Second Reading Speech By Senior Minister of State for Finance and Law Indranee Rajah on The Income Tax (Amendment) Bill 2016
29 Feb 2016Mdm Speaker, I beg to move, "That the Bill be now read a second time."
2. The Income Tax (Amendment) Bill 2016, or the Bill in short, covers income tax changes announced in the 2015 Budget Statement, as well as other changes arising from the periodic review of our income tax regime.
3. The draft Bill was released for a public consultation exercise from 26 June to 24 July 2015. MOF has evaluated all the feedback received and where relevant, accepted the suggestions.
4. Madam, the tax changes announced in the 2015 Budget Statement have already been debated in this House. These changes are in line with ongoing efforts by the Committee on the Future Economy. In particular, there will be even greater support to help companies grow and scale through internationalisation. Let me highlight the key changes.
5. First, to help spur mergers and acquisitions so that companies, especially SMEs, can acquire scale, attract talent and compete effectively overseas, the Mergers and Acquisitions (“M&A”) scheme will be extended for another five years. The tax allowance for acquisitions costs will also be increased, from the current 5% to 25% of the value of acquisition, with the cap on allowance remaining at $5 million for each Year of Assessment (“YA”). The final shareholding interest in a company to qualify an acquisition for M&A benefits will be lowered. Subject to conditions, companies would be able to claim M&A benefits for acquisitions resulting in at least 20% shareholding in the target company, down from the current threshold of 50% shareholding. Clause 24 of the Bill provides for the changes.
6. Second, to provide greater support to businesses expanding overseas, the Double Tax Deduction for Internationalisation scheme has been enhanced to cover salaries incurred for Singaporeans posted to newly set-up or acquired entities overseas.
7. Third, a new tax incentive, the International Growth Scheme, has also been introduced to provide support to Singapore companies in their internationalisation efforts. This incentive will help Singapore companies transform their businesses and explore new areas of growth. It will also provide opportunities to help more Singaporeans gain international exposure for their work. Qualifying companies will enjoy a 10% concessionary tax rate on their incremental income from internationalisation activities, such as income derived from the export of goods and services or from global or regional HQ-related activities. This will encourage more Singapore companies to expand overseas, while anchoring their key business activities in Singapore. The enhancement to the Double Tax Deduction scheme and the introduction of the International Growth Scheme are provided for in Clauses 18 and 34 of the Bill respectively.
8. Fourth, to enhance progressivity and strengthen future revenues, the personal income tax rates for tax resident individuals will be increased. Specifically, the top marginal tax rate will be raised by two percentage points, from 20% to 22% for those with a chargeable income above $320,000. There will also be smaller adjustments in the marginal tax rates for chargeable income between $160,000 and $320,000. This change will take effect for income earned in 2016, in other words from YA 2017. Clause 50 provides for these changes.
9. Fifth, the tax deduction for donations has been increased from 250% to 300% in 2015, as part of SG50 Jubilee celebrations. The 250% tax deduction for donations, which was to expire at the end of 2015, has also been extended for another three years till the end of 2018, to instil a culture of giving. This is provided for in Clause 22 of the Bill.
10. Madam, the Ministry of Finance regularly reviews and refines the income tax regime. I shall now outline two other key changes arising from MOF’s periodic review of the tax regime.
11. The first change is that we will exempt from tax, up to $400,000 of the amount either deemed withdrawn under the Supplementary Retirement Scheme (“SRS”) upon death of the SRS member or withdrawn in full on the ground of terminal illness or disease. This will ensure parity on the amount of SRS savings that could have been withdrawn tax-free, had the amount been withdrawn over the full 10-year withdrawal period. The change, which takes effect from YA 2016, ensures that the SRS member is not unduly disadvantaged in the event of death, terminal illness or disease, and is provided for in Clauses 7, 38 and 39 of the Bill.
12. The second amendment is to align the personal income tax rate for non-tax-resident individuals that is currently pegged to the highest resident marginal personal income tax rate, to the new top income tax rate for tax resident individuals, of 22%. This change will take effect from YA 2017. Clause 26 provides for this change. At the same time, the withholding tax rate for non-resident individuals which is currently pegged to the highest resident marginal personal income tax rate will also be aligned to 22%. This change will take effect from 1 January 2016. Clauses 35, 36, 38 and 39 provide for this change.
13. The remaining legislative changes are mostly technical in nature or relate to improvements in tax administration.
14. Mdm Speaker, I beg to move.
2. The Income Tax (Amendment) Bill 2016, or the Bill in short, covers income tax changes announced in the 2015 Budget Statement, as well as other changes arising from the periodic review of our income tax regime.
3. The draft Bill was released for a public consultation exercise from 26 June to 24 July 2015. MOF has evaluated all the feedback received and where relevant, accepted the suggestions.
4. Madam, the tax changes announced in the 2015 Budget Statement have already been debated in this House. These changes are in line with ongoing efforts by the Committee on the Future Economy. In particular, there will be even greater support to help companies grow and scale through internationalisation. Let me highlight the key changes.
5. First, to help spur mergers and acquisitions so that companies, especially SMEs, can acquire scale, attract talent and compete effectively overseas, the Mergers and Acquisitions (“M&A”) scheme will be extended for another five years. The tax allowance for acquisitions costs will also be increased, from the current 5% to 25% of the value of acquisition, with the cap on allowance remaining at $5 million for each Year of Assessment (“YA”). The final shareholding interest in a company to qualify an acquisition for M&A benefits will be lowered. Subject to conditions, companies would be able to claim M&A benefits for acquisitions resulting in at least 20% shareholding in the target company, down from the current threshold of 50% shareholding. Clause 24 of the Bill provides for the changes.
6. Second, to provide greater support to businesses expanding overseas, the Double Tax Deduction for Internationalisation scheme has been enhanced to cover salaries incurred for Singaporeans posted to newly set-up or acquired entities overseas.
7. Third, a new tax incentive, the International Growth Scheme, has also been introduced to provide support to Singapore companies in their internationalisation efforts. This incentive will help Singapore companies transform their businesses and explore new areas of growth. It will also provide opportunities to help more Singaporeans gain international exposure for their work. Qualifying companies will enjoy a 10% concessionary tax rate on their incremental income from internationalisation activities, such as income derived from the export of goods and services or from global or regional HQ-related activities. This will encourage more Singapore companies to expand overseas, while anchoring their key business activities in Singapore. The enhancement to the Double Tax Deduction scheme and the introduction of the International Growth Scheme are provided for in Clauses 18 and 34 of the Bill respectively.
8. Fourth, to enhance progressivity and strengthen future revenues, the personal income tax rates for tax resident individuals will be increased. Specifically, the top marginal tax rate will be raised by two percentage points, from 20% to 22% for those with a chargeable income above $320,000. There will also be smaller adjustments in the marginal tax rates for chargeable income between $160,000 and $320,000. This change will take effect for income earned in 2016, in other words from YA 2017. Clause 50 provides for these changes.
9. Fifth, the tax deduction for donations has been increased from 250% to 300% in 2015, as part of SG50 Jubilee celebrations. The 250% tax deduction for donations, which was to expire at the end of 2015, has also been extended for another three years till the end of 2018, to instil a culture of giving. This is provided for in Clause 22 of the Bill.
10. Madam, the Ministry of Finance regularly reviews and refines the income tax regime. I shall now outline two other key changes arising from MOF’s periodic review of the tax regime.
11. The first change is that we will exempt from tax, up to $400,000 of the amount either deemed withdrawn under the Supplementary Retirement Scheme (“SRS”) upon death of the SRS member or withdrawn in full on the ground of terminal illness or disease. This will ensure parity on the amount of SRS savings that could have been withdrawn tax-free, had the amount been withdrawn over the full 10-year withdrawal period. The change, which takes effect from YA 2016, ensures that the SRS member is not unduly disadvantaged in the event of death, terminal illness or disease, and is provided for in Clauses 7, 38 and 39 of the Bill.
12. The second amendment is to align the personal income tax rate for non-tax-resident individuals that is currently pegged to the highest resident marginal personal income tax rate, to the new top income tax rate for tax resident individuals, of 22%. This change will take effect from YA 2017. Clause 26 provides for this change. At the same time, the withholding tax rate for non-resident individuals which is currently pegged to the highest resident marginal personal income tax rate will also be aligned to 22%. This change will take effect from 1 January 2016. Clauses 35, 36, 38 and 39 provide for this change.
13. The remaining legislative changes are mostly technical in nature or relate to improvements in tax administration.
14. Mdm Speaker, I beg to move.