EMPLOYEE STOCK OPTIONS

Mrs Lim Hwee Hua asked the Minister for Finance if he will explain how the issue of options under Employee Stock Options will be treated for tax purposes for companies, especially in view of the anticipated increase in proportion of compensation, and whether any limits will be imposed.

Dr Richard Hu Tsu Tau: Companies are allowed a tax deduction for outgoings and expenses wholly and exclusively incurred in the production of income. The grant of employee share options is the offer of a right to the employees to acquire the company's share at a future date at a certain price. When the employees exercise the options, the companies have to issue fresh shares to the employees. Under our tax system, the company does not incur any outgoings or expense in the issue of new shares. Hence, the company does not get a tax deduction.