INCOME TAX (AMENDMENT) BILL

Column: 1741

INCOME TAX (AMENDMENT) BILL: Order for Second Reading read.

5.15 pm

The Second Minister for Finance (Mr Raymond Lim Siang Keat): Mr Deputy Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

The Income Tax (Amendment) Bill 2005 comprises two groups of changes. The first provides for the income tax changes announced in this year's Budget Statement by the Prime Minister and Minister for Finance. The second group covers other amendments to the Income Tax Act arising from regular reviews to improve our income tax system.

Column: 1742

A public consultation on the Income Tax (Amendment) Bill was conducted from 4th June to 3rd July. The draft Bill has been revised to incorporate suggestions from businesses and members of the public.

Let me first highlight the key tax policy changes that were announced in the 2005 Budget Statement.

Reduction of personal income tax rates

The top personal income tax rate will be reduced to 21% for the year of assessment 2006, and then to 20% for the year of assessment 2007. The marginal tax rates of the other income brackets will also be correspondingly reduced. These changes in tax rates are reflected in the Bill under clause 45.

Introduction of carry-back of capital allowances and trade losses

With effect from the year of assessment 2006, the unutilised capital allowances and trade losses of any taxpayer will, subject to conditions, be allowed to be carried back for set-off against the assessable income of that taxpayer for the immediately preceding year of assessment. Clause 26 provides for these changes.

Extension of tax concessions for qualifying debt securities (QDS) and tax exemption for individuals in respect of locally sourced investment income, to payments from Islamic debt securities

To encourage growth of Islamic finance in Singapore, the concessions under the QDS Scheme will be expanded to cover payments from Islamic debt securities. This extension will apply to QDS issued from 1st January 2005 to 31st December 2008.

The tax exemption on locally sourced investment income derived by individuals

Column: 1743

will be extended from 1st January 2005 to include payments from Islamic debt securities. The existing conditions for QDS scheme and exemption for locally sourced investment income will continue to apply to amount payable from Islamic debt securities. Clauses 10(b), (f), (g), (h), (j), 28(c), (e), (f), (g), 34 and 36 provide for these incentives.

Tax exemption on specified income derived from funds held in any foreign account of a philanthropic purpose trust

To facilitate the administration of foreign philanthropic purpose trusts in Singapore, tax exemption will be granted on specified income from designated investments derived from funds or assets in the foreign accounts of a philanthropic trust administered by a trustee company in Singapore. This will apply to funds constituted on or after 18th February 2005. The specified income from designated investments derived from funds or assets of an eligible holding company establised for the purposes of that philanthropic trust, which are held for the foreign account of that trust, is also tax-exempt. This change is covered by clause 13 of the Bill.

Concessionary tax rate for specified income derived from organising or staging approved tourism event

To encourage companies to organise or stage more world-class events and activities, a concessionary tax rate of 10% will be granted in respect of specified income derived on or after 1st April 2005 by an approved company from organising or staging an approved tourism event. Clauses 35 and 47 provide for these changes.

Let me now move on to the second group of tax changes covered by this Bill. Our existing tax policies and incentive

Column: 1744

schemes are reviewed regularly to ensure that they remain relevant. We are also constantly looking for ways to improve our tax administration. Let me highlight three major changes aimed at enhancing our policies in tax administration.

Advanced rulings system

To provide greater clarity and certainty to taxpayers, the advanced rulings system will be formalised and enshrined in law with effect from 1st January 2006. Any ruling issued under the advanced rulings system will bind the Comptroller of Income Tax to apply statutory provisions in the manner set out in the law. The amendments of the Act, provided by clauses 43, 44 and 46 of the Bill, also make clear the circumstances under which the Comptroller shall, may or may not provide the rulings.

Income tax treatment of a trust registered under the Business Trusts Act

With the introduction of the Business Trusts Act, the Income Tax Act needs to provide for the tax treatment of the income of a business trust. Any trust registered under the Business Trusts Act will be treated as a company under the one-tier corporate tax system with effect from the first year such a trust commences operation as a registered business trust. Based on this treatment, the income of a registered business trust will only be taxable at the trustee level and not at the unit-holder level. Clauses 10(f) and 21 of the Bill will amend the Act to provide for this tax treatment.

100% capital allowances for items of plant or machinery costing no more than $1,000 each

To reduce taxpayers' costs of compliance, the rules for computing capital allowances for assets costing not

Column: 1745

more than $1,000 each have been simplified. These assets which are acquired during or after the basis period relating to year of assessment 2005 will be granted a 100% write-off, subject to conditions. Clause 17 of the Bill spells out the conditions for such claims.

Finally, 11 other changes have been incorporated into this Bill. As they are either technical in nature or relate to improvements in tax administration, I will not bring Members through the details of these remaining changes.

Sir, I beg to move.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. - [Mr Raymond Lim Siang Keat.]

Bill considered in Committee.

[

Mr Deputy Speaker in the Chair: ]

Clause 1 -

The Chairman: Clause 1. There is a proposed amendment standing in the name of Prof. Ivan Png. In his absence, Mr Steve Chia, I understand that you are moving the amendment. As the proposed amendment to this clause relates to other proposed amendments to subsequent clauses, I will allow you to raise matters relating to similar amendments to the later clauses now. Mr Steve Chia, you may speak on the amendments.

Mr Steve Chia Kiah Hong: ( on behalf of Prof. Ivan Png Paak Liang ): Sir, I beg to move,

In page 2, line 31, to leave out "and 48", and insert ", 42, 48(b) and 49.

Column: 1746

Thank you, Sir, for allowing me to raise the amendment on behalf of NMP, Prof. Ivan Png, who is currently on Parliamentary assignment to Geneva to attend the IPU conference. Thank you, Sir, also for allowing me to take all the three amendments in one speech. I am not an expert in the details, but I generally agree with the principle brought up by Prof. Ivan Png as outlined in his brief to me. So I gladly take on this assignment on his request to raise this amendment on his behalf.

Sir, a recent World Bank study rated Singapore as the second most business-friendly country in the world, behind New Zealand. We should now do our best to maintain, and even improve on our attractiveness to these businesses. One obvious and important way existing now - as we debate on the Income Tax (Amendment) Bill - is that we seek to cut down the weight of record-keeping for income taxpayers to a lesser burden by reducing the required number of years.

The current Act requires us taxpayers to keep 'sufficient records for a period of seven years from the year of assessment'. As the year of assessment is the year following the actual year of income and expenses, the Act in actual fact requires that all records be kept for up to at least eight years straight.

It is quite a burden to keep a lot of records for so many years and, therefore, it is onerous on the taxpayer. It is time to shorten this burden, especially considering that IRAS now receives information on salaries, dividends, profits, tax returns and many others electronically and online. This extensive computerisation of tax submission, processing and analysis have actually substantially speeded up IRAS work and helped reduce its workforce. It is now time to pass some of these accrued benefits back to taxpayers by lightening up their load and also cost in record keeping. Surely, by now, IRAS

Column: 1747

need not force taxpayers to dig back eight years into their archives to retrieve those archaic records.

Anyway, Sir, we have also fallen behind other developed countries. Australia now requires record to be kept for five years after submission. The UK requirement is six years for limited companies, and five years for other companies. The US requirement ranges from three to seven years, depending on the nature of the records.

This record keeping requirement of the Income Tax Act also exceeds requirement under our Limitation Act, which specifies a six-year limit for actions in contract and tort. With various laws specifying different requirements, the hapless taxpayer ends up abiding by the most burdensome requirement.

Thus, the proposed amendments in clause 1, clause 26 and clause 47 and the new clause, seek to reduce the burden of record-keeping for all taxpayers, and especially to individuals and small businesses. They will also support the Government's initiative to simplify policies, procedures and practices for citizens. It will also serve to increase our attractiveness to entrepreneurship with our less cumbersome rules. Finally, it will also serve to bring our business record-keeping requirements closer to those of other advanced countries, as mentioned earlier.

The amendment to clause 1 makes a consequential amendment arising from the proposed amendments as detailed in the Order Paper Supplement.

The amendment to clause 26 aligns the provisions of the Income Tax (Amendment) Bill with the existing subsections: 10(17), 13A(8), 13B(8), 13E(10), 13H(16, 14B(10), 14M(23), 16(10), 74(1), 93(2), and 93A(1), all of which set a limit of six years, and not

Column: 1748

seven years - for any additional requirement by the IRAS. This amendment is to make the new amendments consistent with the existing legislation (Cap. 163).

The proposed amendments to clause 47 and the addition of the new clause 'Amendment of Section 67' seek to reduce record-keeping to three years for small businesses - defined as those having gross receipts not exceeding S$100,000 - and for taxpayers with non-business income not exceeding S$100,000. This S$100,000 limit has been set by IRAS as qualification for the simplified two-line statement of business income. This amendment will also limit the record-keeping requirement for all other taxpayers to six years, as per the Limitation Act (Cap. 163).

The proposed amendments to the Income Tax (Amendment) Act are being raised now as Parliament seeks to deliberate on the various other amendments to the Income Tax Act. This proposed relief may also give us a leg up on New Zealand, in terms of business friendliness. So we hope the Minister, and fellow Parliamentarians, will seek to support the proposed amendments.

The Chairman: The Question is the amendment proposed by the Non-Constituency Member.

As the amendment to clause 1 is related to other proposed amendments indicated in the Order Paper Supplement, the debate on this amendment can range over similar amendments to subsequent clauses. When these subsequent clauses are reached, I will put the Questions on their amendments separately for the House to decide.

Mr Raymond Lim, do you wish to respond?

Column: 1749

Mr Raymond Lim Siang Keat: Sir, the proposed amendment to clause 1 relates to the subsequent proposal to amend clauses 26 and 47 and to insert a new clause to amend section 67 of the Income Tax Act. All these amendments relate to the record-keeping requirement under the ITA. I agree that the right balance must be struck between the need for enforcement and not making compliance cost too onerous. I should like to point out that the current six-year period limit for review of tax assessment under the Income Tax Act is in line with that laid out in the Limitation Act. Records have to be kept for seven years of assessment largely because Singapore's tax assessment is based on the preceding year's income. The seven-year record-keeping requirement supports the rights of IRAS to review tax assessment for six back years. Reducing the current record-keeping period will adversely affect IRAS' ability to recover taxes that are omitted, detect tax fraud and prevent revenue leakage. There are cases where IRAS has recovered tax from the six back years of assessment of up to $35 million. It would also reduce the window period available to the taxpayer for claiming relief in respect of any error or omission. Taxpayers with complex tax matters will have a shorter time to prepare and submit their tax computation to IRAS since IRAS will have to shorten the extension periods. Currently, close to 8,000 cases or 8% of corporate tax assessment are settled only in the fifth, sixth or seventh year.

Similarly, over 22,000 cases of individual tax assessments are settled in the fifth, sixth or seventh year.

While there may be merit to reduce the record-keeping period under the ITA, in line with some other jurisdictions, such a decision should not be made in haste. The records kept for income tax purposes are similar in nature to the records required in other legislation such as the Companies Act. Merely amending the ITA will not necessarily reduce the compliance

Column: 1750

burden for businesses, if they are still required under other laws to keep records for a longer period of time. So, therefore, we need to do a holistic review to assess the implications of such an amendment, the possible tax leakages from this change, the real lessons from other jurisdictions and the impact of the amendment on other Acts. We also need to examine the transitional provisions required with such a change. While I agree that the record-keeping provision should be reduced as much as possible, it is neither sound nor prudent to simply apply what other jurisdictions are doing without carefully taking into account our own circumstances in Singapore.

So these are my reasons for not agreeing to the amendments at this stage. Rather than to rush to amend this, my Ministry will study this proposal and any changes arising from this review can then be incorporated into the Income Tax (Amendment) Bill next year.

As for clause 26, the reference to the seven year period in that clause is actually in relation to the introduction of the one-year carry back of losses and capital allowances. The utilisation of losses and capital allowances are carried back to previous year of assessment naturally implies that an additional back year's assessment has to be revised. This clause does not constitute a change to the current policy review period of six years.

Amendment negatived.

Clause 1 ordered to stand part of the Bill.

Clauses 2 to 25 inclusive ordered to stand part of the Bill.

Clause 26 -

Mr Steve Chia Kiah Hong: Sir, I beg to move,

Column: 1751

In page 24, line 23 and in page 28, line 30, to leave out "7", and insert "6".

Sir, the reasons for the amendment are as outlined in my earlier speech on clause 26.

Amendment negatived .

Clause 26 ordered to stand part of the Bill.

Clauses 27 to 46 inclusive ordered to stand part of the Bill.

Clause 47 -

Mr Steve Chia Kiah Hong: Sir, I beg to move,

(1) In page 46, to leave out lines 13, 14 and 15 and insert -

"47. The principal Act is amended -

(a) by deleting the words "or 43S" in the following provisions and substituting in each case the words ", 43S, 43T or 43U":".

(2) In page 46, after line 18, to insert -

"(b) immediately after the full-stop of sections 74(1), 93(2) and 93A(1), the following words:

"Notwithstanding sections 10(17), 13A(8), 13B(8), 13E(10), 13H(16), 14B(10), 14M(23), 16(10), 37E(8) and 37F(9), the period shall be within 3 years after the expiration thereof with respect to income from trade, business, profession or vocation if gross receipts from such trade, business, profession or vocation in the calendar year preceding the year of assessment did not exceed $100,000 and with respect to all other sources of income if such income in the calendar year preceding the year of assessment did not exceed $100,000.".".

Column: 1752

Sir, the reasons for the amendments are as outlined in my earlier speech on clause 47.

Amendments negatived.

Clause 47 ordered to stand part of the Bill.

Clause 48 ordered to stand part of the Bill.

New Clause -

"

Amendment of section 67: Section 67(1) of the principal Act is amended -

(a) by deleting the number "7" in paragraph (a) and substituting the number "6"; and

(b) by inserting, immediately after the words "authorised in that behalf by the Comptroller" in paragraph (a), the words ", except that the period shall be 3 years from the year of assessment if the gross receipts from such trade, business, profession or vocation in the preceding calendar year did not exceed $100,000".". - [Prof. Ivan Png Paak Liang].

Brought up, and read the First time.

_Question accordingly negatived.

New Clause accordingly disagreed to.
_
Bill reported without amendment, read a Third time and passed.