HEAD M - MINISTRY OF FINANCE

Column: 1151

Head M - Ministry of Finance

The Chairman: Head M - Ministry of Finance. Mr Leong Horn Kee, amendment No. (1).

Overall Tax Structure

Mr Leong Horn Kee (Bishan-Toa Payoh): Sir, I beg to move,

That the total sum to be allocated for Head M of the Main Estimates be reduced by $100.

Sir, I wish to ask DPM and Finance Minister what is the ideal long-term overall tax structure for Singapore. He has covered some aspects of Singapore's tax structure in his Budget round-up speech yesterday.

The total tax revenue was $21.59 billion in FY03, and estimated to be $22.05 billion in FY04. However, there are no details of the breakdown between direct and indirect taxes in the Budget document. The Government has stated its intention to achieve a balanced budget by FY05, whilst actual deficits were incurrred in FY01 and FY03. A budget defict is expected for this FY04.

What is the current share of direct and indirect taxes? Corporate tax will be lowered by 2% and the intention is to reduce personal income tax by 2% some time in the future. I am concerned that the shift of direct to indirect taxes will be greater with these cuts in direct taxes. There is the spectre or fear that this could lead to further increases in indirect taxes, such as GST. If not, how is the Government going to achieve a balanced budged in future, not just by 2005, which is actually next year? If we impose more on indirect taxes, it implies a heavier tax burden on the lower income group. The

Column: 1152

lower income group normally pays no or low personal income tax.

I would like to ask whether our current tax structure with 20% corporate tax and 5% indirect GST tax is a competitive tax regime. How do we compare with Hong Kong and other countries that we compete with, eg, Malaysia, Thailand, Indonesia, China and Taiwan?

1.00 pm

We cannot just compare the main taxes, but have to evaluate the entire tax regime, inclusive of tax and non-tax revenues. Have studies been done to compare the entire tax structure of direct and indirect taxes and the non-tax revenues? How do we evaluate and conclude that Singapore has achieved an efficient and the most desirable tax regime? Have we considered whether it is desirable to adopt a flat tax structure of 16%, like in Hong Kong?

Sir, on a tax related matter, I would like to commend DPM Lee on his decision to waive tax on remittances of foreign income of individuals. This waiver is well received. It will encourage a substantial influx of funds into Singapore. It will help create a healthy market for wealth management. I would like to ask DPM Lee whether the Government would also consider extending this waiver to remittances of foreign income back to Singapore by companies.

The Chairman: Wind up your speech, please, Mr Leong.

Mr Leong Horn Kee: Yes. This would be a very welcome move by local businesses, as they will be able to deploy the moneys earned overseas in expansion projects locally. This will also be beneficial to wealth and employment creation in Singapore.

Column: 1153

Corporate Taxes

Mrs Lim Hwee Hua: Sir, this is not a new plea but one that bears repetition as there is a need to help facilitate the expansion of local enterprises beyond Singapore or, simply, to give them the 'leg up'.

The Government has taken a step, a very small step many would say, to allow a loss transfer system of group relief since Year of Assessment 2003. However, there are two conditions. This will only be allowed for 75%-owned subsidiaries and only for those that are incorporated in Singapore.

Foreign losses may not be transferred for the purpose of group relief, the reason being that a subsidy of foreign ventures by domestic tax revenue could effectively result.

Sir, whilst I do not disagree with the rationale, I do think that the Government can err on the side of being liberal, or even generous. Otherwise, this will not square with the push by Government for local companies to go offshore. The feedback is that a super-majority stake is not always possible, let alone subsidiaries that are incorporated in Singapore but for offshore businesses. Many have lamented that the current concession offers no effective tax support for start-ups, which would be a strain on capital for the parent who will be paying a high effective group tax rate.

I would, therefore, like to ask the Minister for Finance if he would be prepared to, firstly, review the current concession with a different mindset, not just merely from a direct comparison of the different tax regimes (for example, how Singapore compares with Hong Kong), but also from the perspective of providing meaningful incentives for local companies to expand offshore; and, secondly, lower the threshold to a simple

Column: 1154

majority of just over 50%, and allow foreign losses to be transferred. The belief is that after years of start-up losses, the Singapore parent will reap the due benefits of the profitable subsidiary via dividends or other distributions. The tax revenue for the Government will then rise in tandem.

Net Income from Investments

Mr Inderjit Singh (Ang Mo Kio): Sir, my cut is on the net income from investments (or NII), particularly the performance. I have noticed that the NII performance over the years has been quite erratic. Based on the information I could get from the Budget books in the last six years, I notice that the numbers have varied quite a lot, ranging from $3.1 billion in 1999, hitting the highest of $3.68 billion in 2002, and it is budgeted to go down to $2.29 billion this year.

I would like to ask for more details as to how the NII is derived. What investments qualify for the NII which are included into the Government accounts? How did the investments perform compared to industry performance and other large funds managed around the world? Is the performance stated above considered good or bad? Particularly, since there was a big drop from 2002 to 2003, perhaps the Minister can let us know what caused this. Finally, is the $2.29 billion budgeted for 2004 a conservative estimate, given that the global economy seems to be headed for good growth and the fact that we did well in the year 2002?

Tax on Dividend

Dr John Chen Seow Phun (Hong Kah): Sir, in the budget for FY 2002 and 2003, the corporate taxation system had changed into a one-tier tax system. Dividends from companies are now taxed at corporate tax rate. And unlike the past system prior to that, individuals now

Column: 1155

cannot claim a tax credit from these dividends if they belong to a lower tax bracket. While such one-tier system is efficient for the IRAS, it is unfair for the lower income earners to be taxed at the same rate on their dividends as the top earners. In particular, retirees who have saved their nest-egg in high yield shares are unduly disadvantaged. They will see a sudden jump in their tax rates, from maybe next to zero to the corporate rate of 20%.

Surely, we should not expect retirees who are not so well-off to be effectively paying the same rate of tax as our top earners. This cannot be right. It is also against one of the basic precepts of taxation, that is, taxation should be progressive. This, coupled with the increasing GST, has affected the finances of retirees. Savings which have already been taxed are now taxed again through GST, when the savings are spent during retirement years. Now the proceeds from the savings are being taxed at the top rate if you happen to invest in shares. Does this not contradict our efforts to educate our people to invest wisely, to become shareholders and to become more entrepreneurial?

I urge the Government to re-examine the one-tier corporate tax system and, if possible, revert to the previous system where tax credits may be enjoyed from tax dividends.

Supplementary Retirement Scheme

Dr Tan Boon Wan: Sir, **** the quality of life has increased and people live longer. We thus need to save more for old age. The CPF and the Supplementary Retirement Scheme (SRS) are two main means for saving for retirement. We can understand the need to reduce CPF contributions to reduce business cost in order to save jobs. But I do not understand why the allowable amount of

Column: 1156

SRS savings is reduced in parallel. Employers do not contribute to SRS savings. It does not add to business cost. In fact, the Government should be doing the opposite to make up for the reduction of CPF contributions.

I would like to ask the Minister for Finance to reconsider the decision to reduce the amount of allowable SRS savings. It could mean a lot to everyone who uses the SRS to save more for their old age.

Road Tax

Mr Andy Gan Lai Chiang (Marine Parade): Sir, there was a significant change in the motor vehicle tax structure when the Electronic Road Pricing was introduced in April 1998. A package of road tax rebates was given and the ERP went into effect. Motorists accepted the change as it reduces the cost of road taxes to them. For FY 2003, total revenue from motor vehicle taxes has increased to $1.8 billion, the bulk of which (or about 61%) was derived from the additional registration fees, and 35% was from road tax. Come FY 2004, there is a moderate projected increase of 14%.

I put forth to the Minister to elaborate on the usage of this significant harvest in motor vehicle tax collection for FY 2003. My concern stems from the notion that such huge collections must, first of all, be channelled to making transport more affordable to the community at large. The increase in motor vehicle revenue does not stop a parallel increase in usage of our roads. This, in turn, would mean a greater toll and strain on our road systems. I maintain that the revenue from motor vehicle taxes be rightfully channelled to fund construction of highways, tunnels, roads, pavements and to provide for their maintenance, specifically perhaps to make our road network more disabled-friendly as well.

Column: 1157

Making our roads safer for pedestrians is often ignored as we seek to find ways to improve the flow of traffic in order to save travelling time, instead of preparing the road system to make it more user-friendly to the aged and handicapped.

Overhead bridges can be improved to ease pedestrians crossing from their homes to, say, MRT stations and bus stops. Besides making the roads safer for drivers and pedestrians, the funds can be used to improve public transport such as the MRT network. Thus, I advocate that the Government should try to link road taxes and the use of such funds to improve public transport.

Tax Relief

Mr Leong Horn Kee: Sir, at present, a married woman could claim tax relief of twice the amount of foreign maid levy paid, up to a total of $8,280 a year against her earned income. However, this relief cannot be claimed by the working husband. I think this rule is unfair for both the working husband and the family as a unit. Normally, both husband and wife bring up and support the family together. If it so happens that the husband is working and the wife is not, then this relief cannot be enjoyed by the family.

In the interest of promoting more families and more babies, I would like to sincerely ask the DPM to reconsider this foreign maid levy relief. I suggest that either the working husband or wife can claim this relief. Currently, only the wife can. This is one instance where the woman has more rights than the man.

Sir, on another relief. In his Budget speech, DPM Lee announced that he will extend tax relief to individuals making cash top-ups for non-working spouses who are 55 years old and above, and who

Column: 1158

earn not more than $2,000 in the preceding year. Though I wish to commend him for introducing this tax relief, I would like to urge him to be not so tight-fisted, and maybe to be a bit more generous.

As the money is put into the non-working spouse's CPF retirement account, and it is entirely voluntary, I propose that the Government allow this tax relief to start earlier, for example, when the non-working spouse is younger, say, 40 years old. Starting earlier will enable the voluntary contributions to accumulate gradually over a longer time, rather than start so late in life when the spouse is already 55 years old. Moreover, the income limit of $2,000 for the non-working spouse is too low. It amounts to only about $166 per month. Even a menial odd-job labourer earns about $600 per month nowadays.

Ms Braema Mathiaparanam: Sir, I would like to ask the Minister for Finance to review the policy that singles do not enjoy tax relief on the maids they employ to look after their elderly parents or their handicapped siblings, so that they can continue in the workforce. The first time this was discussed in Parliament, the then Second Minister for Finance's response at that time was that the tax relief was only meant for married women. Now that he is also the Chairperson of the procreation committee, I hope this can be reviewed so that singles can contribute both to the workforce and the family.

The manpower statistics show that 7% of employers of foreign domestic workers are singles, and 3% are divorcees. If we take the relief at $8,000 per employer, we have a total of 9,800 singles due for enjoying this relief or an annual sum of $800,000. I think this is not such a big sum in the scheme of things but a great boost to the status of singles who are contributing both to family life and to the workforce.

Column: 1159

The Chairman: Ms Braema, can you go on to your next cut?

Goods and Services Tax

Ms Braema Mathiaparanam: On goods and services tax, I am also asking the Finance Minister to reconsider why there is the need for GST to be levied on structures built for the disabled and items bought by the disabled. Quite a number of VWOs are right now in the process of building new buildings for their disabled communities that they look after. One incident is that they have to go back to the community to raise about $200,000 to pay for the GST taxes. It comes back again for the community to pay for the GST. Could this, please, be reviewed?

Tax on Sports, Arts and Cultural Groups

Mr Ng Ser Miang (Nominated Member): Sir, the IRAS taxes sports, arts and cultural groups under section 11(1) of the Income Tax Act. This section stipulates that if this type of organisation receives less than half of its income from its members, then such organisation is deemed to be carrying on a business and its surpluses are treated as profits and taxed accordingly.

Sir, this group is usually set up by like-minded people to promote the specific sports, arts or cultural activities that they love, and are non-profit in nature. They play a very important role in the development and promotion of their respective sports, arts or culture. They also bring sports, arts and cultural events to Singapore and help add diversity and enrich the life of Singaporeans. They are not businesses as such. Most of this group depend on Government grants through statutory boards or agencies such as the Singapore Sports Council, National Arts Council, Tote Board, Singapore Pools and Singapore Tourism Board. They also raise additional money through sponsorships, donations, performances,

Column: 1160

matches, to augment their income. It is rare that their membership revenue will be more than 50% of their total income as the membership fees for these organisations are usually kept low, in order to attract members and encourage participation.

1.15 pm

Those of us who are involved in these organisations know that it is difficult to get Government funding and just as difficult to raise funds from the public, as we have to compete with other organisations that require funding as well, such as

charity, even CDCs and other groups. Sometimes, the timing of inflow of funds versus the plan of activities, the need to save some money for bad times could also lead to surplus or deficit. To tax their surplus could also lead to a culture of waste and encourage unnecessary spending before the financial year ends.

DPM in his Budget speech spoke about allowing Ministries accumulate and carry forward unused funds to subsequent years. Perhaps, we could also allow similar flexibility to this group without taxing them. Many of them are puzzled why Government grants or subsidies could attract income tax. And why if they work hard to raise additional funds and save some surplus for the future, they also attract tax. These groups are usually run by volunteers and serve a very useful role to Singapore. They are not businesses with a profit motive. I would therefore like to urge DPM and Finance Minister to consider exempting them from tax.

Economic Restructuring Shares

Dr Tan Boon Wan: Sir, Singaporeans are generally very appreciative of the ERS, especially during this period of a weak economy. But the poor and old have difficulties topping up their CPF accounts.

Column: 1161

The Government must be credited for the efforts to remind those who have not made their top-up before the deadline. The Government had also arranged for the old to use the existing savings in their CPF accounts for the top-up. But this still leaves out the poor who do not have the money for the top-up. What can we do to help these people? For example, can we allow the CCC to lend money from its welfare fund interest free for the top-up and this amount should be deducted from the respective individual CPF account and return to the welfare fund without infringing laws, such as the Money Lenders Act? This will enable the CCC to assist the needy residents without depleting its funds which can then be made available for other welfare purposes or the next round of top-ups.

Ms Braema Mathiaparanam: Sir, I see little relevance and, in fact, quite a bit of bureaucracy in the way we are trying to distribute the ERS shares to the elderly who are 65 and above. Again, some 84,000 have missed out and some of them cannot afford, like my other colleague has said earlier. I think if we factor in the volunteers' resource time as well as the administrative duties that go into trying to distribute the ERS shares, perhaps it would be good to review the original intent of why we embarked on this, which is to primarily give some top-ups back to the elderly, and just give it to them without the top-up itself.

On another note, I would also like to see if we can do something more for the old. We have a very small group of people who are 80 and above, who are destitute, who live in homes, or like the samsui women on their own, and I think we have no clear official record of how they have actually contributed to our society in the early days. I would hope that we can do something for them on National Day and make them feel good. It

Column: 1162

should not come from the community as a charity dollar, but from the State. And this is beyond the ERS so that they can really feel that they have been valued for all the contributions they have done to our country.

Government Subsidies

Dr John Chen Seow Phun: Sir, in the years ahead, as our nation rapidly progresses into the new era, there would be men who may become displaced due to structural unemployment. There must be adequate economic safety net to help these people, especially the older ones, who will find difficulty to retrain. As the need for more and more subsidies arises, our national budget will become stretched if we do not become more targeted and coordinated in our subsidy programmes. Sir, I would like to ask the Finance Minister, going forward, whether the Government will conduct an overall review on its subsidy programmes. Will means testing be extended to other subsidies, besides healthcare, to ensure that subsidies go to those who need help in order to optimise our resources for social assistance? And finally, will policy regarding S&C and utility rebates change in time to come?

Charity Status

Ms Braema Mathiaparanam: Sir, there are many groups appealing for donations for a variety of causes. Most Singaporeans and non-Singaporeans are very generous. In 2002, according to a Straits Times' article, $400 million was donated to non-profit organisations. It is good news that, the governance of the Institution of Public Character (IPC) has been formed with the primary objective of setting common standards of governance so that the donors would be more informed on how this money is used. My concern in raising this here pertains to the criteria used to assess which organisations are worthy of the charity

Column: 1163

status and how they go about raising money. I have checked on the website of the IPC which shows an exhaustive list that includes a diverse group, such as the Chinese Opera Society, EDB foreign university education fund, Eunos CCC education and welfare fund, Adventist Home for the Elders. While this diversity is good, because it shows that we respond to different needs, perhaps greater clarity is needed and needs to be shared with the public. I understand that there are 13 central fund schemes, such as the Health Endowment Fund, the Education Endowment Fund, and organisations that have similar objectives can come under this umbrella. Yet, we also have stand-alone organisations that do seek charity status. Sharing the criteria schemes will be useful to organisations that are in need of becoming a charity.

Lastly, when the Charity Bill was tabled for Second Reading by the then Finance Minister, Mr Hon Sui Sen, in 1982, one reservation raised by a Member of Parliament at that time was how can we limit the fund raising where the organisations are concerned. I raise this with respect to a recent newspaper report where the Independent Society of the Blind tried to raise money by tagging on its mailer to the Singapore Power bills. There is a loophole here in the sense that if the society went out into the streets, then it has to apply for a permit. But when you tag on to a mailer, there is no permit. So could there be greater clarity on how funds are raised and also on the criteria used for IPC status?

Charities

Mr Sin Boon Ann (Tampines): Sir, I share the sentiments expressed by my colleague earlier in relation to a call for greater clarification in relation to which monies are raised, and how these monies are spent. I understand that there is a council formed to look into this area.

Column: 1164

However, I think there is an absence of a definitive code like the one you have in relation to the conduct of directors in companies. Perhaps, if the Government could consider a stronger regulatory environment in relation to the governance of charities, guiding these charities in the way in which they raise monies, the way in which monies are spent and the way in which these monies may be held to be more accountable to people who dig deep into their pockets to fund some of these voluntary organisations.

The Second Minister for Finance (Mr Lim Hng Kiang): Sir, let me respond to the various issues raised. First, Mr Leong Horn Kee asked about the overall tax structure. I do not think there is any ideal long-term overall tax structure. I think we have to make the assessment as we go along, comparing the needs of our country together with our competitive position with other countries. What has happened over the last 10 years is that we have decided that there ought to be a better balance between the indirect and direct tax and therefore there has been a move since 1994 when we first introduced the GST to move the sharing between direct tax and indirect tax.

So over the last 10 years, the proportion has gradually moved from 60/40 to about 54/46 today. With the reduction in the 2% corporate income tax and when we eventually reach 20% personal income tax, then we expect the mix between direct and indirect tax to be closer to about 52/48 or 50/50. This fits our circumstances and we are very comfortable with this position. We think, overall, the tax burden on Singapore companies and Singapore individuals is light compared to other countries. If you look at Hong Kong, for example, the tax structure there is more heavily weighted on direct tax and the mix there is probably something more like 80/20, compared to our 54/46 because they do not have GST. Other countries, like Malaysia and Taiwan ,

Column: 1165

do have the equivalent of a sales tax, or GST, and therefore the balance is more on the indirect tax. So we do consider this situation regularly. As DPM said yesterday, we are very comfortable with our position today. We think we have a very simple and very effective tax regime. But we have to continuously monitor the situation and if indeed the circumstances require us to readjust, then we will have to readjust. DPM explained yesterday that if we have to readjust by lowering further the corporate income tax or the personal income tax, we will have to look for other sources of revenue. But this is something that we will address when we have to cross the bridge. Among the review that we have to do is, of course, to look at the other tax structures like the flat tax structure in Hong Kong , which the Member also described. Sir, I would like to assure Members that we will continue to review our situation.

The other point which the Member raised is whether we can extend the exemption of foreign sourced income from individuals to companies. I think Members are aware that for foreign sourced income received by companies, we exempted qualifying foreign sourced dividends, branch profits and service income at the last Budget. This exemption effectively covers 90% of total foreign sourced income remitted into Singapore . And for those other incomes which the companies do not have the exemption, they can continue to claim foreign tax credit for this foreign sourced income that is not covered by this exemption. The reason why we are reluctant to extend foreign sourced income to companies is because of the tax avoidance concerns. As you know, tax avoidance by companies in businesses is much easier through devices like transfer pricing and round tripping through jurisdictions with significantly lower tax rates in Singapore . So this is still a big

Column: 1166

concern and the tax loss through such a tax avoidance is a very significant amount. So that is the reason why we are reluctant to extend exemption of foreign sourced income from individuals to companies.

Mrs Lim Hwee Hua asked about corporate taxes and group relief. I think she also understands the reasons why we have to be initially cautious in our implementation of group relief and we start off by saying that this is extended to subsidiaries which are 75% owned by the parent company. She asked for this to be extended to 50% ownership. We have looked at other tax jurisdictions and 75% is already fairly competitive. But of course we will keep reviewing our situation and if we can do so, then of course we will be prepared to make it more generous and move it down to 50% ownership. But as at today, at 75% ownership, we are already fairly generous.

1.30 pm

The second rule is that these companies or subsidiaries should be registered or incorporated in Singapore . As you know, Singapore has a territorial and remittance

system. So, we tax income which is earned in Singapore and we tax foreign income only when it is remitted to Singapore. Foreign income is not taxed, unless it is remitted to Singapore. It goes to reason that if we do not tax the foreign income, then it will not be right to allow foreign losses to be allowed. If we do so, then of course we are subsidising foreign operations, compared to local ones. But we do agree with Mrs Lim Hwee Hua that we do want to encourage and facilitate our local companies to go abroad. The way we go about it is not through a general tax scheme like what Mrs Lim proposed, but more targeted incentives and grant schemes. Under this approach, we have several arrangements or facilities. For example, under the overseas investment

Column: 1167

incentive, an approved Singapore-based company can defer its income taxes due from its profitable operations in Singapore for two years, if its approved overseas investment incurs operating losses during the first three years of the investment. So, this is a direct benefit. In addition, IE Singapore administers other various schemes which encourage and facilitate companies to go abroad. Examples would be like the regionalisation finance schemes. This gives us the opportunity to be more targeted rather than a blanket arrangement.

Mr Inderjit Singh asked about the performance of NII. He described the returns as erratic. I would prefer to describe them as a little volatile over the last five years rather than erratic. But you notice that the NII has ranged from about $2 billion to $3 billion over the last five or six years. So, even in the most volatile financial situation that we have experienced since 1997/98, our NII has been around $2 billion to $3 billion. In the difficult years where there is low interest rate globally and where the global economic growth is low, then of course our returns are lower. This is because the NII, as you all know, is defined as the dividends, interest and other incomes that are received by the Government from investing of reserves and also interest on loans that the Government gives out. Then, we have to net off the expenses that we have to incur on the investments and also the debt servicing costs, ie, the interest that we have to pay out on the loans that we take.

So, if you look at this definition, you will notice that there is interest income and dividend income. The interest income would depend on the interest rates around the world. Dividend income would then depend on the performance of the global economy. If the global economy is doing well, companies are doing well, then of course profits are up and they will declare higher dividends. So, it is quite clear. For

Column: 1168

example, in 2001, when there was a global recession, our NII dropped to slightly below $2 billion. When we were budgetting for FY2003, we originally estimated an NII of $3 billion because we expected the global economy to recover. Unfortunately, because of the Iraqi war and the uncertainties, the global recovery in fact did not take place till the latter part of 2003. In addition, many big companies were intent on repairing their balance sheets and they were very conservative. So, even though the companies did well, the dividends policy was very conservative, and that is the reason why, instead of $3 billion, the NII came down to $2 billion.

Going forward, we think the global recovery is gaining traction and, as you can see, the results of the companies are doing well. Therefore, this year we projected the NII income to be around $2.3 billion. This is not very much different from the year 2000, where we managed to get $2.24 billion from our NII. Our projection for this fiscal year is the same as the year 2000, where Members will remember, the world economy was doing well, the stock market was doing well. So, it is not an under-projection of what we expect to receive this year.

Mr Inderjit Singh asked how is the performance compared to benchmarks. As you know, when we designate GIC and the various companies to invest the reserves, we also set for them international benchmarks like the MSCI and other benchmarks for bond funds. Compared to these benchmarks, our performance has been fairly good. But, basically, our overall philosophy in investing our reserves is a very prudent and conservative posture and, therefore, we cannot expect our returns to be very extraordinary. If we want returns to be extraordinary, then we have to take a higher risk and that, I think, is not the approach in investing our national reserves.

Column: 1169

Let me next turn to Dr John Chen's question on the tax on dividends. This was discussed a couple of years ago when we decided to move from the imputation system to the one-tier system. I think the reasons for having to make this move still remains today. If we have kept to the imputation system, we would have to have many, many very complex rules to make sure that the imputation system is correctly carried out and the companies would have been very greatly hampered in their approach. They would find difficulties in executing share buy-backs, share redemption, capital reduction. There will be higher compliance costs because, under the imputation system, we have to make sure that the dividends are issued out of income and not out of capital gains. We have to have all kinds of rules to prevent anti-dividend streaming provisions like dividends being targetted at people with much lower personal income tax than the average shareholders.

So, over the years, all these rules have accumulated, and the assessment from the business community is that we ought to go to a one-tier system. It is simpler, more direct, the compliance cost is lower and makes us more competitive. Hong Kong, for example, runs a one-tier system, and that is the reason why we have done so not so long ago. Of course, this affects certain groups, eg, the retirees, as Dr John Chen raised. But it is not true that we are taxing them twice. When the retirees pay GST, it is not paying out of savings. It is paying out of expenditure. So, when the retirees pay GST, they pay like every other Singaporean, ie, only when they spend on goods and services.

Let me next turn to the SRS. I think Dr Tan Boon Wan brought up a valid point, ie, what is the appropriate posture we should take with regard to the SRS? If we want to encourage people to set

Column: 1170

aside more money in the SRS, then of course we should not have any caps. On the other hand, if we are too generous with the SRS, then this is a very big tax advantage for wealthy individuals. So, our current posture is that we encourage Singaporeans to set aside money for retirement, but we use the CPF salary ceiling as the cap for such contributions, so that the tax advantages of such savings are limited or capped to the CPF salary ceiling. So, when the CPF salary ceiling was brought down, correspondingly the SRS ceiling caps were also brought down. But I think Dr Tan Boon Wan brought up a valid point. Beyond a certain level, if we keep tying these two together, then we will defeat the purpose of the SRS as a complementary or a supplementary scheme to the CPF. So, for the time being, since the reduction is not a very big one, it still makes sense to peg it, but we will have to examine this. It cannot be an automatic peg. In the end, we have to reach a balance, ie, how to encourage people to save more and at the same time not giving them such a big tax advantage in doing so. So, we will continuously review this linkage.

Mr Andy Gan suggested that we should target the tax collection from road taxes towards transport expenditure. As a general rule, it is not good financial management to pre-allocate tax collection to a particular purpose, because the chances are that resources will be misallocated. We collect taxes on cars primarily because we are a very compact urban city and we have to control the car population. So, the tax collection is for that purpose. On the other hand, we incur quite heavy expenditure both on road building and on mass transit systems, based on our assessments of the needs. I would like to assure Members that we will continue to spend appropriately when necessary on road building, on mass transit, to improve safety for pedestrians and to improve the

Column: 1171

entire traffic and pedestrian walkway system. But this should be assessed based on its own merits and not because we have collected "X" amount from road taxes and, therefore, all this money should be channelled to road construction.

This year, for example, the budget for the Ministry of Transport is in fact raised from $1.5 billion last year to $2.2 billion this year. So, because of the higher costs incurred, particularly through the construction of the Circle Line and the Kallang Expressway, the funding has gone up. Where there is merit, we will continue to support the building of such systems.

Let me now turn to foreign maid levies. Again, when Members look at certain tax schemes, I would appreciate it if they understand the purpose of the tax scheme. The foreign maid levy relief was put in place with the primary purpose of encouraging working mothers to return to the workforce. As you know, our labour force participation rate for women is not very high compared to the other OECD countries, and we do want to encourage working mothers to return to the workforce. So, the foreign maid levy relief was designed for that purpose, ie, to encourage the working mother to return to the workforce and, at the same time, we allow relief from the foreign maid levy. But when we start looking at this particular arrangement and you look at it from the objective of procreation or of looking after aged parents, then of course you will say that this is not adequate. But, for the other purposes, we have other schemes and arrangements for them. For procreation, for example, we have the Enhanced Child Relief, special tax rebates and the further tax rebates. For looking after aged parents, we have the Aged Parents Relief, which amounts to $5,000 per parent. If you have both parents living with you, you can claim a total parent relief of $10,000, which is much more than the foreign maid levy

Column: 1172

relief which is capped at $8,280. So, we have other schemes targetted or meant for other social objectives.

1.45 pm

But in this debate on marriage and procreation and since foreign maid levy has been raised as one of the 50-odd suggestions, my Committee will take a look at them. For the purposes that it was designed, it should have been appropriately named as "Working mothers' tax relief".

Next, let me turn to GST. Our approach to GST is that it should be a broad-based consumption tax and that it is not wise for us to differentiate between different groups of people. If we say that we should give exemption to the disabled, then I think another group could make an equally cogent case for exemption for education, exemption for babies and exemption for all different groups. In the end, we will end up with a very complicated GST system, like what we see in many countries. When we embarked on the GST in 1994, we did a very comprehensive study. We decided that in the long term, it is better to have a clean GST system, like what they have in New Zealand, rather than have a very complex system with all kinds of exemptions and then we have to constantly make rulings whether this exemption is allowable. For example, if milk for babies is exempted, we will have to differentiate milk for adults. We do not want to run into all these problems. It raises compliance cost. Our GST tax rate at 3% when we started, and 5% now, is very low and if we have all these exemptions and complications, the cost of administering the GST will be much higher.

Mr Ng Ser Miang put up a very persuasive case for sports organisations. Let me try and put it in a broader context. I think the problem arises because sports

Column: 1173

organisations are not defined as charitable organisations. We have less problems with the arts and cultural groups because many of them can be classified as charitable organisations and if they are registered as charities, and if 80% of the funds raised is used for the purpose for which they are set up, then they are exempt from tax. The problem is therefore not as comprehensive as Mr Ng painted out. I think it is more acute in the case of sports associations because the National Sports Associations do not qualify for charity registration. Notwithstanding that, we do take a fairly benign approach, for example, capital grants and donations from the public to sports organisations are not taxed. The basic problem which Mr Ng Ser Miang raised is that some of the other rules, for example, the 50% income rule, that 50% of income must come from members. This rule is necessary because we want to differentiate a business or an organisation that collects revenue by providing services to others, in which case, it is more akin to a business than an association meant for the benefit of its members. That is why we have the 50% rule.

The second rule is that only Government operating grants which are given to the sports associations are taxed. The way we see it is that the operating grant is treated similarly like revenue for the sports associations and, therefore, this is treated in the context of a revenue and is taxable.

Mr Ng Ser Miang brought up the point that sometimes, because of timing and prudence, these Government grants are not spent for a particular fiscal year and for us to tax it may encourage the sports associations to spend them just before the end of the financial year. For that particular aspect, I will get the Ministry officials to examine this and see whether

Column: 1174

they can come under the same rule as we do for the other Ministries.

Let me turn to the ERS raised by Ms Braema and Dr Tan Boon Wan. I think we have learnt from our first exercise. In this particular exercise, in fact, we do not require the elderly to put up the $50 top-up. All they need to do is sign the form authorising us to deduct $100 from this year's ERS, and that means they will qualify for this year's ERS as well as next year's ERS. It is a simple exercise. They just sign the form and we do not require them to put up the $50 cash. It is already a great improvement. The reason why we do want that act is to make sure that people are around to put up their hands and say that they do qualify for the money. As we discovered, out of the nearly 80,000 who did not qualify for the ERS this year, nearly 24,000 have invalid addresses. The bulk of these people with invalid addresses are people who left Singapore before the 1995 identity card conversion exercise. Many of these people could have died overseas. It is important for us, in going through this exercise, that we discover such situations. Otherwise, we would have been merrily paying out all this money and it has been collected by I do not know who. What we have done is the right thing.

But, at the same time, we are looking at all the various categories and if we can improve the implementation and make sure that those for which the ERS is targeted at, do receive the shares. Members will know that we have mounted a very big exercise by getting the grassroots leaders to visit the 1- and 2-room flats. We have reached out to the old folks, the long-stayers in the hospitals and in the nursing homes. We have reached out to those in the prisons. I think we have made a more concerted effort in this exercise. We are constantly reviewing our performance. For the next

Column: 1175

exercise next year, we hope that this number will be further brought down.

Ms Braema suggested recognising samsui women in the National Day Parade. I will pass that suggestion to MINDEF which is in charge of National Day parades.

Dr John Chen asked whether we will conduct an overall review of safety nets and Government subsidies. I think he has pointed out a very important challenge facing us. As the economy matures, as the population gets much older, we do need to constantly review our safety nets. I think that is what the DPM sets out to do in putting out the philosophy and the approach towards university education and healthcare expenditure because these are the two areas which will grow in the long-term.

On whether we will extend means testing beyond healthcare, we are increasingly doing so. In the many MCDS financial assistance schemes, these are all targeted. "Targeting" means that we need to do case management, we need to look at the situations of the people and see how deserving they are of the assistance. The more deserving cases will then be given higher assistance.

Finally, let me turn to charities. From the questions raised, clearly there is a need for us to explain our whole approach to charities. Let me just try to do so in a very quick way. There are two groups. The first group is charities where the income is exempted from income tax. Then there is another group called the Institutions of Public Character where the donations are exempted from income tax or they get double tax deduction. We have many organisations which are registered as charities. We have about 1,600 registered charities. The Commissioner of Charities, when he accepts a particular organisation as a

Column: 1176

charity, has certain rules, ie, the objective is charitable purposes, 80% of the income should be spent on the purposes that are set out, their charity is meant for Singaporeans and not for overseas because we do not want organisations to be set up in Singapore, raise funds and then remit the funds overseas. There are certain rules put in place by the Commissioner of Charities. I take the Member's point that we should review the regulations on how charities are allowed to raise funds and how these funds are spent, that there should be better transparency so that people who donate to these charities can be assured that their money is put to the right purpose. This is what we are progressively trying to do. The starting point is to insist that they put up their accounts on the Internet so that anybody who wants to donate to these charities can look at their past years' accounts and see how they have spent the money.

When it comes to the next group of institutions, called the Institutions of Public Character, I think this group comes under a stricter regime because the donations enjoy double tax deductions. The way we go about it is to set up a framework so that not just IRAS confers this IPC status but, in fact, we have 11 central fund administrators, each for different sectors, whether for the arts, for sports, for community service, etc, because these fund administrators understand the sectoral demands much better than IRAS. This is how we administer the IPC regime. The council that we recently started - the Council on Governance for the IPC - again, it is meant to look after the IPC. But we will not stop there. Once we set out the rules of governance for the IPC, we will be in a better position to see what part of these rules is also appropriate for the charities. Then we will progressively extend these rules of governance to the charities as well.

Column: 1177

I take in Mr Sin Boon Ann's point that there ought to be a code of governance and we are progressing along that path. The council will set out the rules and we will implement these rules first for the IPCs and increasingly, where these rules are relevant, we will be able to codify these for the other group of charities.

Sir, I think I have answered all the questions.

Ms Braema Mathiaparanam: Sir, may I clarify? What I meant about the old people was not that they should take part in the National Day Parade. That will be too taxing on them. Rather, we should create some kind of scheme as a National Day recognition for their contributions.

Mr Leong Horn Kee: The Minister did not answer my question, which is on the new tax relief for individuals who top up the non-working spouses who are 55 years and above. I would like to ask whether it can be earlier so that they can have an earlier top-up and more cash accumulation.

2.00 pm

Mr Lim Hng Kiang: My apologies. I missed that out. I think that is a good suggestion. As you know, the way the Government proceeds is when we introduce a scheme we start off reasonably conservatively. We see how it goes and, if there are merits for extending the scheme we will look at it. So I will take in his suggestion and pass it on to my staff.

As to whether to recognise and designate a special day for the samsui women, I think that is something that we have to study very carefully.

Column: 1178

Government-Linked Companies

Mr Leong Horn Kee: Sir, DPM Lee has announced that about 80 GLCs have been identified to be divested in his Budget round-up speech. I am glad to hear that. My GPC colleague, Mr Inderjit Singh and I have said many times in this House that GLCs, TLCs and NLCs - I am referring to NTUC-linked companies - do occupy part of the business space in Singapore.

Singapore is already a very small market. The competition from GLCs has a severe impact on the operational and business opportunities left for local SMEs. If we wish to see private enterprise as the engine of growth in the future, then more business space should be given to the private sector. Hence, I would like to hear more details on the Government's plan to divest the non-strategic business of the GLCs. During the divestment process, I would particularly like to see opportunities given to Management Buy-Outs (MBOs) or Management Buy-Ins (MBIs) which is to participate with external investors. In this way we can encourage GLC management to start businesses on their own through participation in the divested GLCs. It will also create a larger pool of local entrepreneurs in future. GLCs are larger and stronger and well-placed to compete overseas. They help to develop the external wing. This is a very important charter of the GLCs. There have been many suggestions in the past that GLCs can lead and work with local SMEs in jointly working together to vie for overseas businesses and contracts. Sir, I feel this way the GLCs can also play a useful role in cooperation with SMEs.

Mr Inderjit Singh: Sir, I hope that the Minister for Finance would bear with me for bringing this up repeatedly, but I think the issue is that it remains a source of concern not just for Singaporeans and Singapore companies, but also, as we

Column: 1179

saw it, when we were discussing or negotiating the FTA with the USA. This was a big source of concern for USA too in concluding the FTA. In fact, it was left as one of the last thing to be resolved. So, therefore, it does say that the perception out there is that we have not done a lot of work particularly in the area of divestment of the GLCs or TLCs and, therefore, I was quite glad to note that, if I am not wrong, DPM mentioned that there were about 90 companies like that identified for divestment.

I would like to suggest that the Government provide a strong push to accelerate the overseeing of this divestment activities for the reasons that Mr Leong Horn Kee just mentioned. The approach that we have been taking right now is to leave it to the Government agencies and also leave it to Temasek. I think this is the area where I would ask for Government's more dominant role as opposed to lesser role in other areas. I also suggested last year that we create competition for Temasek. While recently we have heard Temasek revealing some of its results, the question is: how does it compare benchmark performances elsewhere? In this respect, perhaps an alternative to divestments could be creating more vehicles like Temasek - maybe not 100% Government-owned, but joint ventures with private funds that could provide some competition for Temasek.

The third area is in the area of prompt payment. The Action Crucible for Financing, which I am chairing, which is part of ACE, has worked on this one item of trying to improve cash flow among SMES. And we identified that prompt payment by bigger companies is an issue for SMEs. In this respect, the Minister for Finance has done an excellent job in sending a directive to all Government agencies to pay promptly. I would like to see whether we could find a way to also encourage TLCs and Government-linked

Column: 1180

companies to become the leaders in prompt payment in the private sector. This will go a long way in helping the cash-flow issues that our SMEs are facing.

The Chairman: Mr Ong Kian Min is not here. Mr Chandra Mohan is also not here.

Corporate Compliance Costs ****

Mrs Lim Hwee Hua: Sir, the Accounting and Corporate Regulatory Authority (ACRA) was recently established, combining the Registry of Companies and the Public Accountants Board into one single body. The aim is to achieve synergy between the monitoring of companies' compliance with disclosure requirements, as well as the regulation of public accountants performing statutory audit.

Sir, as a self-funding statutory board, ACRA is obliged to raise its own funds through the provision of its services as it would not depend on the MOF for any grants. It will have to use its own accumulated surpluses to finance its own operations as well as development projects. I note that while Government-funded statutory boards are not to make any profits from the fees and charges they impose, self-funded statutory boards like ACRA are not similarly obliged to do so. In theory, they are expected to use market rates to determine the fees and charges. But ACRA is essentially a monopoly, so it has been suggested that its rates must be competitive with those in other countries. For example, company registration fees were recently reduced from $1,300 to $300 in order to be commensurate with the rates of other countries. However, Sir, for many years this was not the case and it was not corrected.

I would therefore like to ask the Minister for Finance, if, firstly it might be

Column: 1181

prudent to prescribe certain minimum standards of service to be delivered by ACRA, as really companies have no alternative service provider. Secondly, whether MOF would annually review the rates and charges imposed to see if they are excessive. Thirdly, whether MOF could periodically review the surpluses of ACRA, again, to see if they are excessive. And, if so, if the cost of its services can be lowered. Finally, if there are checks and balances against excessive compliance related costs given the self-funding nature and monopoly of ACRA in the provision of such services.

Corporate and Accounting Scandals

Mr Steve Chia Kiah Hong: Sir, as Singapore aims to become the financial centre of Asia, we must have rules and processes that ensure greater accountability and transparency of corporate activities, especially those of GLCs and public companies listed on the Stock Exchange of Singapore. I propose the Government should look into enacting the equivalent of a Sarbanes-Oxley Act like in the United States. This is to ensure that management undertakes personal responsibility for establishing and maintaining an adequate control structure and procedures for financial reporting. We must ensure that large-scale corporate and accounting scandals like Enron, Tyco and Worldcom, etc, involving any of our listed companies cannot and must not be allowed to take place here.

Under such an Act, auditors are required to certify not only the company's financial statements but also the financial processes that produced those statements. This means that auditors must fully understand these processes and believe that they have been executed without variance. All public companies listed on the Stock Exchange (SGX) must

Column: 1182

also have a compliant reporting mechanism in place that allows employees to report, whether anonymously and confidentially or otherwise, questionable accounting practices, financial misconduct, or suspected illegal activities, directly to the company's audit committee or other company management who has the authority to investigate and discover misconduct or to terminate other employees for such misconduct.

Sir, doing everything possible to identify suspected fraud, accounting abuses or other illegal acts not only prevents problems from escalating into legal action, it will also minimise the damage when such illegal acts occur. This should not be just a matter of good business practice, it should be part of the law of our land to safeguard the public and the investors from the greed of unscrupulous management and CEOs.

Totalisator Board

Mr Ngiam Tong Dow, our former top civil servant, in a recent public speech, said BG Yeo, as MITA Minister appealed to the Prime Minister concerning the funding for the Esplanade project. The public is now informed that the Prime Minister then decided to bypass official protocol and procedure and decided that the Totalisator Board should finance the capital expenditure of the Esplanade outside the budget, below the line.

I would like to ask the Finance Minister:

(1) How can the Prime Minister decide on such a matter, considering that he is not in the Ministry of Finance, nor a member of the Totalisator Board?

(2) Has the Prime Minister over-stepped his power, position and authority in deciding on this financing matter?

Column: 1183

(3) Is there genuine transparency and proper accountability from the distinguished board when external influences are brought to affect its decision-making process and expenses, considering especially that the board in effect is acting as an agent of the Ministry of Finance? Its revenue was to be credited to MOF at the end of the financial year.

(4) How can such a large expenditure of about $500 million be approved by the decision of one person without passing through Parliament?

I hope the Finance Minister can give us a satisfactory explanation of the questions.

Statutory Boards

* *Mrs Lim Hwee Hua: Sir, over the years, companies have become increasingly alive to the notion on the cost of capital and the return on capital. In the case of Singapore, where we do not have natural resources, and where we need to undertake capital-intensive infrastructural projects, it is only appropriate that the public sector operates on a similar mentality as well. Of course, there is a challenge in terms of measuring the return on capital, as it is frequently for the public good, which may defy any attempt to quantify the benefit. For example, beyond deciding that an expressway is required, how does the Government fund the construction? Previously, this was entirely cash. Now, perhaps bonds can be part of the equation.

Take another example: how does a statutory board decide if it should construct its own building or continue to rent? If there is a notion of capital, the discussion will no longer centre on a one-off development expenditure item, which draws heavily on capital, but a recurrent expenditure.

Column: 1184

It is thus commendable that the Ministry of Finance has addressed this need. I understand that the Ministry has raised this consciousness amongst statutory boards by, firstly, introducing a notion of capital injection similar to shareholders' funds; secondly, encouraging statutory boards to source for alternative funds such as issuing bonds to the public; and thirdly, imposing a value-add consideration when evaluating performance.

I would like to ask the Minister for the status of this capitalisation exercise, and his assessment of the results thus far, in terms of internalising a profit-and-loss discipline, a curbing of potential wastefulness and the measurement of statutory boards' effectiveness.

Government Procurement Policies

Sir, the Government seeks to achieve an open, fair, transparent and competitive system through well-defined procurement policies. There is no quarrel with such prudence.

I am also heartened to hear the DPM recount yesterday the volume of tenders which has been secured by the SMEs. This is indeed encouraging.

However, there is still feedback that the requirements as imposed by the Government departments are often-times the main hindrance to more participation by smaller suppliers, rather than the need to compete with the larger suppliers. For example, some contracts require a minimum level of capitalisation by the service provider, well in excess of what is reasonable for the services to be tendered for. And worse still, evaluators themselves may favour the better-capitalised companies for greater comfort or insurance against default or failure.

Column: 1185

Yet others require a track record of a certain length. These impositions are sometimes so overly stringent as to preclude the smaller suppliers from having a fair chance. As we know, if you are never allowed to build up a track record, how can you ever have a track record in order to qualify?

Hence, my question to the Minister for Finance is one of asking him if, firstly, he could ensure that the bar is not pushed up unduly high by overly conservative requirements, and secondly, that he will advise all Government agencies to review their procurement requirements so as not to unwittingly favour the larger suppliers. In short, set the bar at the right level. The SMEs are not asking for a lopsided bar.

2.15 pm

Mr Lim Hng Kiang: First, on the questions of Government-linked companies. In his Budget speech, DPM

gave an Annex of the companies that Temasek has divested its stakes, a total of 12 companies in 2003.

In his round-up speech, the DPM explained the process that the MOF has undertaken to review Government-owned companies. We have asked all the Ministries and statutory boards in Government to look at the companies that they have set up within their control, and to review them and see whether such companies should continue or should be divested, etc. Although this exercise is still on-going, we have already identified 80 companies which we will scrutinise in greater detail and we will ask the Ministries to justify why these companies should be retained.

Let me clarify that these 80 companies are not GLCs under Temasek.

Column: 1186

These companies have been set up by the Ministries and the statutory boards.

On the oversight of Temasek, we have discussed and debated this many times in this House over the last few years. We have set out the Charter for Temasek. We have set out the benchmarks. I think if Members look at Temasek, we can look at it in different categories.

The first category is those companies which are strategic to Singapore for which the Government will continue to have an interest. The role of Temasek in such companies is really to maintain a stewardship role. As Members would know, many of these companies are listed on the Stock Exchange of Singapore. They all have their separate boards. They all have their separate managements. And it is not the role of Temasek to micro-manage these companies or to run these companies. Basically, Temasek just maintains a stewardship role and make sure that the shareholders' interest, ie, MOF's interest, is well looked after.

There is a separate mission for Temasek and that is to grow our companies into regional and international companies. This is very important for Singapore in the long term, and this is where the energies of Temasek are currently directed.

So, when we look at the divestment process of Temasek, I think it is going at a good pace. All those companies which are not strategic or do not have the potential to grow into regional or international companies, Temasek would eventually divest them. I think Temasek would do so as and when the market is right. I do not think it is correct for us to set them a schedule or to identify these companies and give a very strict deadline, because that will not be the right way to get the best fair value for Government in divesting these companies.

Column: 1187

On the approach for the divestment, again, we will leave it to Temasek and to the market, whether it is through management buy-outs or buy-ins. I think we will find the best method to make sure there is a strong management to run the company after it has been divested, and to make sure that we have fair value for the divestment process.

Mr Leong Horn Kee proposed that the GLCs work with the SMEs in overseas ventures. Again, this is indeed what Temasek is doing. But I would urge that this be done on a commercial basis. We all agree that there is value in partnerships between GLCs and the SMEs, but this should not be national service. It is best that Temasek goes about its mission with a clear mandate, and that if we want to do national service, this be done as we are currently doing by Government agencies - the EDB, SPRING and IE Singapore. Temasek should just be given the task to run the companies on a commercial basis.

Mr Inderjit Singh proposed a competition for Temasek, and suggested that we create more vehicles like Temasek. I think we have enough problems with many Members here with one holding company. If we create more holding companies, there will be more accusations that we are elbowing the private sector in the market.

To put this in perspective, the entire GLCs and Temasek-linked companies constitute only 13% of our GDP. So, it is not that Temasek companies take up such a big segment of the GDP. Our GDP is largely generated by multi-national companies. They constitute 42% of GDP. The entire Temasek GLC stable only provides 13% of the GDP. So it is not true to say that Temasek is crowding out the private sector. I think there is a role for the MNCs. There is also a role for the big companies, of which Temasek is a part, and there is also a role for the SMEs.

Column: 1188

In fact, the SMEs are a very significant group in terms of employment and also in terms of GDP generation.

Sir, as I explained earlier, the running of the companies in Temasek is done by the various individual companies, and not by the holding structure in Temasek. So there is very little value in creating more vehicles.

Mr Inderjit Singh also requested that the bigger companies undertake prompt payment as a way of helping out the SMEs. I think that is a fair request based on commercial terms. If the contract calls for payment by 90 days, then I think the companies ought to abide by the contract and pay by 90 days. There is no reason for them to use their muscle and delay payments. I think that is good corporate practice.

Mrs Lim Hwee Hua raised the issue of ACRA. As a starting point, we do not see a need to provide operating grants to ACRA, and that is the reason why ACRA is set up as a self-financing statutory board, meaning that ACRA should be able to finance its activities through cost recovery of the services that it provides. As Mrs Lim Hwee Hua pointed out, in fact, the company registration fees have come down. She suggested several things that we can do to make sure that ACRA does not become a monopoly and raise fees and increase the cost for the business community.

First of all, I would like to explain that the regulatory fees put up by ACRA will need to get the approval from the Ministry of Finance. So there is check and balance. The other suggestion that she pointed out is that there should be an annual review of these rates. I think we can do that. There should be periodical review of the surpluses and that there should not be excessive compliance cost. I think MOF will do all these as the parent Ministry supervising ACRA. But more

Column: 1189

importantly, is that the mindset of the management of ACRA is aligned in that way. The board of directors of ACRA will include members from the business community and members from the private sector. At this level, the board can oversee the management and make sure that we do not have excessive compliance cost and that the business community's inputs about best practices are incorporated. And if there are any surpluses by the board, that these are not excessive and do not accumulate over time. I think we have in place sufficient checks and balance for ACRA.

Mr Steve Chia suggested that we annex something akin to the Sarbanes-Oxley Act. Let me assure the House that most of what is in the Sarbanes-Oxley Act are actually available in Singapore . We have a variety of checks and requirements aimed at ensuring accountability and transparency. But these are not all in one Act. They are in different Acts. Currently, they serve our purposes adequately.

As for the implementation of the Sarbanes-Oxley Act it is still early days. If you talk to different groups of people, not everyone thinks that that is the best legislation to go about ensuring best governance. But we will monitor the implementation of that Act. ACRA will look at the Act as well as the practices and, together with the business community, we will see whether elements of that Act are applicable to Singapore . So we are not ruling it out, but we have not come to the conclusion that that is the best model for us. The verdict is still not there yet.

Whether we should have safeguards for corporate whistle blowers, which is one of the key features in the Sarbanes-Oxley Act, I think this is something that we also have to study very carefully.

Column: 1190

Mr Steve Chia also asked about the funding of the Esplanade and the version given by Mr Ngiam Tong Dow. Let me just explain that Mr Ngiam is a very respected ex-civil servant. But sometimes his recollection of what happened may not be totally correct. It is like being an ex-SAF officer, many times we gather together over beer. We talk about old times and relate what we call war stories. As you get older, the war stories add more colour.

What actually happened was that in June 1991 - and this was way back in 1991 - Cabinet approved the construction of the Singapore Arts Centre, the old name of the Esplanade, at an estimated cost of $780 million. That was a big decision made by Cabinet. As you know, the Government makes its decision at several levels. First, the Cabinet gives its in-principle approval. Then we have the DPC Committee which looks at the project proposal and see whether the funding is appropriate. The project funding came up to the DPC in May 1994. The DPC Ministers approved a lower sum of $623 million for the Arts Centre. But the Minister for Finance then felt that this is a big sum to be funded on budget. So he tasked the MOF's staff to look into other ways of financing such a project. The staff had several meetings - MOF staff, MITA staff, Totalisator Board and Singapore Pools - and they came up with different ideas, like financing the Esplanade through a special lottery. They tried to think of different ways of raising the funds. So, everybody was in it - the Totalisator Board, Singapore Pools - how to go about building the Esplanade.

In July 1994, MOF put up a paper to Cabinet and recommended that the Esplanade be built in phases, and not in one big go, so as to stage the expenditure. That was agreed to by Cabinet. Subsequently, PM met BG George Yeo and they discussed how this

Column: 1191

should be implemented after the Cabinet's decision. So, based on this record of what happened, that we pulled together from our files, I think Members can see that the procedures were followed. There was a Cabinet's decision, DPC's decision and then it went back to Cabinet to see how it could be implemented. We are all very happy that the Esplanade has been built. The way to fund it through the Totalisator Board and the Singapore Pools was an appropriate way of funding, because these agencies have the mission of funding the arts, sports, community services, charities, etc. Because it was a big sum, we had to bring in both the Singapore Pools and the Totalisator Board in this exercise.

2.30 pm

Mrs Lim asked about the running of the statutory boards and how they can have a better sense of profit and loss discipline, and that they understand the use of capital more appropriately. This is a big challenge for us in the public sector. Even though we

set up the statutory boards to try and run them as close to private companies as possible, sometimes, as Mrs Lim Hwee Hua herself put it, it is very difficult to measure profits, revenue or return on capital. But this is something that we are constantly trying to do, to come up with proxy performance indicators which resemble private sector norms and private sector parameters as closely as possible.

So on this use of capital, in the past, what would be done was the Government would give a grant to the statutory boards and that may not be the best way to inject discipline. So what we have done is we have introduced debt equity financing structure for statutory boards, instead of just financing them only through the grant. So by injecting capital into the statutory boards, either as equity or as debt, I think the management and

Column: 1192

the board of directors will be more aware of the cost of capital and also on the efficient use of capital. So far, we have done so for the Singapore Land Authority and this makes the SLA the second statutory board to have equity after the Monetary Authority of Singapore (MAS). And we have plans to inject capital into other statutory boards when there are major investments justifying such injections.

I think with such a measure, of course, the statutory boards would be under greater pressure to make use of the capital appropriately and they will also realise that there is a cost to capital. If they raise capital through bonds, I think that cost will be very clear to them too. We have had other exercises to try and inject this concept of value-add. The private sector has EVA, in the public sector, we modify the concept through the NEV. Again, the exercise is part of the ongoing process of getting the public sector to work more like the private sector and to understand how their performance will be measured.

Next, let me turn to Government procurement policies. Our procurement objective is straightforward. We want to get the best value for money through an open and transparent procurement system that is competitive. The objective is clear. The problem is how to get there and how to strike the right balance. As they say, the devil is in the details. And many times, if Government agencies do not specify their requirements properly, they may be tilted in favour of a specific established vendor, or they may be tilted in favour of the bigger player. So it is very important that when Government agencies specify their requirements, based totally on their needs, bottoms-up, and these specifications of the tender must be generic, they must be performance-related and they must not be tilted towards a certain product, or certain vendors.

Column: 1193

Mrs Lim Hwee Hua also raised the issue of the minimum level of capital required for the suppliers and also their track records. Here, we have to strike a balance. I think as a purchaser, you want to have some confidence that whoever succeeds in the tender can deliver the products on time and according to the price. To do so, you want the company to have some capital basis. At the same time, they must have some track records so that it gives you confidence. So where do we draw the line? We will have to constantly review this to make sure that the bar we set is not unrealistic. Realistically, what will happen is that the smaller companies would have to start with the smaller contracts and they will build up their track record and credentials, and then they go on to bigger and bigger contracts. That must be the way they have to go. I think there is no short cut. What we are trying to do is to make sure that we do not impose unnecessary hurdles in their progression up this ladder.

The Chairman: Order. I would like to take the break now.

Thereupon Mr Speaker left the Chair of the Committee and took the Chair of the House.

Mr Speaker: Order. I suspend the Sitting and will take the Chair again at 2.55 pm.

Sitting accordingly suspended

at 2.35 pm until 2.55 pm.

_Sitting resumed at 2.55 pm _

[Mr Speaker in the Chair]

Debate in Committee of Supply resumed.

[Mr Speaker in the Chair]

Head M (cont.) -

Column: 1194

Banking Sector

Mr Leong Horn Kee: Sir, I would like to ask the Minister for Finance for his views on the current state of the consolidation and merger of local banks. Now, we are left with three major local banks. There is a constant market rumour that one bank is waiting to be acquired by another. Finally, we could be left with only two large local banks. There is a genuine concern that the reduction to only three, and eventually maybe two, local banks does restrict the number of banks that local businessmen and individuals can approach for loans and other banking services. Imagine if you are down to two local banks, if one bank rejects your loan, you are at the mercy of the other. In the past, a company needing a business loan, or an individual needing a housing loan could approach five to six local banks and a large number of finance houses. Now, there are only three local banks and a small number of finance houses to go to. Getting a loan seems more difficult nowadays, especially for SMEs.

It is often quoted that Switzerland has also only two large banks, that is, the UBS and Swiss Bank Corporation (SBC). However, we know that Switzerland has many provincial and cantonale banks as well. Yes, in Singapore , there are many foreign large banks which are given full banking licences.

However, these foreign banks do not cater to small businesses and individuals. Their sights are set at the large clients. Moreover, our experience is that foreign banks tend to be fair weather friends. During rainy days, they are more likely than not to take away their umbrellas. Not the fault of their local management business, as the pressure is often exerted by the overseas headquarters. This is indeed the experience of many Singapore companies during the Asian financial crisis. Foreign banks are amongst the

Column: 1195

first to pull their loans during that difficult financial period.

Sir, therefore, I would like to ask the Minister for Finance what are the impact of the local banks consolidation and his Ministry's plans to ensure that both local and foreign banks here cater for the small SMEs and individuals.

Mrs Lim Hwee Hua: Sir, as Mr Leong Horn Kee has elaborated, the banking sector in Singapore has undergone extensive consolidation and restructuring over the past few years. Banks have merged and many have folded their finance operations into the banks proper. We now have fewer and hopefully better placed financial institutions with the scale to compete globally.

Coinciding with the consolidation within the financial services sector is the economic downturn. Thus, risk assessment has sharpened and the risk appetite checked by business failure. The plight of the smaller borrowers, including the SMEs, is one of a double whammy effect. SMEs figure less in the larger banks' radar screens. A company which used to have credit with two merging banks finds out very quickly that, upon merger, its total credit is not the aggregate, but a much smaller number. The principle of single borrowing limits may have been applied a little more stringently to the smaller borrowers. The second whammy comes in the form of assessed higher risk, and therefore a reduced amount of credit again. The consequence is one of tightening cashflow,

and some may have been prematurely decimated as a result of reduced credit, and not necessarily bad business.

3.00 pm

Thus, the SMEs are not simply asking for new support for entrepreneurial initiatives. They are really seeking some respite from a structural change, ie, the

Column: 1196

consolidation, as well as from the cyclical effect, ie, the downturn.

As the structural change is permanent, I would like to ask the Minister for Finance to review the whole concept of risk-sharing financial assistance for the SMEs, with a view to closing this gap arising from the consolidation. It would appear that the banks are not so keen on this form of lending.

Small Business Banking

Mr Inderjit Singh: Sir, I can understand the Government's move to compel the local banks to merge to allow them to compete with the more liberalised and globalised financial sector. It was the right move to create one or two local banks which can become global banks, headquartered in Singapore. However, the unintended effect, as my colleagues have mentioned, is the reduction of options for our companies operating out of Singapore. I am sure that having big local banks and having small banks in Singapore are not mutually exclusive outcomes. I, therefore, would like to ask the Minister to consider the following suggestions:

First of all, make it easier for smaller banks to be set up in Singapore by making the licensing more liberal and by reducing the costs involved. I was told that in the Silicon Valley, banking licences are a dime a dozen, which means it is quite easy to get those licences, and it is up to the private companies to take the risk to decide whether they will be viable or not. Therefore, while we continue to promote big banks, why not allow smaller banks which feel that they can set up base in Singapore to do so?

Secondly, perhaps MAS can give greater flexibility to some of our local finance companies to operate as limited banks. Many of these finance companies are already significant lenders, but there

Column: 1197

are still too many restrictions which make it difficult for such finance companies to service a wider group of companies. For example, can finance companies be allowed to operate checking accounts with the clients that they are already lending money to? The intent here is that the finance company will have the possibility of monitoring the finances of the company and, therefore, give them more confidence in lending to these companies.

Sir, thirdly, the Minister for Finance talked about the benefits or incentives for asset securitisation. I have been working on this project, and I would like to ask the Minister to help clear any legislative restrictions or any impediments that may arise, because I think this form of financing will actually create virtual banks for us here in Singapore, and they will open up many more opportunities for local companies to raise financing.

Banking

Mr Chandra Mohan K Nair (Nominated Member): Sir, I would like to talk on banking and sharing of wealth in Singapore.

The issue of a bank licence in Singapore by the Monetary Authority of Singapore is done, I am sure, with great care. Very few people benefit as directors of companies issued with bank licences and, as indicated earlier, there are very few in Singapore with a bank licence that is local. No doubt, there are market forces, and it is left to individuals to be directors of banks and, very often, we find quite a lot of family members of certain banks where there is a continuous flow of these members coming into the picture.

I would like to suggest, Sir, whilst directors of banks may remain directors

Column: 1198

for a long time, there should be some sort of rule or regulation regulating the number of years a person can be a director of a bank so that there is a spread of directorship and, therefore, the spread of wealth amongst citizens of Singapore. Some of these directors may remain for decades. Is that fair when there is the issue of licence being issued by the state to a restricted number of companies? Therefore, it is very difficult for ordinary people to gain an access into directorships of banks. They may be shareholders, and that is the other issue I would like to raise, ie, the issue of shareholding amongst individuals and citizens in Singapore, whether there should be a cap on the number of shares that can be held by directors of companies owning banks, so that there would be a spread of wealth in the form of the spread of shareholdings amongst citizens. Very often, we find in banks that the major shareholders are actually the directors of banks. Therefore, if this can be looked into so that there is a better spread of wealth, it is something our citizens would appreciate. It may be a difficult task, but it is something perhaps we can consider and come out with some guidelines.

Consumer Protection

Mr Yeo Guat Kwang (Aljunied): Sir, the number of complaints against financial institutions has increased drastically over the years. According to the Consumers Association of Singapore's records, the number of complaints related to financial services were 221 in 2001, 497 in 2002 and, in 2003, the number had gone up to 1,915, of which 40% are complaints related to the "critical year" issue. There is also the issue about pressure selling of investment instruments by banks to consumers who are clearly not in a position to protect their interest when they put money in such investments. Consumers also complained about the high interest rates charged on outstanding balances in credit card accounts, and the

Column: 1199

cartel-like manner in which banks seem to come together to support one another to maintain the interest at 24% a year when all the other financial borrowings incurred annual interest rates of less than 5%.

All the above issues were highlighted quite prominently in the local media, and consumers were quite concerned that such unfair practices were allowed to perpetuate. The general perception is that the authority is not taking action against the institutions concerned or the agents flouting the rules. For example, the public perceived that MAS took a low profile in the initial stage of the "critical year" issue and came out with an advisory only subsequently. This led to the public perception that the authority is taking such issues lightly and prefers to leave the matter to the market players to sort it out. To the consumers, they believe that the market players will drag their feet to rectify the unfair practices at the expense of consumers' interest.

I think the MAS needs to clarify its role in addressing lapses in the financial marketplace and in consumer protection. The public will prefer that the MAS be more visible as a regulator.

Sir, I am glad that the insurance industry has put in place Insurance Dispute Resolution Organisation (IDRO), which is an alternative available to all consumers to take their problems to. IDRO has enjoyed a good image among consumers. It is generally perceived to be impartial and will deal with insurance disputes fairly. This is because IDRO has tripartite representation and policies in IDRO are made clear to the various stakeholders. I understand that, to date, IDRO has handled more than 400 cases, and the resolution rate is 100%. It is very encouraging.

On the other hand, however, for the banking sector -

Column: 1200

The Chairman: Mr Yeo Guat Kwang, can you wind up your speech, please?

Mr Yeo Guat Kwang: - consumers perceive that there is no clear dispute mechanism, and would like to know whether MAS will facilitate the industry to strengthen its dispute resolution mechanism in the banking sector.

Credit System

Dr Chong Weng Chiew (Tanjong Pagar): Sir, currently, for overseas purchases using credit cards, the banks convert the foreign currency purchases into Singapore dollar at an exchange rate they decide and charge the Singapore dollar amount to the account holder. They are not obligated to disclose the basis of the selected exchange rate nor fees added by the bank, Visa or MasterCard. This violates the very principle of fair transaction. I am not against the charging of fees, but consumers have the right to know the basis of the calculation of the cost before, and definitely not after, the using of the credit cards.

A Straits Times' reader last year compared this to "hopping into a cab and enquiring about the fare ... and being told that all charges vary daily and they cannot be disclosed to you until after you have arrived at your destination ... If cabbies cannot get away with such non-disclosure, why should banks be allowed to?"

Visa International and MasterCard were taken to task over this in America, Canada, United Kingdom and Australia last year. In the US last year, a California judge had ordered Visa and MasterCard to refund US$800 million in fees charged to customers. He ruled that they should better disclose conversion fees in the future.

Column: 1201

As a leading financial centre, it behoves our financial institutions to be transparent and accountable in all their transactions. May I thus recommend that, in the interests of our reputation and to protect our consumers, the credit card issuers in Singapore be required to state clearly and unambiguously the basis of the selected exchange rates used and the details of any additional fees charged.

Mr Lim Hng Kiang: Sir, Mr Leong Horn Kee asked about the current state of consolidation of the local banks. In 1999, MAS introduced a 5-year programme to liberalise access by foreign banks to Singapore's domestic banking market. We realise that we have to open up the domestic banking market and we are doing so gradually, so as to give the opportunity for our local banks to consolidate and build up their capacity to face this competition. The idea is that, through competition, our local banks would grow and develop and be strengthened, and that we will provide Singaporeans with higher quality banking services and build up Singapore as an international financial centre.

Our local banks have responded well to this change. They have been building up their capabilities, and they have been seeking opportunities to expand their presence in the region. So, what used to be five local banking groups have now become three larger ones. Any further consolidation would be a decision for the banks and their shareholders to make, taking into account the evolving comparative environment in which they operate. MAS will continue to monitor the progress made by our local banks before considering further liberalisation measures.

Mr Leong Horn Kee also raised the difficulties that SMEs and small depositors face because of this consolidation

Column: 1202

process. Singapore is a significant financial centre. We have altogether 580 local and foreign financial institutions offering a wide range of financial products and services. At the same time, SMEs constitute a wide spectrum. There are start-ups which do not have access to some of these financial services. At the same time, there are very well established, very capable SMEs which enjoy this full range of financial services, like trade and project financing, loans, etc, or they can tap the capital markets for their financial requirements. So, our job is to try and build up the full capacity and the facilities provided by the financial sector, and then leave it to the SMEs to tap into whichever services or facilities that best meet their needs. It is not true that the consolidated banks and the foreign banks go for big companies and not the small SMEs. You will know from the market that a few of the foreign banks in fact target the SMEs as a very important business clientele.

As for small depositors, Members will remember that the Association of Banks in Singapore (ABS) introduced the Basic Bank Account (BBA) package in December 2002. This Basic Bank Account sets out a minimum package of banking services, and eight major retail banks in Singapore are committed to provide such services to small depositors and, out of these eight banks, the foreign banks are also represented. So, it is not true that the foreign banks do not provide services to the SMEs or the small depositors. But we do realise that a segment of the SMEs may have difficulty accessing the financial sector for their funding needs, and this is where the Government comes in with a wide range of financing facilities for the SMEs. We have the Local Enterprise Finance Scheme run by SPRING. We also have the Loan Insurance Scheme, and I think some Members here are spearheading the SME loan securitisation project which will allow a wider pool of SMEs to gain access to such financing.

Column: 1203

We are always looking at different ways of encouraging the market to meet the needs of the SMEs.

3.15 pm

I remember, last Budget, Mr Inderjit Singh also raised about other models of SME lending. Our approach to all this is that we will always look at such proposals. If they are feasible and suitable, if they are commercially viable, we will allow them to grow. Specifically, any institution that only wants to engage in financing activities, including specialising in SME financing, does not need a licence from MAS. A banking or finance company licence is only required if the institution also collects deposits. MAS is open to admitting banks with specialised expertise in SME financing, so long as they meet our prudential requirements for licensing.

Mr Inderjit Singh also suggested that we should allow the finance companies to extend the range of services, particularly servicing the SMEs. This is something we do encourage. MAS will study the proposals put up by the finance companies. We assess the capabilities of the finance companies in doing so because it is important that the finance companies that want to provide such extension of services are able to do so prudentially.

Mr Inderjit Singh asked the Government to facilitate asset securitisation. I think this is very much in line with what we are trying to do. We are trying to build up the breadth and depth of the capital market and we see asset securitisation as one of the important areas by which the financial market can provide a fuller range of services. There are some requirements on asset securitisation for the different players. We have to look at these requirements carefully. We cannot dispense with these requirements because

Column: 1204

certain prudential requirements have to be met. I take his point that we should constantly review these requirements to make sure that we do not hinder the growth of asset securitisation.

Mr Chandra Mohan puts up some unusual suggestions about spreading wealth through the banking licence. I am not so sure I got the drift of his suggestions. We should not see a banking licence as a licence to print money and, therefore, a way that everybody should get a chance and is a way of spreading wealth. Banking is a very serious business. The banks are in the business of taking deposits and granting credits. When we give a licence to somebody to take deposits, we have to make sure that that entity is well-capitalised, have strong management, a proper board of directors to oversee its operations, because these are deposits of all Singaporeans we are talking about. Before we give out a licence, we have to make sure that all these are in place.

Secondly, banks play a very important role, not only in the financial sector, but in the economic well-being of Singapore. They are what we call systematically important institutions. A bank failure is not just a failure of one company. It has implications on the entire financial sector and also on the economy. We have to set very stringent prudential requirements on the setting up of banks. The appointment of bank directors also carries very heavy responsibilities. It goes beyond just the responsibilities of directors of any companies because of the import of banks to our economy. So we have to make sure that the appointment of the bank directors is done appropriately. All directors nominated for appointment are subject to review and endorsement by the board nominating committee before their appointments are approved by the shareholders at the annual general meeting. I think there is a due process and there are very strict prudential

Column: 1205

requirements for the appointment of bank directors. I think it is very odd to say that we should spread bank directors around as a way of spreading wealth. Our main concern is whoever sets up a bank in Singapore must be well-capitalised, must take in deposits carefully, look after the depositors' interest, ie, when they lend credits, they must do so with proper credit assessment, because it is not just the health of the bank that is important but it is also the implications to the whole economy.

Mr Yeo Guat Kwang raised the concerns about consumers and the increasing number of complaints against financial institutions. He asked why MAS has not played a bigger role in intervening on behalf of consumers to settle the commercial disputes with financial institutions.

First, let me clarify that the aim of MAS' market conduct regulation is to ensure that the financial institutions deal fairly with the consumers. To achieve this objective, MAS undertakes three main functions. First, the MAS sets and enforces strong sound market and business conduct standards, including disclosure of material information to the consumers. Second, the MAS has a role as well in helping consumers to understand the products that they are buying through financial education. And third, the MAS also facilitates consumer redress against market misconduct. Let me assure the House that MAS takes seriously any conduct that is in breach of our regulations and will take appropriate action against a financial institution that is found to be in breach. MAS' dealings with individual financial institutions are not disclosed. However, MAS does not consider its role to include directly settling commercial disputes between financial institutions and their customers.

Column: 1206

Let me now turn to MAS' philosophy towards market conduct regulation and how this was done in the critical year dispute. First of all, we ensure policy holders have clear, complete and comprehensible information that will enable them to make an informed decision on what course of action to take. That is very important. If the financial institutions do not provide complete and clear information, then we will insist that the disclosure is done correctly. Next, we issue a policyholders' guide to help the affected policy holders to understand their own policies and the options available to them. We do realise that sometimes, some of these options are not so easily comprehensible by the consumers and, therefore, we took it upon ourselves to make sure that these are set out in clear, simple language and people understand what are the options available to them so that they can make the right decision.

We also support the access by consumers to bodies, such as the Insurance Dispute Resolution Organisation (IDRO) because we believe in providing consumers an avenue for seeking redress for their grievances. In fact, the critical year issue illustrates very well how MAS sets about its role. First, to make sure that regulations are correct and the financial institutions abide by these regulations. Second, to make sure that there is good disclosure of information so that consumers can make an informed decision on the options available to them. Third, to make sure that consumers understand what is available to them because if it is not clear or too confusing, consumers may not be able to make an informed decision. Finally, to provide the avenue for redress that is fair and equitable for the consumers. I think the critical year issue illustrates how MAS goes about its responsibilities. I think Mr Yeo Guat Kwang himself also commended IDRO for the way it is able to handle the disputes in the insurance sector.

Column: 1207

For the banking sector, the Association of Banks (ABS) also has in place a similar mediation process. There may not be a specific body but the process and the principles behind the redress and the mediation is similar to IDRO.

Mr Yeo also questioned the high interest rate and the late payment penalties charged on credit card balances. Dr Chong Weng Chiew also raised a similar point. Basically, MAS does not interfere in the setting of interest rates and other prices set by the financial institutions. This is between the financial institutions and the consumers. It is not desirable for the MAS to prescribe how these products should be priced or what terms and conditions should govern commercial transactions. We leave it to the financial institutions. But what we do is to make sure that the regulatory framework provides for the necessary disclosure and the proper business conduct standards to be undertaken so as to ensure that the consumer is fairly treated.

For the specific issue that Dr Chong raised about credit card charges for foreign transactions and the exchange rate used, the ABS, in their code of consumer banking practice, do try to set out in clear and plain language the type of interest rates, the fees, the charges, and the penalties associated with the products put up by their members. The ABS also tries to encourage their members to make sure that this information is disseminated and consumers understand what they are getting into whenever they buy such products. On the disclosure of foreign exchange rates used by banks for credit card transactions overseas, Dr Chong's view is that these transactions and the rates used for the processing should be made more transparent. I think we can suggest to ABS to see how this particular issue can be addressed when they update their practice code. But we have to be

Column: 1208

aware that there are limits to the amount of disclosure that a bank can provide and in the end, the consumer must understand what he is buying and what are the charges that he is getting into with the particular credit card company that he has enrolled.

Members of the public must be aware of these charges and the basis of these charges that is imposed by their banks. As part of the consumer education process perhaps Mr Yeo Guat Kwang, through CASE, can also help the consumers by doing comparisons of such rates, practices and fees that are charged by the different credit card issuers as CASE has done for the other consumer products. This is part of the joint effort that all of us can take to make sure that consumers are well-informed in their decisions.

Mr Leong Horn Kee: Sir, I note DPM and Finance Minister Lee has taken a bit of rest and left all the questions to be answered by the Second Finance Minister, Mr Lim Hng Kiang. I think DPM deserves a rest for the last few days of very hard work. I would like to thank Mr Lim for his very clear and elaborate answers. I beg leave to withdraw my amendment.

Amendment, by leave, withdrawn.

The Chairman: Amendment No. (2), Miss Penny Low. You can take both cuts at the same time.

MoneySense Programme

Miss Penny Low (Pasir Ris-Punggol: ): Sir, I beg to move,

That the sum to be allocated for Head M of the Main Estimates be reduced by $10 in respect of Code MA 1500.

Sir, first, let me declare my interest in the financial service industry. After great efforts to get Government to spearhead

Column: 1209

and sponsor public financial literacy programmes, I am very encouraged by the introduction of the MoneySense programme. This is testimony that the Government listens. I would appreciate it if the Minister could give an update on the progress of this programme.

3.30 pm

There was also feedback that only educational programmes that address the general public, regardless of age and gender, are given the green light and qualify for co-funding under this programme.

Others that target specific groups, eg, senior citizens, couples, etc. will not fall within the radar screen of the MoneySense programme, even though they may be given due consideration selectively. Sir, I am puzzled by this. Financial planning and literacy means different things to different people. For example, a single's financial plan would differ significantly from that of a married couple's. And a married couple with kids will have very different concerns from, say, a retiree. Hence, while a seminar that explains a specific investment instrument like share investment or bonds could have general appeal, those aiming at helping a person to draw up a budget plan, or a financial plan, which is the first step to financial accumulation, must be made relevant to the participants' lifestage and even gender. This calls for a customised programme for each target audience. Hence, to build both breadth and depth into the programme, could the Minister consider extending the MoneySense programme to:

(1) address the specific needs of different market groups;

Column: 1210

(2) kindly detail and enlarge the network in which MoneySense co-funds, in other words, the participants and the vendors. I was told that only VWOs and NGOs are allowed as legitimate entities to provide such courses, and many actually do not have the expertise; and

(3) to detail and enlarge the scope of programmes that is eligible under this scheme, that is, beyond that of talks and seminars.

Maximum for Supplementary Retirement Scheme

Sir, with the reduction in CPF contribution and the cumulative problems of an ageing society, the issue of retirement funding has gathered pace. CPF alone is clearly insufficient. Hence, the introduction of the Supplementary Retirement Scheme (SRS) in the mid-90s was an apt one. However, from the start, the SRS has various limitations that made it unattractive. Hence, I hope that the Minister would review the SRS and fine-tune it to incentivise people to invest in this scheme. Some suggestions include that of what my colleague said earlier, a review of the contribution ceiling, which is currently pegged to the CPF contribution rates.

Although Minister Lim said that it runs the risk of becoming a very big tax advantage for wealthy individuals, the question is: how big is this risk? It is clear that nobody, especially the really wealthy, will put all eggs into one basket. In addition, why do we want to disincentivise savings for retirement purposes, which is what the SRS is built for? The rich may not always remain rich. When they get old they will still need some form of savings that is there. I suggest that the limit allowed for SRS contributions be revised upwards.

Column: 1211

Two, make it tax-free instead of tax-deferred instrument. The SRS is at present a deferred tax scheme for 50% of contributions. Perhaps the requirement to pay the tax after retirement has dampened the popularity of the scheme. The last thing we want to do is to encourage people to save for retirement and then tell them that they will be taxed when they make their withdrawals to fund their retirement. Hence, in view of the recent announcement to exempt tax on a list of investments like annuities, standard deposits and certain unit trusts, I suggest that we err on the side of generosity and make SRS either wholly tax-free or more obviously tax advantaged.

Three, to allow voluntary employers' contribution. The SRS should be expanded to allow employers to contribute as well. Employers may find it advantageous, eg, to declare bonuses in the form of voluntary SRS contributions if it may be treated as a relief, as opposed to a deduction, for company tax purposes. With this relief, employers may even be able to declare higher bonuses out of the tax savings. Perhaps this proposal could be carefully studied and incorporated as part of a portable company-sponsored pension plan.

Four, to allow non-citizens or permanent residents to contribute to SRS and root them to Singapore. By design, the SRS attracts mainly the higher income earners. It may also attract the non-Singaporeans who may have been here for a long time, and who intend to stay here in the long term. The fact that there are costly early withdrawal penalties in the SRS would already exclude those who are looking for short-term tax relief. In other words, the anti-selection issue is already taken care of. This would ensure that those who ultimately stay behind would also have their retirement nest-egg and perhaps also serve as a tool to attract the desired migrants.

Column: 1212

I hope the Minister would consider the above suggestions favourably.

Mr Lim Hng Kiang: Sir, I thank Miss Penny Low for her comments on the MoneySense programme. These are all very good suggestions. I can assure her that we will take all these in and we will be able to expand the scope as we go along. As we all know, MoneySense is a national programme that tries to raise the financial understanding of Singaporeans and raise the basic financial literacy of all Singaporeans. Since this programme has only started, the people implementing it, of course, go about it systematically, first by making sure that Singaporeans understand basic skills in budgeting and saving, and the responsible use of credit. Later on, it will expand the scope to look at long-term financial planning and then go into more sophisticated investment skills and investment products. So I think they prefer to go about it on a step-by-step approach.

But notwithstanding what I have said, they have also targeted at certain groups, eg, low income families under the Home Ownership Plus Education Scheme are given such basic money management skills to help them live within their means. Also, they have targeted newly-weds who undergo marriage preparation programmes organised by MCDS and their partners. They also bring them into the programme and teach them basic budgeting and joint financial decision-making in running their households. Also, for senior citizens and people reaching retirement age, there are talks and seminars to start them off on the initial stages of financial planning for their retirement. Anyway, I do take Miss Penny Low's comments. As we progress in MoneySense, we can be more proactive. We can customise the programmes and seminars and the skills to be imparted. We can look at the specific needs of different market groups. Right now, as a start, we try to bring in certain partners, VWOs and NGOs. I

Column: 1213

agree with her that we have to cast the net wider and bring in private companies which are better able to do this education process for us. So I can assure the House that as MoneySense develops, the scope of what it is doing and the breadth of the people they are reaching to will get bigger and bigger.

On the issue of SRS, as I have explained in my earlier answer to Dr Tan Boon Wan, it really depends on the philosophy of how we set up the SRS. Basically, when we set up the SRS, the philosophy was that we will encourage people to provide for their retirement needs and we should encourage the vast majority of Singaporeans, up to perhaps the 80th percentile group, and people beyond that, people who are rich and wealthy, should be able to look after themselves. That is the reason why we kept the ceiling to the CPF contribution ceiling. If you say, look, we also want the better-off to also provide for their retirement, then there is the question of to what extent we want to provide the tax advantage for them to do so. This is a completely new area that we will be going into. Today, the way we strike a balance is that we provide this mechanism and this is for the vast majority, up to 80%, and those who have higher income than that, I think they can look after themselves and they do not need all these schemes.

People who want to put aside more money for their retirement beyond this contribution cap can do so outside the SRS scheme. The SRS scheme is targeted for this critical group of people that we want to make sure that they are self-reliant in their old age. Of course, with our recent change of exempting Singapore source income, I think the balance may have to be relooked again. This is what some other Members like Andy Gan and a few others have raised,

Column: 1214

and I can assure you the staff will look at this.

Miss Penny Low also asked about foreigners and permanent residents contributing to SRS. I believe this is available to them. There is, of course, an early withdrawal penalty. This is to encourage that they do so for bona fide reasons. So the SRS is not just restricted to Singaporeans. It is also open to foreigners. But, of course, there is an early withdrawal penalty so that they do so for the right purpose.

As to her suggestion of having employers contributing towards this, I think this is a whole new employers' pension scheme and this is something that we have to study more closely together with MOM.

The Chairman: Miss Low, are you withdrawing your amendment?

Miss Penny Low: Sir, I would like to thank the Minister for his very comprehensive and assuring reply. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The sum of $359,029,000 for Head M ordered to stand part of the Main Estimates.

The sum of $337,741,400 for Head M ordered to stand part of the Development Estimates.