Speeches

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

2. The Income Tax (Amendment) Bill 2000 seeks to give legislative effect to the income tax changes announced in the 2000 budget statement. It also incorporates six other amendments to the Income Tax Act.

Tax Changes Announced in the 2000 Budget Statement

3. I shall begin with the tax changes announced in the 2000 Budget Statement. There are a total of seven tax changes which require amending the Act. I will start with the tax changes affecting individual taxpayers.

4. Last year, the Government gave a one-off tax rebate to help mitigate the impact of the recession. As economic recovery is well underway this year, I had announced a one-off, across-the-board rebate of 5 per cent on individual income tax for Year of Assessment 2000. Clause 24 provides for the rebate.

5. To provide greater recognition to those who stay with their parents, the relief for the maintenance of each aged parent will be raised by $500 to $5,000. For those who maintain their aged parents but do not stay with them, the relief will remain at $3,500. The change will take effect from the Year of Assessment 2000. Clause 10(a) amends the relevant section of the Act for this purpose.

6. Apart from providing for their own financial security, individuals currently enjoy a tax relief for cash top-ups to the Minimum Sum Account of their parents. To promote inter-generational ties and the concept of extended families, I had announced that this relief will also cover top-ups in cash for grandparents with effect from Year of Assessment 2001. Clauses 10(b), 10(c) and 10(d) amends the relevant section of the Act for this purpose.

7. Next, I will be touching on the Income Tax amendments to encourage innovation, creativity and enterprise. Currently, authors, composers and inventors can avail themselves of a tax incentive which limits their taxable royalty income to 10% of gross royalties received. To encourage the development of the arts and innovation in Singapore, I have liberalised the current scheme:

Concession for Authors, Composers and Choreographers
This concession will be extended to include royalty payments received by a composer, an author or a choreographer from music recording or film, dance or drama production businesses in Singapore with effect from Year of Assessment 2001. Clause 2(a) amends the relevant section of the Act for this purpose.

Concession for Inventors and Innovators
With effect from Year of Assessment 2001, this concession will be extended to cover any approved invention or innovation from the non-manufacturing sectors. The scheme will also be extended to foreigners. To qualify for the concession, the work in developing the invention or innovation must be substantially carried out in Singapore and the invention or innovation must be protectable. The Economic Development Board will administer the incentive. A qualifying individual will enjoy the concession for up to 5 years. Clauses 2(b) and 2(c) amend the relevant section of the Act for this purpose.

8. In my recent announcement on 22 May 2000, I introduced the new Entrepreneurial Employee Stock Option Scheme. This new scheme aims to foster an entrepreneurial spirit in the smaller and more risky companies and its employees, many of whom have forgone more secure and higher paying jobs to start or join these start-up companies. Under the Entrepreneurial Employee Stock Option Scheme, a 50% income tax exemption will be granted on gains arising from the exercise of employee stock options, subject to certain conditions. The 50% tax exemption is available for 10 years of assessment and for up to $10 million of gains derived. This enhanced tax treatment will apply to qualifying employee stock options granted on or after 1 June 2000. Clause 5 inserts a new section to the Act for this purpose.

9. I will now move on to two tax changes affecting the corporate sector. To encourage the development of the swap market here, the concessionary 10 per cent tax rate will be extended to income derived by financial institutions from trading in interest rate and currency swaps. This concession will take effect from Year of Assessment 2001 and will apply until 27 February 2003. Clause 14 amends the relevant section of the Act for this purpose.

10. I have also announced in the Budget the reduction of the corporate tax rate by 0.5 per cent to 25.5 per cent with effect from Year of Assessment 2001. The tax rates applicable to other persons which are pegged to the corporate tax rate will correspondingly be reduced to 25.5 per cent. Clauses 9, 11, 12, 15(a), 15(c), 16, 17 & 18(a) amend the relevant sections of the Act for this purpose.

Tax Changes Not Announced in the 2000 Budget Statement

11. I shall now deal with the other tax changes not announced in the 2000 Budget Statement.

12. The first tax change pertains to the Qualified Employee Stock Option Plan Scheme which was announced in October last year. Under the scheme, the payment of tax on gains arising from certain qualifying stock options can be deferred for up to 5 years, subject to an interest charge. The Income Tax Act is thus amended to empower the Comptroller of Income Tax to extend the time for payment of tax on such gains and impose interest for the deferment of tax payment under this Scheme. Clauses 19, 20, 21, 22 and 23 amend the relevant sections of the Act for this purpose.

13. The second tax change pertains to share buyback throughSpecial Trading Counters (STC) established on the Singapore Exchange. The Income Tax Act is amended to deem certain payment made by a company resident in Singapore to its shareholders, pursuant to a share buyback through a STC, to be a payment of dividend by the company and, in certain circumstances, to be a receipt of dividends by its shareholders. Clauses 3, 15(b) and 18(b) amend the relevant sections of the Act for this purpose.

14. In the 1998 Budget, I announced a temporary suspension of the annual limits on tax deduction for banks' general provisions of 25 per cent of qualifying profits and 0.5 per cent of qualifying loans and investments for a period of two years (YA 1998 and YA 1999). Clause 7 amends the relevant section of the Act to reinstate these annual limits.

15. The next tax change amends the Act to enable certain diesel driven vehicles which are affected by the Land Transport Authority's goods vehicle classification exercise to qualify for the one year accelerated capital allowance. Clause 8 amends the relevant section of the Act for this purpose.

16. On 1 December 1999, the Stock Exchange of Singapore (SES) and SIMEX were demutualised and became subsidiaries of a new holding company known as the Singapore Exchange. The Income Tax Act is amended to reflect the change of name from SIMEX to Singapore Exchange Derivatives Trading Limited. The existing tax exemption on certain income of the company will continue until 31st December 2003. The Act is also amended to allow tax exemption of dividends paid out of these exempt profits of the company, subject to certain conditions. In addition, the restructuring will not affect the 10% concessionary rate of tax applicable to certain income derived by any company which was a member of the former SIMEX . Clauses 4, 5 and 13 amend the relevant sections of the Act for this purpose.

17. Finally, the last tax change pertains to the tax treatment of CPF Investment Scheme (''CPFIS'') investments. A CPF member may use CPF savings to purchase units in any approved CPF unit trust. Currently, certain interest and foreign dividends distributed by such CPF unit trust are tax-exempt. However, once the units purchased by the CPF member are transferred to him when he is entitled to withdraw his CPF moneys, his investment in those units should be considered as not falling within the CPF Investment Scheme. Any income arising henceforth from such investment should be subject to the normal tax treatment. Clause 2(d) amends the relevant section of the Act for this purpose.

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