(CONTINUED 2):Round-Up Speech For The Debate On The Financial Year 2000 Budget Delivered By Dr Richard Hu, Minister For Finance, At Parliament House On 7 Mar 200007 Mar 2000
40 If there are further schemes which can help SMEs enhance their competitiveness, the Ministry of Finance will be open to considering them. We will continue to create a pro-business environment for SMEs, and integrate them in overall economic development strategies. But, SMEs must want to help and upgrade themselves.
TAX TREATMENT OF FOREIGN-SOURCED INCOME
41 Mr Simon Tay has asked for tax incentives to lure back to Singapore interest income on the funds parked abroad by high net worth Singaporeans. Mr Speaker, in Singapore, tax is imposed on a territorial basis. In practice, this means that income arising from sources within Singapore will be subject to tax. Income arising from sources outside Singapore will not be taxed in Singapore, unless it is remitted back to Singapore. In contrast, a number of developed countries apply the worldwide basis of taxation, taxing both the domestic and foreign sources of income of its residents as income arises.
42 We are not in favour of exempting or taxing foreign income remittance at a lower rate while domestic income is taxed in full. Doing so will only create loopholes for residents to channel Singapore income offshore to low-tax countries or to tax havens, and to remit it later at a tax advantage. Singapore will risk being regarded as a tax haven, with the result that our foreign investors will be penalised with anti-tax avoidance measures. In any case, Singapore enjoys a comprehensive network of double tax treaties and also provides generous unilateral tax credit. Coupled with our low corporate tax rate of 26 percent, this means that most foreign income that had suffered taxes elsewhere will not have to suffer additional tax when remitted to Singapore.
43 There are also currently already tax incentive schemes available, such as the Operational Headquarters Incentive and the Overseas Enterprise Incentive which provide for exemption for certain types of foreign source income.
44 Mr Noris Ong and Mr Leong Horn Kee have suggested allowing group offsetting of losses to help ease the cash flow of companies undertaking new ventures which are loss-making. There were also suggestions that we allow the losses of foreign subsidiaries to be offset against the profits of the parent company in Singapore.
45 A company sets up a subsidiary as a separate legal entity to carry out a particular activity because it wants to limit its liabilities and exposure arising from that activity. Since a subsidiary is a separate entity which can sue or be sued in its own right, there is no fundamental reason to treat it differently for tax purposes. Thus is it logically taxed separately from its parent company.
46 Allowing group relief represents a fundamental change to our corporate tax regime and can have significant revenue implications. If group relief were allowed, profitable companies within a group may end up not having to pay tax on their profits if losses incurred by other companies within the group were included. This may open up opportunities for tax planning. It will raise the cost of tax administration because complex tax rules will need to be drawn up to prevent abuse, and has invariably been the experience of countries which allow group relief.
47 One point which Members may not be aware of is that currently, we allow losses to be carried forward indefinitely. Hence, as long as a company can turn around, the earlier losses can be used to offset taxon the later profits.
48 As for foreign losses incurred by our companies setting up operations abroad, just as their foreign income is not taxed unless remitted to Singapore, likewise, their foreign losses should not be allowed for offset against domestic income. Otherwise, Government will end up subsidising foreign ventures from domestic tax revenue. As a concession, the Overseas Investment Incentive allows capital losses from the sale of shares in, or liquidation of, approved overseas investments to be set off against the company's Singapore-sourced income.
49 Members of this House may also wish to note that generally for countries which have group relief, overseas companies in the group are in fact excluded. Losses incurred by such companies cannot be consolidated for tax purposes.
EMPLOYEE STOCK OPTIONS
50 Members including Mr Chew Heng Ching, Mr Iswaran, Mr Ahmad Magad and Mr Peh Chin Hua have spoken on facilitating employee stock options (ESOPs). Associate Professor Low Seow Chay has also said that it is not correct to subject gains from ESOP to tax. ESOP is a form a remuneration and gains made from exercising ESOP are hence a form of employment benefit that ought to be liable for tax. Nonetheless, as I have announced during the Budget Speech, an incentivised tax treatment of ESOPs for high-tech start-ups will be announced at the end of May this year. The intention is to take Members' comments into account in working out the scheme and we will be looking at feedback from the industries.
SUPPLEMENTARY RETIREMENT SCHEME
51 I would like to thank Members like Dr Wang Kai Yuen, Mr Chew Heng Ching, Mr Chay Wai Chuen and Mr Noris Ong for their various suggestions in relation to the Supplementary Retirement scheme (SRS). I mentioned in my Budget Speech that the details of the SRS will take time to work out, and we hope to implement the scheme by next year. There will be extensive consultation with the private sector on the implementation details.
PREPARING FOR AGEING
52 Several Members including Assoc Prof Low Seow Chay, Mr Yeo Guat Kwang, and Mr Harun Ghani have spoken on preparing for an ageing society. Government has endorsed in principle the recommendations of the Inter-Ministerial Committee on Ageing. Ministry of Finance is currently working with the IMC Secretariet and implementing agencies on the required budget based on cost effectiveness and financial sustainability of the recommendations.
ENCOURAGING FAMILIES, MARRIAGE AND PROCREATION
53 Dr Jennifer Lee, Mr Harun Ghani, Dr Teo Ho Pin and Mdm Claire Chiang have called on the Government to do more for the family and youths. Mr Speaker, Sir, Government views family as a crucial institution in our society. One of the five key ideas of the Singapore 21 Vision is
57 We have adopted the paradigm of requiring the ministries to get the most out of their allocated budgets, and to strive for organisational excellence and for sustainable performance. From this year, the desired outcomes of the Ministries are being published in the Budget Book. Over the next couple of years, various resource management concepts and practices will be introduced for ministries to better manage their resources to achieve even greater value for money.
58 As for organisational excellence, every ministry and department is looking at achieving ISO9000 certification, the People Developer Award and the Singapore Quality Class leading on, hopefully, to the Singapore Quality Award. At the end of the day, performance of Government is really about how well we are able to achieve the outcomes in areas like international competitiveness, universal education, economic productivity, high standards of living, political and social stability, and national security. While there are often no direct measures for these, there are many international rankings, comparisons and assessments made.
59 Mrs Lim Hwee Hwa is right in saying that further privatisation may be inevitable. Indeed, Government believes that all Government operations that can have bottomline and which provide services that are measurable could be corporatised, or at least converted to a statutory board. In fact, Government has just last year corporatised the Public Works Department. However, we must recognise that in the end, there will remain a core of Government relating to core regulatory functions and policy formulation which cannot be corporatised.
60 Mr Speaker, Sir, as my Speech demonstrates, we need all 3 sectors - the Public, Private and People Sectors - to be vigorous, robust and enterprising for Singapore to survive and succeed in this new age of global competition and accelerated change. We must constantly be willing to try new ideas, nimble in exploiting new opportunities and quick in responding to changing demands. At the same time we must not forget certain fundamentals. We have to live within our means - no one owes us our existence or a living. Our families are important and are the backbone of our social fabric. We must adhere to meritocracy to allow the talents of our people to be developed and harnessed the best way possible. We have to continually look forward and invest in our future prosperity.
61 Mr Speaker Sir, together, the people and the Government can make tomorrow a better one for Singapore if we are pragmatic in our approach and yet bold in our dreams. In this light, this year's budget after the economic crisis represents an important milestone to meet the demands and challenges of the new economy. It is a budget in transition. If we change too slowly, we end up with the world passing us by. If we change too fast, we may end up going on the wrong path. We need wisdom, courage and a capacity for trial and error. I thank Members for all their contributions in this process.