LAND LEASE PAYMENTS

Mr Gerard Ee asked the Minister for Finance whether he will allow land lease payments to be made tax deductible in the same manner as for rentals, as such payments represent a substantial business cost and are in substance similar to rental payments.

Dr Richard Hu Tsu Tau: Under our existing tax laws, whether a payment is tax deductible will depend on whether it is a revenue or capital expenditure in nature. If it is the latter, it would not be allowed a deduction as conversely, we do not tax capital gains. Lease payments, if made for the purpose of acquiring an asset of enduring benefit, would be a capital expenditure and thus not allowed a tax deduction.

Mr Ee may be aware that to assist companies to weather the tough economic conditions, JTC has introduced a number of changes with regard to its land lease policy. One of the measures is to offer industrial land tenants the option to pay their land rents for a period of up to 30 years in an upfront lump-sum payment, with effect from 1st January 1998. This option will help to reduce the cost of land for industrial users.

To complement this measure, I have also decided to allow tax deduction for amortisation of such upfront payments made by JTC and HDB lessees for industrial land leases with a duration of less than 30 years. This is despite the fact that under our normal tax laws, such payments are generally capital expenditure and not allowed a tax deduction. The deduction is applicable to all qualifying new leases entered into on or after 1st January 98.