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Second Reading Speech By Mrs Josephine Teo, Senior Minister of State for Finance and Transport On The Income Tax (Amendment) Bill 2013, at The Parliament, 21 Oct 2013

21 Oct 2013

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

2. The Income Tax (Amendment) Bill 2013 covers both the income tax changes announced in the 2013 Budget Statement, and other changes arising from the periodic review of our income tax regime.

3. The draft Bill was released for two public consultation exercises, one held from 17 June to 7 July and the other from 18 July to 31 July this year. MOF has reviewed the feedback received and incorporated relevant points in the Bill tabled in Parliament.

4. Mdm, the tax changes announced in the 2013 Budget Statement have already been debated in this House. Let me highlight the key changes.

5. First, the Productivity and Innovation Credit or PIC Scheme has been further enhanced to allow SMEs that license intellectual property rather than acquire it outright to also qualify for PIC benefits. Clauses 17, 18 and 23 of the Bill provide for the changes.

6. Second, qualifying businesses which make productivity investments will be provided a dollar-for-dollar matching PIC Bonus. This bonus, which comes on top of existing PIC benefits, is applicable for Years of Assessment (“YAs”) 2013 to 2015 and is capped at a total of $15,000. It gives additional support to businesses that are making an effort to boost productivity and innovation and also helps to defray their operating costs. The PIC bonus is provided for in Clauses 24, 25, 38, 39 and 40.

7. Third, a 30% corporate income tax rebate of up to $30,000 per YA will be granted to companies from YA 2013 to YA 2015. This is provided for in Clause 35.

8. Fourth, the Start-Up Tax Exemption (“SUTE”) Scheme, which is aimed at encouraging entrepreneurial risk-taking, is no longer available to property development companies and investment holding companies incorporated after 25 February 2013. These companies can still enjoy the partial tax exemption generally available to all companies. Clause 27 provides for the change.

9. Fifth, a personal income tax rebate of 30% will be provided to all resident-individual taxpayers for YA2013, capped at $1,500 per taxpayer. Taxpayers aged 60 years and above will get a higher rebate at 50% capped at $1,500 per taxpayer. This will help taxpayers, especially seniors, with the increase in the cost of living. This is provided for in Clause 51.

10. Sixth, housing accommodation provided to employees will now be taxed based on their market value instead of using a prescribed formula. This will simplify tax compliance and make our tax system more equitable. Clause 4 provides for this change.

11. Mdm, I shall now outline the tax changes covered in this Bill relating to our Exchange of Information (EOI) regime. These changes follow a comprehensive review of the current EOI framework, and represent a further, major step by Singapore to enhance cooperation with other tax jurisdictions.

12. Members might recall that in 2009, Singapore had endorsed and implemented the internationally-agreed EOI Standard, which sets out how tax jurisdictions should address cross-border tax evasion by entering into effective information-sharing arrangements.

13. Since then, international tax cooperation practices and standards have continued to evolve and strengthen. There is also a growing international movement against cross-border tax evasion, which undermines the revenue collections of governments. As a trusted financial centre, Singapore will act responsibly and uphold EOI standards in line with international norms. Let me highlight three key changes we are making.

14. First, we will amend the Act to extend EOI assistance in accordance with the internationally agreed EOI Standard to all our agreement partners, without having to individually update our bilateral tax agreements. In recent years, most countries have adopted the EOI Standard and EOI requirements have converged. There is therefore no longer a need to cater to individual countries’ unique EOI requirements in the respective bilateral agreements.

15. An important principle of EOI assistance is reciprocity, meaning that we provide assistance to the same extent that a partner jurisdiction assists with Singapore’s information requests. The changes are provided for in Clauses 34 and 41 to 44.

16. Second, we will allow IRAS to obtain information protected under the Banking Act and Trust Companies Act for EOI purposes without having to seek a Court Order. This is aimed at streamlining EOI administration.

17. Members may be concerned that the removal of the need for IRAS to seek a court order compromises safeguards that protect the confidentiality of taxpayers’ information. Let me assure the house that each request for EOI assistance is carefully considered and not acceded to indiscriminately. Even though a court order is not required, IRAS will render EOI assistance only for clear, specific and legitimate requests.

18. In the last four years, IRAS has in fact gained valuable experience in EOI administration, and is now well-placed to evaluate and assist on requests in line with the internationally-agreed Standard. Taxpayers can make representations to IRAS to highlight issues with specific requests, which IRAS will take into account when evaluating the requests. IRAS’ decision can also be subject to judicial review.

19. The third amendment to the Income Tax Act gives legal effect to the Singapore-United States Foreign Account Tax Compliance Act (“FATCA”) Intergovernmental Agreement (“IGA”), for which negotiations are expected to conclude in the coming months. FATCA is a US law that aims to prevent US Persons from using offshore bank accounts to evade US taxes by requiring Foreign Financial Institutions (FFIs) worldwide to report the information on bank accounts maintained by US Persons to US Internal Revenue Service. Non-complying FFIs will be subject to a 30% withholding tax on payments received from the US such as US-sourced dividends and interest. We have decided to enter into a FATCA IGA with the US in response to feedback from our financial institutions as doing so will help them meet their FATCA obligations.

20. The amendments provide IRAS the necessary information-gathering powers to fulfill Singapore’s role in facilitating FATCA-compliance under the IGA. These powers include the routine collection and transmission of relevant information, as well as enforcement powers to sanction non-compliance. Clauses 3, 34 and 48 provide for the change.

21. These changes in our EOI regime support Singapore’s international tax cooperation with partner jurisdictions to combat cross-border tax offences. They also strengthen our position as a credible and respectable member of the global community.

22. The remaining legislative changes are mostly technical in nature or relate to improvements in tax administration.

23. One such improvement is the simplification of the capping rule for tax deduction for third-party voluntary contributions to the Medisave Account of an Employee or Self-Employed Person which took effect from 1 January 2013. This change will encourage employers and eligible companies to contribute to their employees’ Medisave accounts, and likewise for self-employed persons. Clauses 5, 7, 13 and 18 provide for this.

24. Mdm Speaker, I beg to move.