Second Reading Speech By Senior Minister of State for Finance and Law Indranee Rajah on the Income Tax (Amendment No. 2) Bill 2016

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

2. The Income Tax (Amendment No. 2) Bill 2016, or the Bill in short, covers two sets of amendments:

(a) The first set of amendments allows Singapore to implement the Common Reporting Standard (CRS), an internationally agreed standard for automatic exchange of financial account information;

(b) The second set of amendments gives effect to the changes announced in the Budget 2016 statement to the Productivity and Innovation Credit (PIC) scheme.

3. The draft Bill on the first set of amendments was released for public consultation from 1 to 18 March 2016. MOF has evaluated all the feedback received and, where relevant, accepted the suggestions.

4. Madam, let me explain each of the two sets of amendments in turn.

Implementation of the CRS

5. Singapore is firmly committed to upholding internationally accepted standards for the exchange of information under the CRS.

• Members might recall that in 2014, the Global Forum on Transparency and Exchange of Information for Tax purposes (of which Singapore is a member) and the Group of Twenty (G20) major economies, endorsed automatic exchange of information (AEOI) under the CRS as a global standard, and asked all members to commit to a timeline of 2018 or earlier for implementation.

• The CRS sets out the financial account information to be exchanged, the financial institutions required to report, the different types of accounts and taxpayers covered, as well as the customer due diligence procedures to be followed by financial institutions.

6. Singapore had announced in November 2014 that we would implement the CRS to commence AEOI by 2018.

• To date, more than 90 jurisdictions, including major financial centres such as Dubai, Hong Kong, Luxembourg, and Switzerland, have also endorsed the CRS and committed to implementation timelines of 2017 or 2018.

7. The proposed amendments in this Bill will enable financial institutions to put in place necessary processes and systems to collect CRS information from 1 January 2017, in order to meet our timeline to commence first exchange of information under the CRS in 2018.

8. Clauses 4 and 5 of the Bill make amendments in relation to existing provisions in the Income Tax Act, which had previously been introduced in 2013 to implement the Singapore-United States Foreign Account Tax Compliance Act Inter- governmental Agreement (FATCA IGA).

• The provisions introduced in 2013 provide IRAS the necessary information-gathering powers to fulfil Singapore’s role in facilitating FATCA-compliance under the IGA.

• These powers include the routine collection and transmission of relevant information, as well as enforcement powers to sanction non-compliance.

• The amendments in this Bill make clear that these existing provisions are also applicable to any other AEOI agreement that is in accordance with the CRS. This will enable Singapore to sign Competent Authority Agreements with other jurisdictions to implement AEOI under the CRS.

9. Second, the amendments in Clause 8 empower financial institutions to collect and retain the CRS information for all non- Singapore tax residents, instead of only from tax residents of jurisdictions with which Singapore has an AEOI agreement with. This is known as the “Wider Approach”.

• The “Wider Approach” is an effective approach preferred by our financial institutions, because it removes the need for them to repeatedly review whether the accounts are reportable each time Singapore enters into a new Competent Authority Agreement.

• The Wider Approach has been adopted by many jurisdictions such as the UK, Sweden, Japan, and Korea.

10. Madam Speaker, I wish to make it clear that while financial institutions are empowered to collect and retain the CRS information for all non-Singapore tax residents from 1 January 2017, they will only need to transmit to IRAS the information relating to tax residents of jurisdictions with which Singapore has signed a Competent Authority Agreement with, for IRAS to implement AEOI under the CRS accordingly. Clause 9 of the Bill provides for this.

11. The amendments also ensure effective implementation of the CRS, including vesting in IRAS the necessary administrative powers to do so. The changes include mandating the electronic filing of returns and information, and are provided for in Clauses 2, 6, 7, 8, 9 and 10 of the Bill.

Changes to PIC scheme

12. Madam, the second set of amendments pertain to the changes to the PIC scheme which were announced in the 2016 Budget Statement.

The key changes are as follows:

(a) First, as we move towards more targeted measures under the Industry Transformation Programme as announced during the recent Budget, the PIC cash payout rate will be lowered from 60% to 40% for qualifying expenditure incurred on or after 1 August 2016;

(b) Second, to streamline and expedite processing of PIC cash payout applications, electronic filing of PIC cash payout applications will be made mandatory from 1 August 2016.

13. The PIC changes are provided for in Clauses 2 and 3 of the Bill.

14. Madam Speaker, I beg to move.