Economic Expansion Incentives (Relief from Income Tax) (Amendment No 2) Bill

Mdm Speaker, I rise in support of the Economic Expansion Incentives (Relief from Income Tax) (Amendment No 2) Bill.

Singapore has benefited greatly from our investment promotion activities. As the global centre of economic gravity moves to Asia, we will face increased competition in our bid to anchor more strategic functions and regional headquarter activities to Singapore. Hence, the amendments to the Economic Expansion Incentives are indeed timely as we seek to develop a healthy pipeline of higher value-add jobs for the nation.

At this point, I wish to highlight three key points for consideration. The first point is related to the longer tax relief period. The maximum period that companies can receive development and expansion incentives will be raised from 20 years to 40 years. This is a significant increase that could further strengthen Singapore's value proposition as a desired location for MNCs and Asian enterprises to anchor their strategic functions, manage their operations and harness opportunities, both in Asia and globally.

Having said that, in the course of enhancing the EEI, we also need to carefully consider and ensure that qualifying companies will indeed bring long-term gains to our economy, and benefits that will outweigh the loss of tax revenue. At this point, I would like to clarify with the Minister if there are measures built in to discourage the pursuit of short-term gains or easy pullout by companies. Due to technological advancement and globalisation, companies are able to uproot from one country to another easily. Based on the World Bank Group Report, there is growing evidence, and I quote, "tax incentives are a crucial factor for mobile firms and firms operating in multiple markets − such

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as banks, insurance companies and Internet-related businesses − because these firms can better exploit different tax regimes across countries".

In fact, the recent January 2013 Asia Business Outlook Survey by the Economist Corporate Network revealed that companies are relocating their operations more frequently today than in the past. The same report also highlighted that Singapore was losing some of our shine due to factors such as rising costs and labour shortages. Besides relying on incentives like the DEI to attract companies to Singapore, we need to watch out for key factors that could erode our competitive advantage, such as cost of living, inflation, upward property prices and manpower crunch.

In addition, tax competition between countries can create a "race to the bottom" that benefits only investors. To avoid such scenarios, we could look into how to further leverage our international or regional trade agreements as alternative tools of attracting investments and jobs.

Madam, my second point is related to the application of the DEI for homegrown companies. Besides attracting foreign companies, I would like to urge the MTI, MOF and Government agencies to look into how the DEI could be used with some flexibility to catalyse the development of our own local companies into global champions. Expanding overseas is a hefty investment and involves a long gestation period before companies see significant returns. Similarly, having robust intellectual property and R&D are crucial for our local companies to compete internationally.

So for local companies with the potential to be global champions that could put Singapore on the world map, a flexible and supportive DEI could give them the push they need to succeed. For instance, letting them plough back profits made from Singapore markets into R&D could give them a much-needed source of funds for such activities. A DEI that successfully complements the current grants and support provided by SPRING Singapore and IE Singapore could well boost our Singapore companies' expansion into regional and international markets.

Madam, my final point is on the Integrated Investment Allowance (IIA). To grow high-value added activities in Singapore, our Singapore businesses must expand abroad and capture new growth opportunities. Expanding abroad could also often mean relocating lower cost activities overseas. This is where the IIA really comes in handy. It will give our local companies an additional allowance on fixed capital expenditure incurred for productive equipment placed overseas.

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So, the IIA is a good tool that would allow Singapore-based companies to make long-term strategic decisions for their businesses and operations. In relation to the Bill's amendments, I hope the Minister can elaborate on the type of companies that we wish to attract and target under the scheme and what would be the economic benefits we can expect for Singapore.

In conclusion, I believe the EEI amendments will continue to bring positive effects to our local economy and fellow Singaporeans. However, to ensure that we continue to benefit from the gains that investments will bring, we must constantly work at keeping our investment climate an attractive one. Besides building good trade and business policies, our human capital, technological capacity, level of productivity and business cost will hold the keys to future competitiveness of our economy while global headwinds continue to blow. On this note, I support the Bill.

Mdm Speaker, I thank Member Low Yen Ling for her very thoughtful comments. I just want to reiterate the key point that she made and that is that even as we tweak the tax incentive regime, in the end, we have to depend on our basics, our ability to compete in order to attract investments. Hence, we have to depend on our regulatory system, our policy certainty, our human capital, our competence, our education. These are the basics. What we are addressing today is adjustments to the tax incentive scheme to make ourselves more effective.

Let me address the three points that she raised. First, on the expansion of the tax incentive period from 20 years to 40 years. I would like to assure the House that this extension of a longer period would be used extremely sparingly, and this is only meant for companies that show commitment to the long-term development of their future in Singapore. To track their growth and commitments in Singapore, we would have intermediate milestones and intermediate targets. So the extent to which the tax regime would be extended would depend on them meeting these commitments and intermediate milestones.

The second point is DEI for homegrown companies. This is clearly also extended to our homegrown companies. We encourage our homegrown companies to take full advantage of the development expansion incentives. In particular, I agree with Member Low Yen Ling that we should try to encourage our local companies to undertake more R&D, to build up their intellectual property capital and to be able to compete in the future.

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The third area is the application of the Integrated Investment Allowance (IIA). This is to recognise the reality of regional production chain and regional supply chain. We cannot expect everything to be done out of Singapore. To take full advantage of our regional trade agreements, we should increasingly see many companies locating the different parts of their production and supply chain throughout the region. Therefore, we need to tweak the IIA to respond to this new reality. Again, this would be used very sparingly to make sure that the appropriate value-added activities are located in Singapore before these companies can qualify for the IIA.

*Question put, and agreed to.*

*Bill accordingly read a Second time and committed to a Committee of the whole House.*

*The House immediately resolved itself into a Committee on the Bill. – [Mr Lim Hng Kiang].*

*Bill considered in Committee.*