TAX CHANGES FOR COMPANIES

Tax Incentives To Promote Securities Lending and Borrowing

To facilitate the growth of international derivatives trading and arbitrage activities and the trading of regional securities in Singapore, I have decided to extend the Asian Currency Unit (ACU) and Approved Securities Companies (ASC) schemes to include foreign securities lending and borrowing activities.

With this extension, an ACU and an ASC will enjoy a concessionary tax rate of 10% on income derived from lending and borrowing foreign securities with another ACU, ASC or non-resident person. The fee income derived by approved fund managers from arranging securities lending and borrowing transactions on behalf of foreign investors will also qualify for this concessionary tax rate. We will also exempt from tax the securities lending fee, manufactured dividend and interest paid by the ACU or ASC to a non-resident person. Unless it is a bank or a branch of a bank, the non-resident person must not have any permanent establishment in Singapore. These changes will take effect from Year of Assessment 1995.

With immediate effect, we will also not levy stamp duty on documents executed under seal and agreements in respect of such securities lending and borrowing transactions. I am confident that these incentives, together with an efficient and stable financial system, will help to attract more international financial institutions to use Singapore as a securities lending and borrowing centre.

Incentives to Promote Silver and Platinum Trading

Currently, ACUs enjoy a concessionary tax rate of 10% on incomes derived from trading in gold, but not other precious metals. There is a growing market interest in the trading of silver and platinum besides gold. In view of this, I have decided to include spot and physical trading in silver and platinum with approved parties as qualifying activities under the ACU incentive scheme. This will encourage financial institutions to conduct such activities in Singapore. The incentive will take effect from Year of Assessment 1995.

Extension of Incentives for Transactions in Non-Singapore Dollar Securities

At present, ACUs and ASCs enjoy the following incentives when they transact in non-Singapore dollar securities on their own account or on behalf of non-residents with other ACUs, ASCs and non-residents:

a) 10% concessionary rate of tax on income derived; and

b) exemption of contract note stamp duty.

To further promote Singapore as a regional securities trading centre as well as a fund management centre, I have decided to extend the 10% tax concession to transactions of ACUs and ASCs with approved fund managers with effect from Year of Assessment 1995. Only transactions in respect of funds managed for foreign investors by such fund managers will qualify for the tax incentives. The exemption of stamp duty will also be extended to such transactions with immediate effect.

Further Incentive for Approved Securities Companies (ASCs)

At present, the tax exemption scheme for syndicated offshore credit and underwriting facilities is only open to ACUs.

Non-bank financial institutions, such as securities companies, are fast becoming important players in arranging and participating in syndicated facilities. To encourage securities companies to expand their operations and conduct syndication business in Singapore, I have decided to extend the scheme to ASCs with effect from 1st March 1994. This will help to further enhance Singapore's position as a leading syndication centre in Asia.

Extension of Relief Periods for Tax Incentives

Since the 1960s, we have introduced a number of tax incentives under the Economic Expansion Incentives (Relief from Income Tax) or EEI Act to promote the development of our manufacturing and services sectors. Among these were incentives for:

a) Expansion of Established Enterprises;

b) Expansion of Service Companies;

c) Export of Services; and

d) Warehousing and Servicing.

These 4 incentives provide for an initial tax relief period of 5 years or shorter. They may not be sufficiently attractive for projects with large initial investments. In addition, the Expansion of Established Enterprises Incentive and the Expanding Service Companies Incentive cannot at present be extended beyond the initial 5-year period. Companies are therefore not encouraged to expand after the initial incentive period. To enhance these 4 incentives, I have decided to extend the initial incentive period to not more than 10 years, with effect from Year of Assessment 1995. Thereafter, companies can apply for an extension of the tax relief period. The period for each extension will not be more than 5 years, subject to a maximum relief period of 20 years for each incentive.

Reduction of Time Limit to Issue Assessments

Currently, the Comptroller of Income Tax can make assessment or additional assessment on taxpayers within 12 years after the year of assessment concerned. The law also requires companies and other persons carrying on a business to keep and retain in safe custody sufficient records to enable their incomes and allowable deductions to be readily ascertained by the Comptroller. Therefore although the period is not spelt out in the law, such taxpayers are effectively required to retain their records for 13 years since the Comptroller has 12 years to make assessments and tax is assessed on a preceding year basis. It is costly and onerous for such taxpayers to comply with these statutory requirements on record keeping. Under the Companies Act, companies are required to retain their accounting and other records for 7 years. I have therefore decided to reduce the current 12-year statute of limitation to issue assessments for non-fraud cases to 6 years for Year of Assessment 1995 and subsequent years, and to provide for accounting and other records relating to such assessments to be kept for 7 years. In the case where fraud or wilful default has been committed, assessment can still be made at any time.

I turn now to the tax changes for individuals.