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Second Reading Speech By Mr Raymond Lim Siang Keat Second Minister for Finance on The Income Tax (Amendment) Bill 2005, at The Parliament, 18 Oct 2005

18 Oct 2005

Mr Speaker, Sir, I beg to move, "That the Bill now be read a second time".

2. The Income Tax (Amendment) Bill 2005 comprises two groups of changes. The first provides for the income tax changes announced in this year's Budget Statement by Prime Minister and Minister for Finance. The second group covers other amendments to the Income Tax Act arising from regular reviews to improve our income tax system.

3. A public consultation on the Income Tax (Amendment) Bill was conducted from 4th June to 3rd July. The draft Bill has been revised to incorporate suggestions from businesses and members of the public.


4. Let me first highlight the key tax policy changes that were announced in the 2005 Budget Statement.

(a) Reduction of Personal Income Tax (PIT) rates

5. The top Personal Income Tax rate will be reduced to 21% for the year of assessment (YA) 2006, and then to 20% for the year of assessment (YA) 2007. The marginal tax rates of the other income brackets will also be correspondingly reduced. These changes in tax rates are reflected in the Bill under Clause 45.

(b) Introduction of carry-back of capital allowances (CAs) and trade losses

6. With effect from the year of assessment (YA) 2006, the unutilised capital allowances (CAs) and trade losses of any taxpayer will, subject to conditions, be allowed to be carried back for set-off against the assessable income of that taxpayer for the immediately preceding year of assessment (YA). Clause 26 provides for these changes.

(c) Extension of tax concessions for qualifying debt securities (QDS) and tax exemption for individuals in respect of locally sourced investment income, to payments from Islamic debt securities

7. To encourage growth of Islamic finance in Singapore, the concessions under the QDS scheme will be expanded to cover payments from Islamic debt securities. This extension will apply to QDS issued from 1st January 2005 to 31st December 2008.

8. The tax exemption on locally sourced investment income derived by individuals, will be extended from 1st January 2005 to include payments from Islamic debt securities. The existing conditions for QDS scheme and exemption for locally sourced investment income will continue to apply to amount payable from Islamic debt securities. Clauses 10(b), (f), (g), (h) (j), 28(c), (e), (f), (g), 34 and 36 provide for these incentives.

(d) Tax exemption on specified income derived from funds held in any foreign account of a philanthropic purpose trust

9. To facilitate the administration of foreign philanthropic purpose trusts in Singapore, tax exemption will be granted on specified income from designated investments derived from funds or assets in the foreign accounts of a philanthropic trust administered by a trustee company in Singapore. This will apply to funds constituted on or after 18th February 2005. The specified income from designated investments derived from funds or assets of an eligible holding company established for the purposes of that philanthropic trust, which are held for the foreign account of that trust, is also tax exempt. This change is covered by Clause 13 of the Bill.

(e) Concessionary tax rate for specified income derived from organising or staging approved tourism event

10. To encourage companies to organize or stage more world-class events and activities, a concessionary tax rate of 10% will be granted in respect of specified income derived on or after 1st April 2005 by an approved company from organizing or staging an approved tourism event. Clauses 35 and 47 provide for these changes.


11. Let me now move on to the second group of tax changes covered by this Bill. Our existing tax policies and incentive schemes are reviewed regularly to ensure that they remain relevant. We are also constantly looking for ways to improve our tax administration. Let me highlight three major changes aimed at enhancing our policies and tax administration.

(a) Advanced Rulings System

12. To provide greater clarity and certainty to taxpayers, the advanced ruling system will be formalised and enshrined in law with effect from 1st January 2006. Any ruling issued under the advance ruling system will bind the Comptroller of Income Tax to apply statutory provisions in the manner set out in the law. The amendments to the Act, provided by Clauses 43, 44 and 46 of the Bill, also make clear the circumstances under which the Comptroller shall, may or may not provide the rulings.

(b) Income tax treatment of a trust registered under the Business Trust Act

13. With the introduction of the Business Trust Act (Cap. 31A), the Income Tax Act needs to provide for the tax treatment of the income of a Business Trust. Any trust registered under the Business Trusts Act (Cap. 31A) will be treated as a company under the one-tier corporate tax system with effect from the first year such a trust commences operation as a registered business trust. Based on this treatment, the income of a registered business trust will only be taxable at the trustee level and not at the unit-holder level. Clauses 10 (f) and 21 of the Bill will amend the Act to provide for these tax treatments.

(c) 100% Capital Allowances for items of plant or machinery costing no more than $1,000 each

14. To reduce taxpayer's cost of compliance, the rules for computing capital allowances for assets costing not more than $1,000 each have been simplified. These assets, which are acquired during or after the basis period relating to YA 2005, will be granted a 100% write off, subject to conditions. Clause 17 of the Bill spells out the conditions for such claims.

15. Finally, eleven other changes have been incorporated in this Bill. As they are either technical in nature, or relate to improvements in tax administration, I will not bring members through the details of these remaining changes[1].

16. Mr Speaker, Sir, I beg to move.

[1] remaining eleven changes are:

(1) Company Legislation & Regulatory Framework Committee ?related consequential tax changes [Clauses 2(c), (d), 3, 7, 8, 9, 10(c), 12, 15, 18(b), (c), 22(e), (f), 23, 24 (except in relation to section 37C(14)(c)), 32, 33(c), (d), (e) & 41]

(2) Revised assessment as relief for late Goods & Services Tax registration [Clause 42];

(3) Delegation of power to Deputy Comptroller and Assistant Comptroller to remit penalty [Clause 2(a)];

(4) Removal of tax rate cap [Clauses 28(a) and 40];

(5) Extension of tax incentives for general insurance business to approved members (other than individuals) under foreign insurer scheme [Clauses 16 & 30];

(6) Tax exemption for income derived by an approved Special Purpose Vehicle in a qualifying asset securitization arrangement [Clause 13];

(7) Portable Medical Benefits Scheme [Clause 14];

(8) Consequential amendments arising from CPF rate changes for the year 2005 [Clauses 4 & 27(d), (e) & (f)];

(9) Exemption of REITs distributions to individuals [Clause 10(e)];

(10) Amendments to Section 24 (special provisions to certain sales) [Clause 19];

(11) Technical Amendments [Clauses 10(a) & 31].