INCOME TAX (AMENDMENT NO. 2) 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 No. 2) Bill 1996 seeks to give legislative effect to income tax changes announced in the 1996 Budget Statement. Opportunity is also taken to incorporate three other amendments to the Income Tax Act.

Tax Changes Announced in the 1996 Budget Statement

I shall begin with the tax changes that were announced in the 1996 Budget Statement. There are a total of six tax changes that require amendment to the Act. First, on changes pertaining to tax rates.

I have announced in the 1996 Budget Statement that with effect from Year of Assessment 1997, the corporate tax rate will be reduced from 27% to 26%. Clauses 9, 10, 11 and 13 of the Bill provide for this change.

I have also announced that with effect from Year of Assessment 1997, the top marginal individual income tax rate will be lowered from 30% to 28%, with appropriate reductions in the other rates. In addition, the number of tax brackets will also be reduced from 14 to 10. Clauses 8 and 16 amend section 42 and Part A of the Second Schedule to the Act respectively to effect these changes.

In addition, to encourage the development of activities which require high input or funding from overseas as well as to facilitate the development of Singapore as a knowledge and technology hub, withholding tax on royalty and interest was reduced to 15% of gross of such payments with effect from 28th February 1996. Clauses 7, 9, 11, 12 and 14 amend the relevant sections of the Act for this purpose.

The next three tax changes pertain to existing tax concessions. First, since the Year of Assessment 1992, banks are allowed to claim tax deduction for general provisions made for loans and investments in securities. To encourage finance companies to build up their reserves, general provisions made by such companies for their loans and investment in securities will also be allowed tax deduction with effect from Year of Assessment 1997. Clause 4 amends section 141 to provide for the extension of this incentive.

Second, to encourage the use of highly efficient pollution control and energy-efficient equipment, I have announced that businesses will be allowed to claim capital expenditure on such equipment over a one-year period instead of over three years. Clause 5 amends section 19A for this change.

Third, Members are aware that since the Year of Assessment 1993, National Servicemen are given tax reliefs of $1,000 for active NSmen and $500 for those who have done full-time national service but are now not in the active national service. As the value of these reliefs has been eroded by subsequent reductions in personal income tax rates, I have announced that the reliefs will be increased to $2,000 and $1,000 respectively with effect from the Year of Assessment 1997. In addition, as a recognition of the contribution of parents and wives of the NSmen to Total Defence, parents of NSmen as well as their wives who are Singapore citizens will be eligible for tax relief of $500. Clause 6 thus amends section 39 to provide for these changes.

Tax Changes not announced in the 1996 Budget Statement

I shall now deal with three tax changes which were not announced in the 1996 Budget Statement.

The first pertains to maintenance payments received by a parent under the Maintenance of Parents Act. Under the Maintenance of Parents Act, a person could be compelled by a maintenance order to make maintenance payments to his parents. Clause 2 amends section 10 of the Act such that these payments would not be deemed as income in the hands of the parents and are thus not subject to income tax.

The second tax change deals with accommodation benefits provided to an employee. At present, any gains or profits from employment carried out in Singapore are subject to tax. If the employee is provided with accommodation by his employer, such accommodation benefits will also be subject to tax. This is provided for in the existing Act.

The value of the accommodation benefits to be taxed is, however, subject to a cap of 10 per cent of the employee's gains from employment (other than the accommodation benefits), less any rent paid by him. Currently, the Act does not include the gains derived by an employee from share options under the definition of his gains from employment. Such gains from share options are, however, taxed under a separate sub-section. Clause 2 therefore amends section 10 to make it clear that gains from share options should be taken into account in the computation of an employee's total gains from employment for the purpose of deriving the taxable value of accommodation benefits under the Act provided to the employee.

Finally, the last amendment is to allow taxpayers to claim capital expenditure on plant and machinery under construction. At present, under section 19A of the Act, a person who has incurred expenditure on plant and machinery could choose to depreciate them over a three-year period instead of the longer periods specified under the Sixth Schedule of the Act. Depreciation allowances will be granted only if capital expenditure has been incurred and the plant and machinery are in use at the end of the basis period for that Year of Assessment.

However, the construction period of large-scale plants may be very long. As such, the taxpayer may not be able to satisfy the condition that the plant must be in use at the end of the basis period for that Year of Assessment for the purpose of claiming the depreciation allowances. Clause 5 thus amends section 19A of the Act to allow claim of depreciation allowances under this section for capital expenditure incurred on plant and machinery even though the asset has yet to be put to use.

Sir, I beg to move.

Question proposed.

Mr Chiam See Tong: Sir, conservation of water is a national policy. The Government, in fact, penalises businesses and individuals who over-use water. I believe there is no incentive in the Income Tax Act given to both businesses as well as individuals to conserve water. I notice that in clause 5 of this Bill, the Government is going to give an incentive. In fact, it is going to give taxpayers an allowance of 100% in respect of capital expenditure incurred on the provision of efficient pollution control equipment. Similarly, this benefit is also given for business people who incur capital expenditure on any energy efficient equipment. If the Government is serious about conservation of water, I would ask the Minister whether he is also willing to give such incentives to taxpayers, both the businesses as well as individuals who have water conservation equipment.

Dr Kanwaljit Soin: Mr Speaker, Sir, I would like to ask the Minister to give a response to an exclusion in clause 2 (b) which amends section 10 to deem any maintenance payment received by a parent or a child under a maintenance order not to be income subject to tax. I would like to ask the Minister what about a wife's maintenance payment received under a maintenance order. Why is this considered income subject to tax and not treated like maintenance for a parent?

Dr Richard Hu Tsu Tau: On Mr Chiam's question, I think there is an existing provision for tax relief on installation of highly efficient water recycling processes. If not, it would certainly be something we would seriously consider.

On the question by Dr Soin, I do not quite follow her question.

Dr Kanwaljit Soin: My point is no income tax is charged for maintenance payments received by parents. That is what the Minister said about clause 2. But yet when wives receive maintenance from their husbands, those maintenance payments are subject to income tax. Why is there a discrepancy?

Dr Richard Hu Tsu Tau: No. Awards made under the Maintenance of Parents Act are free of income tax. That is so.

Dr Kanwaljit Soin: So I want to know why is the same privilege not extended to maintenance payments which are made by the courts for wives.

Dr Richard Hu Tsu Tau: Outside the Maintenance of Parents Act?

Dr Kanwaljit Soin: Yes. Outside, obviously.

Dr Richard Hu Tsu Tau: We are dealing with the Maintenance of Parents Act and not on this other issue.

Dr Kanwaljit Soin: Clarification, Sir. I realise that. But I would like to know what is the policy, what is the thinking, that you can allow a parent who gets maintenance not to have to pay income tax. A parent is an adult. But you do not give the same privilege or right, I would say, to a wife who gets a maintenance ordered by the court.

Dr Richard Hu Tsu Tau: For other reasons.

Dr Kanwaljit Soin: For maintenance of wives, yes.

Dr Richard Hu Tsu Tau: Particularly, say, in the case of a divorce?

Dr Kanwaljit Soin: Yes.

Dr Richard Hu Tsu Tau: That will be treated as normal income, yes, subject to tax.

Dr Kanwaljit Soin: So I would like to ask what is the Minister's thinking. Why is it that the maintenance of a parent is not considered income, because it is for the subsistence of the parent, while the maintenance for a wife which is for her subsistence is considered as income?

Dr Richard Hu Tsu Tau: I think the difference would be that in the case of maintenance order for, say, a wife who receives such payment because of a divorce, the tax component is already built in. In other words, it is income which will be subject to normal tax, whereas under the Maintenance of Parents Act, it is a special treatment accorded to the taxpayer for a specific reason.

Mr Chiam See Tong: Can I have a clarification?

Mr Speaker: All right.

Mr Chiam See Tong: Is the Minister assuring the House that if there is no provision in the Income Tax Act to give incentives to taxpayers to conserve water, he will look into it?

Dr Richard Hu Tsu Tau: Yes.

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.