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 1994 gives legislative effect to income tax changes announced in the 1994 Budget Statement, and other changes not announced in that Statement.

Let me begin with the tax changes that were announced in the 1994 Budget Statement. At present, the tax exemption scheme for syndicated offshore credit and underwriting facilities is available only to Approved Currency Units (ACUs). I have announced that this Scheme will be extended to include Approved Securities companies. Clause 5 amends section 13(1)(Y) to provide for this extension.

[Mr Deputy Speaker in the Chair]

5.28 pm

The Minister for Finance (Dr Richard Hu Tsu Tau): Currently, the Comptroller of Income Tax can make assessment or additional assessment on taxpayers within 12 years after the year of assessment concerned. Since tax is assessed on a preceding year basis, taxpayers will therefore effectively have to keep records for 13 years. As it is onerous for taxpayers to comply with this statutory requirement, Government has decided to reduce the time limit to issue assessments for non-fraud cases from 12 years to 6 years. This means that taxpayers need to keep records for the purpose of making such assessments for only seven years. Clauses 18 and 22 amend section 67 and other relevant sections in the Income Tax Act to effect this change.

The next tax change concerns procreation incentives. At present, taxpayers are allowed to consume the special and further tax rebates within seven years. However, with the implementation of GST- related offsets like the $700 rebate and reduction in personal tax rates, taxpayers who also enjoy the special and further tax rebates may not be able to consume them to the same extent as before. I have thus extended the period for claiming special and further tax rebates to nine years. Clause 14 amends section 42A to effect this change.

I have also announced tax changes to further encourage Singaporeans to venture overseas. One is that the tax rates used to compute non-resident tax reliefs will be reduced with effect from Year of Assessment 1995. This will enable more Singaporeans who declare non-resident status for tax purposes to enjoy the non-resident tax reliefs. Clause 13 amends section 40 and clause 21 inserts a new Part C in the Second Schedule to the Act to provide for the tax change.

The other tax changes are as follows. First, employees will be allowed a tax deduction for contributions made by them to the CPF which are obligatory by contract of employment, provided they are residents for tax purposes. The tax deductibility for these contributions, as well as contributions to other approved pension and provident funds, will be capped at the compulsory CPF limit. Clause 12 amends section 39 to effect the change. Second, employers will be allowed a tax deduction for CPF contributions made in respect of staff posted overseas that are obligatory by contract of employment. Third, CPF contributions by employers in respect of ordinary wages of staff posted overseas will be exempt from tax, up to the statutory limit for compulsory CPF contributions by employers. Clause 4 amends section 10C to provide for the change.

I have announced the increase in the limit for tax deduction for CPF contributions, inclusive of compulsory Medisave contributions, by self-employed persons. The present limit for such deductions is 18% of assessable income from self-employment, subject to a maximum of $12,960. The limit will be increased to 18.5% of the assessable income from self- employment, subject to a maximum of $13,320 with effect from the Year of Assessment 1995. Clause 12 amends section 39 to effect the change.

Following the good performance of the economy last year, I have also announced a one-off 5% rebate on personal income tax payable for the Year of Assessment 1994. Clause 23 provides for this rebate.

I shall now deal with tax changes not announced in the 1994 Budget Statement.

Several of these are needed to streamline and improve tax administration. Members may be aware that since 15th January 1994, taxpayers earning $20,000 or below are able to phone in their income tax returns using the Telefile system. Other electronic means of filing tax returns may also be introduced in the future as part of IRAS' effort to improve its services to taxpayers. To provide for these changes, clauses 2 and 19 amend section 2(1) and insert a new section 71A to allow tax returns to be filed by permissible electronic means.

At present, companies are required to submit their tax returns within 21 days from the date stated in their returns forms issued by IRAS. Many companies have found it difficult to comply with this deadline. In view of this, the Income Tax Act will be amended to allow companies to submit their tax returns before a common deadline of 31st July of each year. This amendment will give companies more time to prepare their tax returns. Nevertheless, to ensure that the tax assessment process will not be delayed under the new system, companies are also required to furnish estimates of their chargeable income within three months after the end of their accounting period. Clause 17 re-enacts section 63A and clause 20 amends section 72A to effect these changes.

The next amendment pertains to the collection of unpaid tax. To facilitate the collection of unpaid tax, the Income Tax Act empowers the Comptroller of Income Tax to appoint any person as an agent of the taxpayer concerned. Such an agent is then required to pay any tax due by the taxpayer from the taxpayer's moneys held in the agent's custody. Currently, however, the agent is obliged to do so only at the point of time when the notice of appointment is issued. Clause 16 now amends section 57 so that the statutory obligation on the agent will be effective for a period of 90 days from his appointment as an agent. The provision of a 90-day period will make it easier for the Comptroller of Income Tax to collect unpaid tax through the agent should the need arise.

At present, a company that has undergone a substantial change in its shareholders will have to seek the Minister's approval if it wants to carry forward its unabsorbed capital allowances or losses. For ease of administration, clauses 10 and 11 amend sections 23(2A) and 37(8) to enable the Minister now to delegate the power to approve such requests to the Comptroller of Income Tax.

The Goods and Services Tax or GST was introduced on 1st April 1994. Under the GST Act, a person who is required to, but failed to register under the Act, will not be allowed a refund for the amount of GST he has paid on his taxable supplies. The GST Act also provides for penalties to be imposed on such persons. To be consistent with the GST Act, clause 8 amends section 15(1) of the Income Tax Act to also disallow that amount of GST paid on his taxable supplies to be deducted as an expense for such cases.

I will now turn to the amendments that are needed to fine-tune the provisions of existing tax incentive schemes.

The first relates to our tax incentive for Pioneer Companies. Clause 9 amends section 19A of the Act to defer the deadline for Pioneer Companies to elect for accelerated capital allowances in respect of the residual value of plant and machinery by one year. This will enable Pioneer Companies to enjoy the full effect of the tax concessions even in the last year of their incentive period.

The second concerns our tax concession for Singapore flag vessels. Currently, once a vessel is registered under the Singapore Ship Registry, income derived from the operation of such a vessel will be exempt from tax. However, under certain circumstances, some shipping companies may wish to elect not to be under this tax concession scheme. Clauses 3 and 6 thus amend section 10(4) and 13A to provide for this option.

The third amendment relates to the tax concession for offshore leasing companies. Currently, companies enjoying such concessions are restricted in the manner which capital allowances can be deducted against their other sources of income. Clause 15 amends section 43I to allow companies to elect not to enjoy the concession if they do not want to be restricted in their claim for capital allowances.

Finally, clause 7 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. The limit is raised from 18.5% to 20% to be in line with the increase in the employer's CPF contribution rate. The change will take effect from 1st July 1994.

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.