Second Reading Speech by Minister of State for Finance and Transport, Mrs Lim Hwee Hua on The Income Tax (Amendment No. 2) Bill 2007, at The Parliament, 13 Nov 200713 Nov 2007
Mr Speaker, Sir, I beg to move, "That the Bill now be read a second time".
2. The Income Tax (Amendment No. 2) Bill 2007 comprises 2 categories of changes. The first provides for the income tax changes announced in this year's Budget Statement in February 2007. 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 No. 2) Bill was released for public consultation from June to July this year. The draft Bill has been revised to incorporate suggestions from businesses and members of the public.
TAX POLICY CHANGES ANNOUNCED IN 2007 BUDGET STATEMENT
4. Let me first highlight the key tax policy changes that were announced in the 2007 Budget Statement.
(a) Reducing Corporate Tax Rate
5. With effect from Year of Assessment 2008, the corporate income tax rate will be reduced from 20% to 18%. This change, together with other related changes, are reflected in the Bill under clauses 18, 20(b), 25(a), 25(e), 25(i), 29, 30, 31(a), 31(b), 31(c), 33 and 35(b).
(b) Increasing Partial Tax Exemption Threshold for Companies
6. The chargeable income of companies that qualifies for partial income tax exemption will be increased from the current $100,000 to $300,000 with effect from Year of Assessment 2008. With the change, 75% of the first $10,000 of chargeable income and 50% of the next $290,000 of chargeable income will be exempt from income tax. Clauses 25(f) and 25(g) of the Bill provide for this change.
(c) Lifting the Sunset Clause for the Income Tax Exemption Scheme for Newly Incorporated Companies
7. Currently newly incorporated companies may qualify for full tax exemption on the first S$100,000 of chargeable income for each of the first 3 Years of Assessment falling between Year of Assessment 2005 and Year of Assessment 2009. As part of Government's continuing efforts to encourage entrepreneurship, the Year of Assessment 2009 expiry date will be removed. Clause 25(h) of the Bill provides for this change.
(d) Promoting Singapore as a Philanthropy Hub
8. Several changes to the taxation and regulatory framework for charity were announced in Budget 2007. They formed part of our efforts to promote charitable giving and develop Singapore as an attractive international hub for philanthropic and not-for-profit organisations. One major change is the removal of the 80:20 spending rule for income tax exemption for charities. With effect from Year of Assessment 2008, we will remove the requirement for charities to spend at least 80% of their annual receipts on charitable objects in Singapore within 2 years in order to enjoy income tax exemption. All registered and exempt charities will enjoy automatic income tax exemption. This will enable charities to optimise their investments and use of funds over time to sustain their charitable programmes in Singapore as well as overseas. These changes are covered by Clauses 6(g) and 8 of the Bill.
9. A new tax incentive scheme has also been introduced to give income tax exemption to approved not-for-profit organisations that can either bring economic value to Singapore with linkages to key industry clusters or contribute to developing Singapore as a philanthropy hub. Clause 11 of the Bill provides for this tax exemption.
(e) Promoting Fund Management in Singapore
10. As part of Singapore's continuing efforts to promote the fund management industry, the ''80:20'' rule under our tax exemption incentive scheme for non-resident funds will be removed. Details of the revised tax exemption scheme for fund management have been released by the Monetary Authority of Singapore on 31 August this year. The revised scheme gives certainty of tax exemption to foreign investors and allows resident investors to also invest in managed funds, subject to specified investment limits. The changes will help to boost the fund management industry and provide fund managers based in Singapore with greater flexibility in sourcing for mandates. These changes are covered by Clauses 7, 10 and 42(o).
OTHER TAX POLICY CHANGES
11. I shall now deal with other tax policy changes which require amendments to the Income Tax Act. Our existing tax policies and incentive schemes are reviewed regularly to ensure they remain relevant. Let me highlight four major changes to our tax policies and incentives that came about as a result of this review process.
(a) Deferral of Claim for Accelerated Capital Allowance
12. Currently, accelerated capital allowances are granted over 3 years in respect of capital expenditure incurred on plant and machinery used for the purposes of trade, business or profession. Once the claim is made, the law requires that the accelerated capital allowances be made over 3 years on a consecutive basis. This requirement is now lifted. This change will give taxpayers flexibility to defer the claim for accelerated capital allowances. This change takes effect from Year of Assessment 2009. Clause 16(a) of the Bill provides for this change.
(b) Enhancement and Refinement of Tax Transparency Treatment for Real Estate Investment Trusts (REITs)
13. The scope of the tax transparency treatment granted for REITs is further enhanced to encourage the listing of REITs in Singapore. Tax transparency treatment means that the REIT will not be subject to income tax on its qualifying income at the trust level. Instead, the distribution out of such income will be assessable in the hands of REIT unitholders, unless otherwise exempted. With the enhancements, the Comptroller of Income Tax will be able to extend tax transparency treatment to a wider range of income streams derived by REITs from the activities they engage in. This will help to improve the tax competitiveness of our REITs regime. These changes take effect from Year of Assessment 2008. Clauses 6(e), 20(f), 25(b), 25(c), 25(d) and 25(j) of the Bill provide for these changes.
(c) Amendment to Facilitate Income Tax Data Sharing
14. To facilitate the application by individuals for Government schemes such as social assistance, this amendment provides explicitly that the Comptroller of Income Tax may share taxpayer information with relevant government agencies, subject to the express consent by taxpayers to release the information. This amendment will also allow the Comptroller to share non-identifiable taxpayer information with relevant government agencies to improve research and the quality of statistics for policy formulation and evaluation. Agencies receiving the information will be subject to rules that ensure that the confidentiality of the information is not compromised. These changes are covered by Clause 2 of the Bill.
(d) Amendment to Eligibility Criteria for Parenthood Tax Rebate and Working Mother's Child Relief
15. The Parenthood Tax Rebate is currently given for a qualifying child who at the time of birth has siblings in the same household. For reconstituted households after a divorce, both divorcees may want to claim the same child or children from their previous marriage as a member of their separate households, so that any subsequent births in their new families can qualify for the rebate. This change will specify the manner of determining the household membership of children born before the divorce of the parents, so as to avoid the situation of the same child being double counted in separate households for Parenthood Tax Rebate claims.
16. Currently, when there is a divorce, both the biological and step mothers could potentially claim Working Mother's Child Relief for a qualifying child. The change is to allow Working Mother's Child Relief for only one claimant in respect of the child. The d eduction shall only be made to a married woman, divorcee or widow who has maintained the child; and shall be limited to only one claimant. Where there are competing claims, the Comptroller shall determine, having regard to the circumstances of the case, to whom the deduction shall be allowed. Both changes will take effect from Year of Assessment 2008. These changes are covered by Clauses 24 and 41 of the Bill.
17. Finally, thirteen 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 put members through the details of these remaining changes.
18. 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.