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 1998 seeks to give legislative effect to the income tax changes announced in the 1997 Budget Statement. Opportunity is also taken to incorporate three other amendments to the Income Tax Act.

Tax changes announced in the 1997 Budget Statement

I shall begin with the tax changes announced in the 1997 Budget Statement. There are a total of five tax changes which require amendment to the Act. I will start with the tax changes affecting individual taxpayers.

I have announced that, with effect from Year of Assessment 1998, there will be an increase in tax reliefs for taxpayers who maintain dependants. For those who stay with aged parents in the same household, parent relief is raised from $3,500 to $4,500. There is also an increase in tax relief for wife as well as child relief from $1,500 to $2,000. In addition, I have also relaxed the income ceiling condition for eligibility of parent relief, wife relief, handicapped siblings relief and child relief. The respective reliefs will be allowed so long as the dependant does not have an income exceeding $2,000 in that year, instead of the current level of $1,500. Clauses 11 and 16 amend the relevant sections of the Act for this purpose.

I have also announced that with effect from 1st January 1999, all CPF contributions, whether made voluntary, or obligatory under contracts of employment, will no longer be tax deductible for both the employee and the employer. In addition, the employer's contribution will be taxable as income in the hands of the employee. However, in support of the regionalisation programme, the existing tax treatment will still apply to Singaporeans posted overseas who make voluntary CPF contributions. Clauses 2, 4 and 7 amend the relevant sections of the Act for this purpose.

The next two tax changes pertain to existing tax concessions. 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 banks to increase their level of general provisions to buffer against any unexpected losses, I have raised the limit on tax deductible general provisions from two per cent to three per cent of qualifying loans and investments. Clause 8 amends section 14I to provide for this change which will take effect from Year of Assessment 1998.

I have also announced that the tax holiday granted to the Singapore Commodity Exchange Limited (SICOM) in 1992, for five years, will be extended for another five years. Clause 6 amends section 13(1)(p) for the extension of this tax holiday.

Lastly, to encourage the setting up of reputable credit rating agencies in Singapore, I have announced a concessionary tax of 10 per cent on income derived from providing credit rating services with respect to the issue of foreign currency denominated securities in Singapore. Clause 14 introduces a new section 43M for this incentive which will take effect from the Year of Assessment 1998.

Tax Changes not announced in the 1997 Budget Statement

I shall now deal with the three tax changes that were not announced in the 1997 Budget Statement.

The first tax change pertains to the computation of gains derived from the exercise of share options. The gains derived by an employee from the exercise of share options issued under the Employee Share Options Scheme are taxable. At present, the valuation rule used to determine the taxable gains is the difference between (a) the price of the share in the open market at the time of the exercise of the option; and (b) the amount the employee had paid for such shares.

However, there is usually an interval between the exercise date and the date on which the shares subscribed for are approved by and listed on the Stock Exchange of Singapore. As the shares are only tradable when it is listed, clause 3 amends section 10(5) to provide that the taxable gains shall be computed as the difference between the price of the shares when it is listed and the amount paid for the shares.

The second tax change deals with the treatment of capital allowances and losses from the leasing of machinery and plant. Currently, the Act provides that if a lessor carries out finance lease activities, he can only set off the capital allowances of a finance lease asset against his income derived from the finance leasing. This is to prevent finance leasing activities from being used as a tax shelter. As a result of the current wording of the Act, the unabsorbed capital allowances of a finance lease asset will be forfeited when the finance lease business ceased.

As the current tax treatment is unduly restrictive, I have decided to amend the Act to allow such unabsorbed capital allowances to be set off against any other income of the lessor when there is a permanent cessation of his finance lease business. As a consequence of this change, and since a leasing company can carry out both onshore and offshore finance or operating lease activities, the amendments also set out the manner of setting off capital allowances and losses for such leasing companies. These changes to the treatment of capital allowances and losses from the leasing of machinery and plant are provided for under clauses 5 and 13 which amend sections 10D and 43I respectively.

Finally, the last amendment concerns the claiming of capital allowances for motor cars registered and used exclusively outside Singapore. At present, owners of a Q-plate car are allowed to claim capital allowances for their cars. Similar tax treatment is also applicable to cars registered outside Singapore and used exclusively outside Singapore. An example of the latter would be cars used by an overseas branch of a Singapore company. However, while owners of Q-plate cars are given balancing allowances upon the disposal of the cars, owners of the above mentioned foreign cars are not entitled to any balancing allowance. To rectify this inconsistency, clause 9 amends section 20(5A) to allow balancing allowances upon the disposal of such foreign cars.

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.

[Mr Speaker in the Chair]

Clause 1 -

The Chairman: The citation year "1997" will be changed to "1998".

Clause 1 ordered to stand part of the Bill.

Clauses 2 to 17 inclusive ordered to stand part of the Bill.

Bill reported without amendment; read a Third time and passed.