|
A public consultation exercise on the draft Income
Tax (Amendment) Bill 2007 was held from 15 June to 14
July 2007 to obtain feedback on the draft Bill.
2. The draft Income Tax (Amendment) Bill 2007 put up
for consultation related to the following:
| |
a. |
Budget 2007 tax changes. These are
tax changes announced by Second Minister for Finance
Tharman Shanmugaratnam in his Budget
2007 Statement. An example is the reduction
in corporate income tax rate to 18% with effect
from the year of assessment 2008. |
| |
|
|
| |
b. |
Other tax changes. These are tax changes
or refinements to existing tax policies and administration
resulting from on-going reviews of the income
tax system. An example is the Enhancement and
refinement of tax transparency treatment for Real
Estate Investment Trusts. |
3. The summary
table lists all the tax changes and explains the
amendments to the Income Tax Act.
4. A total of 29 comments were received, most of the
feedback being from professional bodies and companies.
The responses were of high quality and helpful for improving
the income tax legislation.
5. 14 of the 29 comments received (48%) related to
the drafting of the Income Tax (Amendment) Bill 2007.
The other comments were requests to review tax policies
or to clarify the policy intent behind the tax changes.
The tax changes that received the most comments were
as follows:
| |
|
Tax deduction of borrowing costs; |
| |
|
Tax treatment of qualifying debt securities
(QDS); |
| |
c. |
Tax treatment of Real Estate Investment Trusts
(REITS). |
6. MOF has considered all the comments carefully. Of
the 29 comments on the draft Bill, 21 have been accepted
as they help clarify policy intentions and improve the
formulation of the legislation. Changes will be made
to the draft Income Tax (Amendment) Bill to take in
these suggestions.
7. The comments which have not been accepted by MOF
include suggestions that were inconsistent with convention
in drafting legislation or were beyond the scope of
the underlying objectives of the tax policy in question.
8. The key comments received and MOF’s responses
to them are summarised below:
Drafting-related Comments
Respondents
suggested amending the proposed section 15(1)(j)
to make clear that this section does not apply to
payments that are not subject to withholding tax
under section 45.
MOF’s
response: Accepted. The draft section 15(1)(j) only
applies to payments that are subject to withholding
tax under section 45. This section would be amended
to make clear that payments exempt from withholding
tax under section 45 would be excluded from the
provisions of section 15(1)(j). |
Respondents
commented that, with One-tier corporate tax system
taking full effect from 1 Jan 2008, the provisions
requiring payment of exempt dividends in the Economic
Expansion Incentives Act (EEIA) would be redundant.
The legislation should be made clear beyond doubt
that such provisions are no longer relevant.
MOF’s response:
Accepted. A consequential amendment will be inserted
to the EEIA to provide for the cessation of the
exempt dividend accounts in the EEIA from 1 Jan
2008. |
(a) A respondent
commented that the definition of “prepayment
fee” in the proposed section 13(16) seems
to impose an unnecessary requirement in the method
of ascertainment of prepayment fee. To avoid this,
the respondent suggested that the determination
be tied to the prepayment event since this is usually
reflected in the underlying terms of the issuance
of the debt securities or qualifying debt securities.
MOF’s
response: Accepted. The Income Tax (Amendment) Bill
will be amended to clarify that early redemption
of the securities will be determined by the terms
of the issuance of the debt securities or qualifying
debt securities.
(b)
One respondent noted that the proposed section 10(27)
deems the income of the Special Purpose Vehicle
to have been derived by the originator but does
not mention that the tax will be imposed only “at
the end” of the Islamic debt securities arrangement,
as set out in the MAS circular.
MOF’s Response: Accepted.
The Income Tax (Amendment) Bill will be amended
to specify that the tax will be imposed at the end
of the Islamic debt securities arrangement. |
A respondent
suggested excluding Singapore franked dividend from
the word “income” in the proposed section
43(2A). She also suggested making it clear that
interest receivable (accrued but not paid) that
is “payable out of rental income” be
granted tax transparency treatment.
MOF’s response:
Accepted the suggestion to exclude Singapore franked
dividend from the word “income”. As
for the other suggestion, the current drafting is
meant to be wide to capture this intention. |
Policy-related Comments
A respondent
suggested to include the following expenses in the
proposed list of deductible borrowing costs under
the proposed section 14(1)(a):
a) Legal fees and stamp duties on loan/ financing
documentation;
b) Agency, security trustee fees for syndicated
loans;
c) Underwriting, management fees, agent and registrar
fees for loans or bonds or medium term notes;
d) Performance/ placement incentive fees to arrangers
for bonds/ notes issue.
MOF’s
response: Not accepted. The policy intent is to
allow prescribed borrowing costs that are akin to
interest or to reduce interest costs to be deductible
under the proposed section 14(1)(a). These expenses
are administrative or service fees charged by the
arranger or lawyers. They are not related to the
interest payment of the loans. Hence, they will
not be allowed as a tax deduction. |
Respondents
noted that it is unfair to tax a bondholder on the
full amount of discount or premium (computed by
taking the difference between the redemption value
upon maturity and the initial amount paid when the
security is first issued) when the bondholder could
have bought the debt security from the secondary
market and hence will earn the discount or premium
for the duration held and not the full discount
or premium.
MOF’s
response: Not accepted. The general tax principle
is that the discount or premium is only taxable
or deductible when the bond is redeemed or upon
maturity as this is the point where the income accrues
to the taxpayer/ expenses are incurred by the taxpayer.
This is also the current tax treatment and the law
is amended merely to make clear this treatment.
It is not always the case that the final bondholder
will be taxed on the full discount/ premium. If
the bondholder is a passive individual investor,
he would be exempted from tax on discount from debt
securities under section 13(1)(zi)
|
One respondent
sought clarification whether there is any restriction
on the form of income that is payable out of rental
income or income from the management or holding
of immovable property in Singapore, in particular,
whether income includes interest income or income
derived from a partnership.
MOF’s
response: We would like to clarify that the current
drafting is meant to cover any form of income, including
interest income and income derived from a partnership,
derived by a REIT that is payable out of rental
income or income from the management or holding
of immovable property in Singapore. |
9. MOF thanks all who have responded for their comments.
We will continue the practice of consulting the public
before finalising the amendments to our income tax laws.
|
