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Second Reading Speech By Mrs Lim Hwee Hua, Second Minister for Finance, On The Income Tax (Amendment) Bill 2009

24 Nov 2009

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

2.      The Income Tax (Amendment) Bill 2009 comprises two categories of legislative changes. The first category puts into legal effect the income tax changes announced in the 2009 Budget Statement. The second category covers other amendments to the Income Tax Act arising from regular reviews to improve our income tax system.

3.      The Income Tax (Amendment) Bill was released for public consultation from 22 June to 14 July this year. MOF has revised the Bill to incorporate the public feedback received.

4.      Sir, the key tax changes have already been debated upon in this House following the announcement in the 2009 Budget Statement. Let me summarise some of these key changes which are covered by this Bill. I shall begin with the permanent changes:

Firstly, the reduction of the corporate income tax rate from 18% to 17%, with effect from the Year of Assessment 2010, to enhance Singapore’s attractiveness as a business hub and to spur entrepreneurial activity. This change and its consequential amendments are covered by Clauses 33(b), (h) and 36 of the Bill;

Secondly, the introduction of a new corporate amalgamation framework to ensure that most of the tax consequences of a continuing business will apply to the amalgamated company, thus making it easier for companies to restructure and rationalise, as effected through Clause 23; and

Thirdly, an enhancement of the incentives for promoting fund management to further strengthen Singapore as a hub for fund management. These changes are covered by Clauses 8, 9(f), 13(a) and 14.

Next, let me cover the key one-off or temporary measures which were part of the Resilience Package announced during Budget 2009.

Firstly, the enhancement of the existing capital allowances regime and loss carry-back relief scheme to ease business cash-flow, and the liberalisation of foreign-sourced income exemption to help businesses meet their financing needs in Singapore. Clauses 7(c), 18, 19, 21, 26, 27, 28(b), 29, 30 of the Bill provide for these changes; and

Finally, the granting of a one-off 20% personal income tax rebate, capped at $2,000 for YA2009, to reduce the tax payable by individuals. This is aimed at providing immediate cashflow relief to tax payers. Clause 41 of the Bill provide for this change.

5.      Sir, I shall now deal with the other tax changes which require amendments to the Act arising from our ongoing regular review of our tax policies and administration. Let me highlight three of these changes.

6.      Firstly, the removal of Commonwealth Tax Relief. Currently, we grant the Commonwealth Tax Relief (CTR) to our tax residents for income derived from and taxed in Commonwealth countries which do not have an Avoidance of Double Taxation Agreement (DTA) with Singapore. This relief will be removed with effect from Year of Assessment 2010 to rationalise the various tax reliefs for alleviating double taxation for our tax residents. This removal of the now obsolete relief takes into account enhancements to the tax regime over the years, namely the introduction of foreign-sourced income exemption for income remitted on or after 1 June 2003 and the extension of Unilateral Tax Credit (UTC) for all foreign-sourced income from non-DTA countries from YA 2009. Clauses 37 and 40 effect this removal of CTR.

7.      Secondly, we will exclude from withholding tax, management fees paid to related persons outside Singapore for services performed outside Singapore. This is in line with the policy intent not to deem the income from certain services performed outside Singapore, to be derived from Singapore. Clause 6 effects this change.

8.      Thirdly, we will provide for the avoidance of doubt that the arm’s length principle, an internationally accepted standard, is to be adopted for all related party transactions. This amendment provides explicitly that the Comptroller of Income Tax may make adjustments to the profits of a taxpayer in a related party transaction if that transaction is not carried out on an arm’s length basis. Clause 24 effects this change.

9.      Sir, as for the remaining eleven legislative changes arising from our periodic review of the income tax system, they are either technical in nature or relate to improvements in tax administration.

10.     With the above changes, the Income Tax Act will be enhanced and updated to better achieve our economic and social objectives. Mr Speaker, Sir, I beg to move.