Public Consultation on Draft Income Tax (Amendment) Bill 2014

INTRODUCTION

The Ministry of Finance is seeking public feedback on 41 proposed legislative amendments under the draft Income Tax (Amendment) Bill 2014. We invite you to comment on the proposed two categories of amendments:
(a) 14 legislative amendments that give effect to policies announced in Budget 2014; and

(b) The policy and drafting of the proposed 27 legislative amendments relating to non-Budget changes.

2. Your feedback will help us improve the draft legislation with regard to its clarity or efficient compliance by taxpayers.

SCOPE OF THE CONSULTATION EXERCISE

3. The draft Income Tax (Amendment) Bill 2014 incorporates 41 proposed legislative amendments to the Income Tax Act, including:

(a) Budget 2014 changes.  These are the tax changes announced by Deputy Prime Minister and Minister for Finance, Mr Tharman Shanmugaratnam, in the 2014 Budget Statement .  These include:

(i) Extension of the Productivity and Innovation Credit (“PIC”) scheme for three years till Year of Assessment (“YA”) 2018, and the introduction of the PIC+ Scheme. Under PIC+, qualifying SMEs can claim 400% tax deduction for up to $600,000 of expenditure per qualifying activity per YA;
 
(ii) Extension of the Research & Development (“R&D”) tax measures. The additional 50% tax deduction for R&D granted under section 14DA(1) of the Income Tax Act (“ITA”) is extended for ten years till YA 2025. The further tax deduction for EDB-approved R&D projects, granted under section 14E, is extended till 31 March 2020;

(iii) Extension of the Section 19B Writing Down Allowance (“WDA”) for acquisition of qualifying Intellectual Property Rights (“IPRs”) for five years till YA 2020, and clarifying the type of “information that has commercial value” that would be eligible for WDA ;

(iv) Treatment of Additional Tier 1 Instruments  as debt for tax purpose in the basis period for YA 2015 and thereafter; and

(v) Enhancement of various dependant-related reliefs for individual taxpayers from YA 2015.

(b) Non-Budget 2014 changes.  These are changes to existing tax policies and administration arising from on-going reviews of Singapore’s income tax system. These refinements include:

(i) Measures to curb PIC abuses.  IRAS has come across business arrangements aimed at artificially creating or inflating PIC claims. While such cases make up a minority of PIC claims, the following measures are proposed to tighten the qualifying conditions for cash payouts, as well as to target abusive arrangements and intermediaries that promote or facilitate such arrangements.
a. To qualify for cash payouts, the IT and automation equipment must be in use ;
b. The Comptroller of Income Tax will be given additional legislative power to deny PIC benefits  arising from abusive arrangements that seek to game the PIC scheme; and
c. Penalties will also be imposed on intermediaries who promote or facilitate claims for PIC benefits for such abusive arrangements;
These measures are not expected to affect businesses making bona fide PIC claims.

(ii) Allowing Supplementary Retirement Scheme (“SRS”) members to withdraw their SRS investments without liquidating the investments. This will reduce the transaction costs they incur for withdrawals. The SRS investments will be valued and taxed in the same manner as when the SRS investments are liquidated for cash withdrawal; and

(iii) Amendments to enable Singapore to ratify the Convention on Mutual Administrative Assistance in Tax Matters .

4. The summary table  provides a brief description of the tax changes and explains the amendments to the Income Tax Act. Please refer to the draft Income Tax (Amendment) Bill and its accompanying Explanatory Statement for details.

GUIDELINES

5. We would appreciate your support and participation to ensure that the consultation exercise is productive and focused. Respondents are requested to observe these guidelines:

a. Please identify yourself as well as the organisation you represent (if any) so that we may follow up with you to clarify your comments, if necessary.
b. Be clear and concise in your comments.
c. Focus your comments on how the legislative amendments can be better written to make them clearer and to make compliance easier, or on how the Non-Budget tax policy changes can be improved.
d. Use the prescribed template  provided to organise your feedback.
e. As far as possible, please explain your points with illustrations, examples, data or alternative formulations of the amendments.

6. This draft legislation is released only for the purpose of consultation and should therefore not be used for individual or business decisions, as it does not represent the final legislation or regulations. All comments received during the consultation exercise will be reviewed thoroughly and, if accepted, will be incorporated in the Bill for introduction in Parliament.

PERIOD OF CONSULTATION

7. The draft Income Tax (Amendment) Bill 2014 and a draft subsidiary legislation are available for public consultation from 4 to 24 July 2014.We regret that comments received after 24 July 2014 will not be considered as they will not be in time for incorporation into the final Bill.

FEEDBACK CHANNEL

8. We encourage all interested participants to submit your comments via our online submission form . The online submission form is the easiest and quickest way for your comments to reach us. You can also send us your comments, using the prescribed template, through:

a.  email to pc_itabill@mof.gov.sg ; or
b. fax to 6337 4134; or
c. post to:
Ministry of Finance
100 High Street, #10-01
The Treasury
Singapore 179434
Attention: Tax Policy Directorate

SUMMARY OF RESPONSE

9. We will publish a summary of the main comments received on the Ministry of Finance’s website , together with our responses, by the end of August 2014.  The identity of respondents will not be disclosed in the summary. 

DOCUMENTS TO DOWNLOAD

10. For further reference, please click here  to download the relevant documents for this public consultation exercise.

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[1] A negative list will be drawn out for the types of information that are not eligible for WDA. This includes customer information and information relating to work processes.

[2] Additional Tier I instruments are a new type of capital instruments allowed under the Basel III global capital standards. Treating the instruments as debt (where the interest expense is tax-deductible for banks and taxable in the hands of investors) will provide tax certainty and maintain a level-playing field for Singapore-incorporated banks vis-a-vis banks in other jurisdictions which have legislated the same treatment.

[3] Currently, taxpayers can claim cash payouts once the expenditure has been incurred. This change seeks to address abusive arrangements where vendors issue invoices, or prepare the necessary paperwork such that businesses make cash payout claims for equipment which is not in use (e.g. equipment is not constructed or delivered). For cash-strapped SMEs who need the cash payout up-front to pay for the equipment, IRAS will waive the requirement for the equipment to be “in use” on a case-by-case basis, subject to certain conditions.

[4] These benefits refer to PIC enhanced tax deductions/ allowances, PIC cash payout and PIC Bonus.

[5] The OECD-Council of Europe Convention on Mutual Administrative Assistance in Tax Matters (“the Convention”) is a multilateral convention that promotes international tax cooperation. In early 2010, the Convention was opened up for signature by non-OECD or the Council of Europe members. Singapore signed the Convention on 29 May 2013.

 

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Last Updated on February 13, 2017
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