Summary of Responses - Public Consultation on Draft Income Tax (Amendment) Bill 2007

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A public consultation exercise on the draft Income Tax (Amendment) Bill 2007 was held from 15 June to 14 July 2007 to obtain feedback on the draft Bill.

2. The draft Income Tax (Amendment) Bill 2007 put up for consultation related to the following:

a. Budget 2007 tax changes. These are tax changes announced by Second Minister for Finance Tharman Shanmugaratnam in his Budget 2007 Statement. An example is the reduction in corporate income tax rate to 18% with effect from the year of assessment 2008.

b. Other tax changes. These are tax changes or refinements to existing tax policies and administration resulting from on-going reviews of the income tax system. An example is the Enhancement and refinement of tax transparency treatment for Real Estate Investment Trusts.

3. The summary table lists all the tax changes and explains the amendments to the Income Tax Act.


4. A total of 29 comments were received, most of the feedback being from professional bodies and companies. The responses were of high quality and helpful for improving the income tax legislation.


5. 14 of the 29 comments received (48%) related to the drafting of the Income Tax (Amendment) Bill 2007. The other comments were requests to review tax policies or to clarify the policy intent behind the tax changes. The tax changes that received the most comments were as follows:

a. Tax deduction of borrowing costs;
b. Tax treatment of qualifying debt securities (QDS);
c. Tax treatment of Real Estate Investment Trusts (REITS).

6. MOF has considered all the comments carefully. Of the 29 comments on the draft Bill, 21 have been accepted as they help clarify policy intentions and improve the formulation of the legislation. Changes will be made to the draft Income Tax (Amendment) Bill to take in these suggestions.

7. The comments which have not been accepted by MOF include suggestions that were inconsistent with convention in drafting legislation or were beyond the scope of the underlying objectives of the tax policy in question.

8. The key comments received and MOF’s responses to them are summarised below:

Drafting-related Comments

1. Tax Deduction for Borrowing Costs

Respondents suggested amending the proposed section 15(1)(j) to make clear that this section does not apply to payments that are not subject to withholding tax under section 45.

MOF’s response: Accepted. The draft section 15(1)(j) only applies to payments that are subject to withholding tax under section 45. This section would be amended to make clear that payments exempt from withholding tax under section 45 would be excluded from the provisions of section 15(1)(j).

2. Consequential Changes from One-tier Corporate Tax System

Respondents commented that, with One-tier corporate tax system taking full effect from 1 Jan 2008, the provisions requiring payment of exempt dividends in the Economic Expansion Incentives Act (EEIA) would be redundant. The legislation should be made clear beyond doubt that such provisions are no longer relevant.

MOF’s response: Accepted. A consequential amendment will be inserted to the EEIA to provide for the cessation of the exempt dividend accounts in the EEIA from 1 Jan 2008.

3. Tax Treatment of Qualifying Debt Securities

(a) A respondent commented that the definition of “prepayment fee” in the proposed section 13(16) seems to impose an unnecessary requirement in the method of ascertainment of prepayment fee. To avoid this, the respondent suggested that the determination be tied to the prepayment event since this is usually reflected in the underlying terms of the issuance of the debt securities or qualifying debt securities.

MOF’s response: Accepted. The Income Tax (Amendment) Bill will be amended to clarify that early redemption of the securities will be determined by the terms of the issuance of the debt securities or qualifying debt securities.

(b) One respondent noted that the proposed section 10(27) deems the income of the Special Purpose Vehicle to have been derived by the originator but does not mention that the tax will be imposed only “at the end” of the Islamic debt securities arrangement, as set out in the MAS circular.

MOF’s Response: Accepted. The Income Tax (Amendment) Bill will be amended to specify that the tax will be imposed at the end of the Islamic debt securities arrangement.

4. Real Estate Investment Trusts (REITs)

A respondent suggested excluding Singapore franked dividend from the word “income” in the proposed section 43(2A). She also suggested making it clear that interest receivable (accrued but not paid) that is “payable out of rental income” be granted tax transparency treatment.

MOF’s response: Accepted the suggestion to exclude Singapore franked dividend from the word “income”. As for the other suggestion, the current drafting is meant to be wide to capture this intention.

Policy-related Comments

5. Tax Deduction for Borrowing Costs

A respondent suggested to include the following expenses in the proposed list of deductible borrowing costs under the proposed section 14(1)(a):

a) Legal fees and stamp duties on loan/ financing documentation;
b) Agency, security trustee fees for syndicated loans;
c) Underwriting, management fees, agent and registrar fees for loans or bonds or medium term notes;
d) Performance/ placement incentive fees to arrangers for bonds/ notes issue.

MOF’s response: Not accepted. The policy intent is to allow prescribed borrowing costs that are akin to interest or to reduce interest costs to be deductible under the proposed section 14(1)(a). These expenses are administrative or service fees charged by the arranger or lawyers. They are not related to the interest payment of the loans. Hence, they will not be allowed as a tax deduction.

6. Tax Treatment of Discount/ Premium

Respondents noted that it is unfair to tax a bondholder on the full amount of discount or premium (computed by taking the difference between the redemption value upon maturity and the initial amount paid when the security is first issued) when the bondholder could have bought the debt security from the secondary market and hence will earn the discount or premium for the duration held and not the full discount or premium.

MOF’s response: Not accepted. The general tax principle is that the discount or premium is only taxable or deductible when the bond is redeemed or upon maturity as this is the point where the income accrues to the taxpayer/ expenses are incurred by the taxpayer. This is also the current tax treatment and the law is amended merely to make clear this treatment. It is not always the case that the final bondholder will be taxed on the full discount/ premium. If the bondholder is a passive individual investor, he would be exempted from tax on discount from debt securities under section 13(1)(zi)

7. Real Estate Investment Trusts (REITs)

One respondent sought clarification whether there is any restriction on the form of income that is payable out of rental income or income from the management or holding of immovable property in Singapore, in particular, whether income includes interest income or income derived from a partnership.

MOF’s response: We would like to clarify that the current drafting is meant to cover any form of income, including interest income and income derived from a partnership, derived by a REIT that is payable out of rental income or income from the management or holding of immovable property in Singapore.

9. MOF thanks all who have responded for their comments. We will continue the practice of consulting the public before finalising the amendments to our income tax laws.

Public Consultation