| Since 1997, finance companies have
been given tax deduction for general provisions made
against their loan and investment portfolios. This is
subject to an annual limit of the lower of 25 per cent
of qualifying profits or 0.5 per cent of qualifying
loans and investments, as well as an overall limit of
2 per cent of qualifying loans and investments. This
has encouraged finance companies to make adequate general
provisions to cushion against unexpected losses in their
operations. |
| The Singapore economic environment
has, however, been adversely affected by the downturn
in the regional economies. In view of this, it is prudent
for finance companies to build up their level of general
provisions further. To encourage them to do so, the
annual limits of 25 per cent of qualifying profits and
0.5 per cent of qualifying loans and investments will
be temporarily suspended for a period of two years with
effect from Year of Assessment 1999. In addition, the
overall limit of 2 per cent of qualifying loans and
investments will be raised to 3 per cent from Year of
Assessment 1999. These changes will provide finance
companies greater flexibility in making general provisions
to cushion against potential losses that could arise
owing to the poor economic environment. This will strengthen
the financial position of finance companies, and the
overall soundness and stability of the financial system.
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