In 1995, the Ministry of Labour announced that mandatory CPF contributions by employers will no longer be required for foreigners who are issued with an Employment Pass, Professional Visit Pass or Work Permit on or after 1 August 1995. A grace period up to 31 December 1998 was given if foreign workers jointly apply with their employers to the CPF Board to continue with the mandatory CPF contributions provided the employee remains with the same employer.

Under current tax laws, where the employer and employee agree in the contract of employment to contribute to CPF, the employee's contributions continue to be tax-deductible even though it is no longer required under the CPF Act. The employer's contributions are also deductible for the employer but is considered as income and subject to tax in the hands of the employee. This tax treatment allows employers to tax-plan and enjoy the tax deduction merely by including the requirement for CPF contributions within the contract of employment, even though it is no longer required under the CPF Act.

In line with our policy of allowing preferential tax treatment only for compulsory CPF contributions, I have decided to rationalise the tax treatment such that all CPF contributions made voluntary or obligatory under contracts of employment will no longer be tax deductible for both the employer and the employee. Further, the employers' contributions will be taxable as income in the hands of the employee. As a concession, the new tax treatment will take effect from 1 January 1999. However, exception will be made for Singaporeans posted overseas. In support of the regionalisation programme, we will continue with the current tax exemption for Singaporeans posted overseas who make voluntary CPF contributions.