the Authority. This is a necessary safeguard given the sensitivity of tax administration and collection. In addition to the Chairman, there will be four to six other members of the Authority, to be appointed by the Minister from among persons who have had experience in public administration, financial, tax or commercial matters. Among these members will be the Deputy Chairman and the Chief Executive Officer (CEO) of the Authority.

Clauses 6 and 7 set out the functions and powers of the Authority. The Authority will perform the present functions of IRD in administering, assessing, collecting and enforcing payment of taxes. As a statutory body, the Authority will act as agent of the Government in these matters. It will also take over the other non-revenue functions currently undertaken by IRD such as representing Singapore in negotiations with other countries on the avoidance of double taxation, providing advice on property valuation, and the registration and supervision of charities.

Under clause 9, the CEO of the Authority, to be known as Commissioner of Inland Revenue, will be responsible to the Chairman for the proper administration of the Authority's functions. The Authority will also consult the Public Service Commission before appointing the Chief Executive Officer. It is my intention that the CEO of the Authority will also be appointed as the Comptroller of Income Tax, the Comptroller of Property Tax, the Commissioner of Stamp Duties, the Commissioner of Estate Duties and the Commissioner of Charities.

The CEO of the Authority will discharge the duties of these various statutory offices. This is in line with the current practice whereby the person holding the departmental title of Commissioner of Inland Revenue also holds these various statutory offices. With this arrangement, the powers to assess, collect and enforce payment of income tax will remain with the Comptroller of Income Tax. Similarly, such powers in relation to property tax will remain with the Comptroller of Property Tax. Therefore, tax returns and notices will continue to be in the name of the Comptroller, and not the Authority. There will be no change in the legal relationship between the taxpayer and the Comptroller after the Authority is established.

Clauses 12 to 17 set out the financial provisions governing the Authority. The Authority, in return for the services it renders to the Government, will be paid an agency fee to finance its operations. The tax moneys collected by the Authority will be paid into the Consolidated Fund. The accounts for the Government's tax revenue and the Authority's internal funds will be kept separate. Financial statements relating to both accounts will be presented to Parliament each year. The financial statements of the Authority will be audited by the Auditor-General. Further details on financial provisions are set out in the Second Schedule, which follows the model provisions stipulated by the Auditor-General.

I now turn to discuss clauses 18 to 24 which provide for the transfer of assets, liabilities and employees of IRD to the Authority. Under clause 18, the rights and obligations relating to IRD in connection with taxes or licence fees will remain with the Government and will not be transferred to the Authority. Under clause 19, such categories of staff in IRD as the Minister may determine will be transferred to the Authority on terms not less favourable than what they were enjoying before the transfer. Pension rights of these transferred officers will also be preserved. These are standard provisions which are also found in other Acts where Government departments were converted into statutory boards.

The final part of the Bill from clauses 25 to 31 relate to general provisions. As the Authority is acting as an agent of the Government in tax matters, legal proceedings in such matters will continue to be brought by or against the Government, and not the Authority. However, since the Authority will be administering the Acts specified in the Third Schedule, its officers will continue to represent the Government in criminal proceedings for offences under these Acts. These officers will, however, have to be authorised by the Commissioner of Inland Revenue with the consent of the Attorney-General. Clause 26 also provides for the Authority's legal officers to represent the Government in any civil proceedings involving tax matters. This preserves the current position where legal officers of the IRD appear in tax cases before the Courts.

In conclusion, I would like to say that this Bill will put our tax administration in a better position to cope with its heavy workload, and to meet future challenges it will face in the task of tax collection and administration.

Sir, I beg to move.

Question proposed.

Mr Leong Horn Kee (Thomson GRC): Mr Speaker, Sir, I wish to express my support for the Bill which provides for the conversion of the Inland Revenue Department into a statutory board to be called the Inland Revenue Authority of Singapore (IRAS). At present, one of the major difficulties of the Inland Revenue Department is the lack of manpower to process tax returns. As a statutory board, the IRAS will be better placed to attract and retain good officers by offering them competitive wages and more flexible perks and benefits which are closer to the market. I agree with the Minister that a tax administration which has motivated and well-trained staff will mean greater efficiency and better service to the taxpayers.

While I am, in principle, supportive of the Bill, I would like to seek a few points of clarification with the Minister with regard to how he envisage the new Authority would operate and how it could function in an efficient and cost effective manner. As the IRAS is acting essentially as the managing agent of the Government to provide a service in administering, assessing and collecting taxes, I wonder how the IRAS' efficiency and effectiveness can be measured and sustained. The point I would like to make is that unlike other statutory boards where some performance reference can be made to similar private sector practices or entities, or to similar activities in other countries, the proposed IRAS is not subject to market competition. Therefore, it does not need to be cost or manpower conscious as there is no bottom line or profit and loss for the IRAS to be conscious of.

Along the same line of argument, I wonder what kind of checks and controls the Minister would apply to ensure the financial and manpower usage discipline of the IRAS. It may well be possible that the IRAS could just simply seek to employ more and more people to process the backlog of tax assessments rather than to be more cost conscious and to seek out more innovative and efficient methods, such as to intensify its computerisation programme.

Sir, a final query that I have is that in the formation of the IRAS, would the Government be thinking that with its plan to eventually introduce consumption tax, there will be more manpower and administrative cost involved? Therefore, forming a statutory board now could be a conduit for more flexibility in manpower recruitment and future cost increases. My primary concern, Sir, is: Would the taxpayers be paying more to process their own tax assessments than before?

Mr Chiam See Tong: Sir, given the record of the Government for its efficiency in collecting vast amounts of money from the people, the Opposition is naturally apprehensive about the handing over of the job of collecting the nation's revenue to an independent body.

According to last year's annual report of the Inland Revenue Department, the total revenue collected by the Government was $27.412 billion, 40% of which, at $7.842 billion, were collected by the Inland Revenue Department from the various types of taxes. The amounts collected year after year by the Government are far in excess of the Government's total annual expenses. No wonder, the Minister for Finance almost in a reflex action can announce massive budget surpluses yearly.

I did express the fear in last year's Budget debate that the incumbent Government may be forced to increase its own savings as a result of the amendments to the Constitution giving powers to the Elected President to stop a Government from using the national reserves which it did not earn. Is the transfer of duties of collecting Government revenue from the Government department to an independent statutory body an attempt to increase the already high Government revenue to an over-flowing level so as to accumulate more reserves for the present Government? If that is so, then the cost of living and the cost of doing business in Singapore naturally will further increase. In that event, there shall be further hardship on the working people and local businessmen shall suffer even more. The Government has already got a very sharp knife in respect of the Inland Revenue Department in collecting taxes. Why does it need a still sharper knife?

Many people at the ground speculate that the conversion of the Inland Revenue Department to a statutory body is a natural progression of the Government's privatisation policy. A statutory board like the Singapore Telecom has been privatised. Very soon, the PUB shall also be privatised. These privatised bodies may soon be listed in the Singapore Stock Exchange. The Government, in taking these steps, intends to make massive amounts of profits. With profit motive in mind, will the Inland Revenue Department also take the path of the Singapore Telecom and the PUB? I would like the Minister to let the public know whether or not the Inland Revenue Department will also be eventually privatised and be listed in the Singapore Stock Exchange, since the Government is so bent in making huge profits.

Mr Koo Tsai Kee (Tanjong Pagar GRC): Mr Speaker, Sir, I rise to support the Bill.

First, a few clarifications on Mr Chiam's points. I believe that the IRAS is not going to be a private company to be listed in the Stock Exchange. Perhaps that is his hope. But, as I understand it, the IRAS is going to be a statutory board. So I think he is extending his imagination too far. Besides, Singapore Telecom is not a private company yet. He continues to talk about how Singaporeans are paying onerous and burdensome tax. The fact is that while the tax paid in Singapore is wide, not many people pay a lot of taxes. Most people in Singapore pay less than $500 in taxes or thereabouts. If you factor in the benefits, I think most Singaporeans will agree that what they pay is value for money. So I think his arguments are totally groundless, totally irrelevant. I think he has a high sense of drama and he exaggerates minor things, and he has a flair for hyperbole.

The functions of the proposed Inland Revenue Authority of Singapore (IRAS) are now being competently performed by the Inland Revenue Department (IRD). This includes administering, assessing, collecting and enforcing payment of taxes on behalf of the Government. It also carries out non-revenue functions like negotiating with other countries for the avoidance of double taxation, registering and supervising charities and providing advice on property valuations.

While these functions are being competently performed by the IRD, I believe that by allowing the IRD to become a statutory board, it can do its job better. How? I think some of the reasons have been elucidated by the Minister and Mr Leong. Basically, by becoming a statutory board, the IRAS will have the flexibility to formulate its own personnel and financial policies. In short, it can hire and fire, and be more accountable to the public in terms of cost and efficiency.

This ties in very nicely with the President's Address of January 1992. In that Address, the President advised that Government departments should, whenever possible, be subject to the market discipline as private companies do, but not amounting to what Mr Chiam has understood to be listed in the Stock Exchange.

Presently, the efficiency of taxation is not transparent because it does not undertake its own staff recruitment, it does not pay for its services rendered by other agencies, neither does it pay for rental for office space. The proposed IRAS Act will force the full cost of tax collection to be totally transparent. But, first to increase efficiency, I believe the IRAS must recruit competent and motivated staff.

I understand that the turnover of staff in the IRD is presently very high, higher than most civil service departments. This is not surprising because the nature of the job makes them very marketable and valuable. Yet at the same time, the administering of tax collection and the enforcing of tax payments are an arduous task not designed for the feeble-minded.

IRD officers are often at the sharp end of public fury. Why? Because few people like to pay taxes, and those who pay taxes, most of them think that they have been over-assessed. So they scream over the telephone, they bang tables at the counter at the IRD. I support the proposal to pay the IRAS officers competitive market salaries because what we pay them will be more than returned to us when tax efficiency rises.

The more efficiently our IRD officers collect taxes, the less all of us need to pay taxes. Because for everyone who is not paying taxes, the tax burden shifts to somebody else, or else total Government expenditure must drop, because inputs drop, meaning a drop in the quality of service, and by extension, a drop in the quality of life. If everybody pays taxes, then the tax burden will be spread over a wider base, and it will never become too heavy for any one individual. I think we must work on the principle that everybody who receives services from the Government should pay taxes, and those who have not been paying taxes, should be dragged into the tax net.

My principal concern in supporting this IRAS Bill is the welfare of the existing civil servants in the IRD. I have, however, been assured that their welfare has been carefully considered. I am told, and in fact the Minister has just reinforced that, that everybody will be given a choice to either stay in the civil service or be transferred or seconded to the new statutory board. And the salary of those transferred will be no less favourable than those enjoyed by the same officers in the civil service. My advice to the existing civil servants in the IRD is to quickly join the IRAS before they close the door.

Mr Speaker, Sir, I really cannot think of any rational being who might wish to oppose this Bill. But then perhaps I could be wrong. Clearly, it is not in the interest of those who have cheated on the IRD or who wish to cheat the IRD, to want the IRAS to be more efficient than the IRD. These people might oppose the Bill.

But since none of these people is represented in this House, I should think that the Minister will get unanimous support from the hon. Members in this Chamber.

Mr Speaker, Sir, I support this Bill.

Mr Chiam See Tong: Sir, point of order.

Mr Speaker: What is your point of order?

Mr Chiam See Tong: Sir, I object to the Member trying to imply that anybody who does not support the Bill intends to cheat the Inland Revenue Department. I think that this statement that he has made should be withdrawn.

Mr Speaker: No, Mr Chiam, that is not a point of order. Mr Koo, you can continue with your speech.

Mr Koo Tsai Kee: I have already concluded my speech, Sir.

Dr Richard Hu Tsu Tau: Sir, I would like to thank Mr Leong and Mr Koo for supporting the Bill. I will try to alleviate Mr Chiam's concerns about the reasons for the change.

Mr Leong was concerned about how the effectiveness of the IRD would be affected by the change from a Government department to a statutory board. Basically, the same criteria in evaluating and monitoring the performance of the IRD would be applied in the case of the Board. Do not forget, the Chairman of the Board will be the Minister for Finance and the Deputy Chairman is intended to be the Permanent Secretary (Revenue). So these are precisely the same people who are now concerned with overseeing the activities of the Department.

In assessing the performance of the IRD, three basic criteria are used. The first is to assess the cost of collecting each dollar of revenue. In other words, we monitor the amount of money which the IRD, or the IRAS as a statutory board, consumes in collecting every dollar of revenue. So far, the performance has been good although it could be improved because a lot of taxes remain uncollected. Currently, the most recent figure is that for every dollar of revenue collected the cost is about three-quarters of one cent, which I think is very good by international standards.

Secondly, another way of monitoring IRD's performance is in ascertaining the efficiency with which its assessments are processed and taxes collected. Here, as I have stated, the performance is not adequate at all because of a shortage of staff. Hence, the proposal to convert the department to a statutory board to allow it more flexibility to employ staff and pay them sufficient wages to retain them.

A final criterion used to measure the performance of the tax collection department is the public satisfaction of taxpayers. Here we conduct surveys of taxpayers to assess whether they are satisfied with the service that they are receiving from the Department from time to time. So there should be no change in the use of these criteria in evaluating the performance of the statutory board as opposed to the Department.

Mr Leong also wanted to know whether the conversion will cost the Government additional money. Effectively, there will be no change whatsoever in the cost of collection other than the need perhaps to recruit additional staff in the future to make up for positions which have never been filled. But as far as the Government is concerned, we will try to ensure that the cost of collection does not increase the tax burden of the taxpayer.

I now turn to the concerns raised by Mr Chiam. He was also worried that the transfer of the Department to a statutory board would mean an increase in both the tax collected from the public and wanted to know why it is necessary to sharpen the knife to collect more taxes since the Government is already collecting vast sums. I would like to assure him that the tax levying function is still retained by the Ministry of Finance, subject to the approval of Parliament. In other words, only the Ministry of Finance and the Government can propose tax changes which affect the tax payable by our citizens, and that is subject to final approval by Parliament. The IRAS has no power whatsoever to change tax rates. It merely collects what is due to the Government.

Therefore, there is no question of a sharper knife needed, except to collect taxes which taxpayers already owed the Government, which they by law should pay but have remained uncollected because the staff of the Department are unable to process large numbers of cases. I have quoted in the Budget debate the level of uncollected taxes, and the current figure is still around $1.14 billion of uncollected taxes a year.

Mr Chiam also wanted to know why we need to collect more of the uncollected taxes because revenue collections are rising very healthily, and we have large balances and surpluses. Tax rates, as I said, are determined by Government, and Government's record in tax changes, I think, has been very satisfactory, in fact very generous, because over the past few years both corporate and personal taxes have been cut regularly. We have in fact not increased taxes other than those levied for specific social needs, such as petroleum taxes, liquor taxes, tobacco taxes and water conservation taxes.

The fact that we are able, notwithstanding falls in taxes and cuts in taxes, to increase our revenue collections is because the economy has been growing very strongly, and Government has exercised very careful controls over expenditure; hence the surpluses.

Finally, I would like to address the question raised by Mr Koo about concerns over protection of the staff of IRD who are being transferred to the statutory board. I have said earlier that all their rights will be preserved. There are two categories of staff in the Inland Revenue Department. Those who are considered to be Inland Revenue Officers - and these are people concerned with tax evaluation, property evaluation, and legal officers - this class of employees would be compulsorily transferred to the new Inland Revenue statutory board, because their services are essential to the functioning of the IRAS. The balance of the staff which accounts for some 45% of the total staff of the Department, are support staff like clerks, record keepers, typists, and so forth, they are offered the option of either remaining with Government or transferring to the statutory board. But whether they choose to remain with Government or be transferred to the new statutory board, their rights and employment terms are protected fully.

Mr Chiam See Tong: Can I have a clarification from the Minister? The Inland Revenue Department has in fact improved on its performance. Last year, as the Minister pointed out, 0.75 cents was used to collect $1 of tax. There was an improvement from 0.79 cents of the previous year. In other words, its efficiency has been going up.

Also, I want to ask what a statutory body can do which the Inland Revenue Department cannot do in collecting this $1.14 billion of uncollected taxes.

There are two factors - the performance of the Inland Revenue has been improving, and what the statutory board can do which the Inland Revenue at the moment cannot do. So there is really no reason to change.

Dr Richard Hu Tsu Tau: The performance indicator of cost per revenue dollar collected applies only to revenue collected. If you have not collected it, that portion is missing. And that is why I said earlier, there are three criteria used - the number of assessments you can process, and hence the number of cases where you have successfully collected, and that cost is progressively decreasing. So it is efficient. But where the inefficiency arises is the inability to process about half the number of cases. So the need to process these half the number of cases, which account for the $1.14 billion worth of uncollected taxes, is the main reason why we want to convert from a Government department to a statutory board. And as I have said earlier in the Second Reading speech, the main reason is, as Mr Koo has noted, the Inland Revenue Department has been unable to recruit staff to fill the positions of substantial numbers of its key tax assessment and valuation people who have left for the private sector for much better salaries. A Government department cannot pay the sort of competitive wages to retain its staff because the question of relativity over the large civil service structure makes it impossible. Hence the need to convert to a statutory board which has much more autonomy in the selection of staff, in recruitment, not subject to Public Service Commission's criteria, and it can pay competitive wages outside the civil service structure.

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.