Second Reading Speech by The Deputy Prime Minister and Minister For Finance on The Income (Amendment) Bill 2002, at The Parliament, 25 Nov 200228 Nov 2002
Mr Speaker, Sir, I beg to move, "That the Bill be now read a second time".
2. The Income Tax (Amendment) Bill 2002 seeks to give legislative effect to the income tax changes that I announced in this year's Budget Statement. I have also taken the opportunity to make other amendments to the Income Tax Act to allow for changes that were not covered in the Budget Statement.
Tax changes announced in the 2002 Budget Statement
3. I shall begin with the tax changes announced in the 2002 Budget Statement.
a) To help us maintain our tax competitiveness, the corporate tax rate will be reduced from 24.5% to 22% with effect from Year of Assessment 2003. Clauses 30, 38, 47, 48 and 52 amend the Act to provide for these changes.
b) In a move to simplify the tax code and reduce tax compliance and administration costs, the current full imputation corporate taxation system will be replaced with a one-tier corporate tax system with effect from 1st January 2003. Under the new one-tier corporate tax system, tax will only be imposed at the corporate level and any dividends paid by the company will be tax-exempt in the hands of its shareholders. The flow-through of exempt dividends will be for unlimited tiers of shareholders with no minimum shareholdings requirement. As an anti-avoidance measure, preference dividends paid out of exempt income currently subject to tax under the imputation system will be deemed as interest. In addition, dividend franking credits allowable during the 5-year transitional period for the change in the tax system and exempt dividends will be capped in proportion to the shareholder's shareholding in the dividend paying company.
Clauses 10, 11, 12, 14, 17, 45, 46, 52, 58, 60 and 61 amend the Act to provide for these changes
c) To reduce the cost of doing business in Singapore, a loss-transfer system of group relief will be introduced with effect from the Year of Assessment 2003. Transfers the current year un-utilised capital allowances, losses and donations will be allowed between group companies. Clauses 28, 31, 33 and 62 amend the Act to provide for this purpose.
d) Next, to boost our fund management industry, the qualifying investment income of foreign investors from funds managed by all fund managers in Singapore will be exempt from tax. Clause 13 amends the Act to provide for this purpose.
e) To further enhance the attractiveness of managing a foreign trust in Singapore, the tax exemption granted on income from foreign trusts administered by an approved trustee company, will be extended to income derived through an eligible holding company. Clause 16 amends the Act to provide for the change.
f) To encourage further development of the equity capital market, income derived by Asian Currency Units of financial institutions and Approved Securities Companies from managing the initial public offering of securities of foreign companies listing on the Singapore Exchange, will be taxed at a concessionary rate of 5%. In addition, corporate SGX members who are ranked amongst the top 20 in terms of annual trading volume generated for each approved new derivative product denominated in any foreign currency will enjoy a concessionary tax rate of 5% on total income derived from transactions in each product. This will apply to new products that commence trade on SGX during the period 1 Jan 2002 to 31 Dec 2006. Clauses 39 and 40 amend the Act to provide for these changes.
g) To further develop our bond market, the 10% concessionary tax rate on interest from qualifying debt securities will be extended to bodies of persons. Clause 36 amends the Act to provide for this change.
h) To enhance Singapore's competitiveness as an insurance centre, approved general insurance companies will be allowed to claim tax deduction on special reserves set aside for certain offshore risks with effect from the Year of Assessment 2003. Clause 25 amends the Act to provide for this purpose.
i) To encourage Singapore-based companies to tap on research and development (or "R&D") capabilities globally to upgrade their operations in Singapore, I announced a single tax deduction for expenses incurred on R&D activities which are outsourced to any R&D organisation, whether local or overseas. In addition, the scope of further tax deduction for R&D expenses will be extended from specifies services to all services. Clauses 22 and 23 amend the Act to provide for these changes.
j) In order to enhance our attractiveness for international shipping companies, the scope of the Approved International Shipping Enterprise Scheme will be expanded to include towage vessels and salvage ships as qualifying ships for the purpose of the scheme. Clauses 10 and 15 amend the Act to provide for this change.
k) To further support regionalisation, the unilateral tax credit scheme will be extended to cover all services income remitted from all non-treaty countries with effect from the Year of Assessment 2003. Clause 54 amends the Act to provide for this change.
l) I will now cover changes related to individuals. To promote the international arbitration industry in Singapore, payments to international arbitrators will be exempt from withholding tax with effect from 3rd May 2002. Clause 10 amends the Act to provide for this purpose.
m) To reward effort and achievement, promote entrepreneurship, and attract and retain talent, the top marginal income tax rate will be further reduced to 22% with corresponding cuts in all income bands. In addition, the personal income tax structure will be simplified by consolidating the existing 10 bands to 7. This will take effect from the Year of Assessment 2003. Clauses 34 and 63 amend the Act to provide for these changes.
n) To attract talent to relocate to Singapore and use it as a base for regional activities as well as create favourable conditions for Singaporeans who have been away for some time to re-establish themselves in Singapore, special tax treatment will be given to these taxpayers classified as 'not ordinarily resident' or 'NOR' taxpayers. An NOR taxpayer will be exempt from tax on income earned before he came to Singapore and on his employer's contribution to his overseas pension fund. In addition, an NOR taxpayer who spends at least 90 days a year outside Singapore on business will pay tax only on his Singa-pore employment income, based on the number of days he spends here. This is subject to a floor tax rate of 10% on his total employment income. The NOR scheme will take effect from the Year of Assessment 2003. Clause 20 amends the Act to provide for these changes.
o) To further enhance our share acquisition scheme, I announced the following changes to the tax treatment of stock option and other forms of employee share ownership plans:
(i) Gains from stock options granted in respect of overseas employment will not be taxed. Accordingly, gains from stock options granted in respect of Singapore employment will be taxed no matter where the stock options are exercised;
(ii) Where there is a moratorium on the shares, the taxable gains arising from the shares acquired will be taxable only after the moratorium is lifted;
(iii) The scope of existing stock options incentive schemes is also extended to include employee share ownership plans so long as there is a holding period requirement that achieves a similar effect as the standard vesting requirement; and
(iv) Departing employees who are neither Singapore citizens nor Permanent Residents, or who are Permanent Residents leaving Singapore for good, will be deemed to have exercised their stock options at the time they cease employment, and pay taxes accordingly.
Clauses 2, 18, 19, 26 and 57 amend the Act to provide for these changes.
p) To further recognise the contributions of NSmen, the curr ent Nsmen reliefs will be increased by 50% with effect from the Year of Assessment 2003. Clause 34 amends the Act to provide for these changes.
q) The Government recognises that withdrawing the procreation tax rebate from divorcees can add to their already difficult burden. Divorcees will therefore be allowed to continue to claim their procreation tax rebates with effect from the Year of Assessment 2003. Clause 37 amends the Act to provide for this change.
r) To encourage families to look after aged parents in their own homes, a handicapped parent relief of $3,000 on top of the normal parent relief will be introduced with effect from the Year of Assessment 2003. Clause 34 amends the Act to provide for this purpose.
s) The original objective of granting double child relief to subsidise the overseas education of expatriates' children is no longer relevant. The Government therefore decided to reduce the quantum of the relief from $4000 to $3000 for the Year of Assessment 2003, and to withdraw the relief altogether with effect from the Year of Assessment 2004. Clause 64 amends the Act to provide for this change.
t) To reduce compliance costs, a final income tax of 15% will be levied on the gross income of non-resident professionals. However, non-resident professionals can still opt within a specified period to be taxed at 22% on income net of expenses if it is more advantageous to them. Clauses 38, 51 and 52 amend the Act to provide for these changes.
u) To promote the spirit of philanthropy in individuals and corporations, the following measures were introduced:
(i) Donations to Institutions of a Public Character (IPCs) will be allowed double tax deduction for donations;
(ii) Tax deductions for donations to IPCs can be carried forward for up to 5 years of assessment;
(iii) Some IPCs name their buildings or scholarships after their donors. These and other donations with similar naming opportunities will be allowed a single tax deduction;
Clause 31 amends the Act to provide for the first three changes.
Tax changes not announced in the 2002 Budget Statement
4. Sir, I shall now move on to tax changes that are not covered in the 2002 Budget Statement.
2001 Off-Budget Measures
5. As part of the 2001 Off-Budget package, the following measures were introduced:
a) The Government would grant a 50% corporate tax rebate on the first $25,500 of tax payable and a further 5% rebate on any tax payable above $25,500 to companies on their corporate income tax payable for the Year of Assessment 2001. For the Year of Assessment 2002, a corporate tax rebate of 5% was granted.
b) The Government would grant an additional 5% personal income tax rebate to individuals on their income tax payable for the Year of Assessment 2001. For the Year of Assessment 2002, a 10% personal tax rebate was granted.
c) The Government would remove the income tax on gains from short-term property transactions, contracted on or after the 13th October 2001.
Clauses 5, 6, 49, 59 and 65 amend the Act for these purposes.
Global Trader Program
6. With effect from 1st June 2001, the Approved Oil Trader scheme and Approved International Trader scheme were merged into a generic trading scheme called the Global Trading Program. Clauses 41, 42 and 44 amend the Act for this purpose. Comptroller of Income Tax's powers to access and seize records
7. At present, the Comptroller of Income Tax's powers to access and seize records may be limited only to physical documents. The Act is amended to enable Comptroller to have access to and take possession of information and record kept in electronic or other format. Clauses 55 and 56 amend the Act for this purpose.
8. The Act is also amended to provide that property trusts that are in the business of making investments, like other companies that are in the business of making investments, will not be allowed to carry forward to future years the excess of expenses and capital allowances over income. Clause 4 amends the Act for this purpose.
Supplementary Retirement Scheme
9. Under the Supplementary Retirement Scheme (or "SRS"), non-Singaporeans are subject to withholding tax on withdrawals in excess of contributions made in the preceding years, but not in the current year. The Act is amended to close this loophole by extending applicability of the withholding tax to the current year also.
10. The Act is amended to allow Minister to remit, for a good cause, the 5% penalty for pre-retirement SRS withdrawals.
11. The Act is also amended to make clear that an individual must be a non-Singaporean SRS account holder for a continuous period of at least 10 years to qualify for a waiver of penalty and 50% tax discount on his SRS withdrawals. Clauses 8 and 50 amend the Act for these purposes.
Foreign income taxed at concessionary Rate
12. Clause 10 amends the Act to make clear that Singapore-based companies may offset their losses from local operations against certain foreign income remitted into Singapore at a concessionary tax rate under Section 13(8) of the Income Tax Act.
Capital allowance for purchase or development of website
13. Clause 27 amends the Act to provide for a 100% write-off of capital expenditure incurred on the purchase or development of websites. This will encourage businesses to leverage on information technology to expand their customer reach or offer new electronic services.
Securities, lending or repurchase arrangements
14. Finally, Clauses 3, 7, 9 and 26 amend the Act to provide the tax treatment applicable to certain securities lending or repurchase arrangements.
15. Mr Speaker, Sir, I beg to move.
25 Nov 2002