Debated in Parliament on 14 Nov 2012.
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Order for Second Reading read.
Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."
The Income Tax (Amendment) Bill 2012 covers both the income tax changes announced in the 2012 Budget Statement and other changes arising from the regular review of our income tax system.
The draft of the Bill was released for public consultation from 24 July to 13 August this year. MOF has revised the Bill to incorporate the suggestions accepted for implementation.
Sir, most of the tax changes in this Bill have already been debated in this House following their announcement in the 2012 Budget Statement. Let me highlight the key changes.
First, the Productivity and Innovation Credit (PIC) Scheme has been enhanced with special consideration to the needs of small businesses. The cash reimbursement for up to $100,000 of PIC expenditure was doubled from 30% to 60%. We are allowing the cash payout to be paid in a more timely manner, on a quarterly rather than yearly basis. To help more SMEs qualify for training support, we are also removing the requirement for certification by the Workforce Development Agency and Institute of Technical Education for in-house training which cost up to $10,000 per Year of Assessment (YA). Clauses 14, 15, 19, 21, 22, 23, 32 and 51 of the Bill provide for these changes.
Second, a one-off SME cash grant of up to $5,000 has been provided. This grant gives the SME-recipients a very high degree of flexibility to invest in areas that are most helpful to their coping with the changing business environment. This is provided for in clause 47.
Third, the Renovation and Refurbishment Deduction Scheme has been made a permanent feature of our income tax code. These enhancements are particularly helpful to small businesses in the retail and Food and Beverage sectors which number some 20,000. Further enhancements include the doubling of the existing cumulative expenditure cap to $300,000 over three years. Clauses 18 and 31 provide for these changes.
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Fourth, the new tax provisions will give businesses certainty on the non-taxation of gains on disposal of qualifying equity investments. This will help facilitate corporate restructuring, minimise compliance costs and enhance Singapore's attractiveness as a place for business. This is provided for in clauses 11 and 51.
Fifth, the earned income relief and handicapped earned income relief will be doubled for older workers aged 55 years and above, to support and encourage them to stay employed. This is provided for in clause 35.
Sir, I shall now deal with the other tax changes covered in this Bill that arise from our ongoing review of the Income Tax Act. Let me highlight three of these changes.
First, we will exempt Workfare payments from income tax. Workfare payments are currently taxable even though most recipients would not need to pay income tax, given that their wages fall below the threshold for liability for income tax. This change has been introduced to provide certainty of non-taxation. The exemption will apply retrospectively from Year of Assessment 2006 when Workfare was first introduced. This is consistent with Workfare's policy objectives, which are to supplement the wages of older low-wage workers, and encourage them to find work or continue working. Clause 3 provides for this.
Second, with effect from 1 January 2011, eligible entities have been able to prepare their financial accounts using the Singapore Financial Reporting Standards (SFRS) for Small Entities. MOF and IRAS have assessed that the resultant change in accounting treatment does not require changes to existing tax rules except for financial instruments. We propose amending the Income Tax Act to allow small entities the option of aligning the tax treatment to the SFRS for Small Entities. This is provided for under Clause 25.
Third, the CPF Minimum Sum Topping-Up Scheme has been enhanced to extend tax deductions on cash top-ups made to the CPF Special or Retirement account of parents-in-law and grandparents-in-law. These changes will take effect from 1 January 2013. Clause 35 provides for this.
The remaining legislative changes arising from our periodic review of the income tax system are either technical in nature or relate to improvements in tax administration. Mr Speaker, Sir, I beg to move.
Question proposed.
Mr Speaker Sir, I rise in support of the Income Tax Amendment Bill. I would like to touch on two key areas today. One, the need for greater support for families with stay-at-home mothers. Two, SMEs and the enhancements to the Productivity and Innovation Credit (PIC) Scheme.
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The latest changes in the Bill have certainly provided greater consideration to the elderly, handicapped and low-income families. However, I wish to highlight the need for greater support for stay-at-home mothers, a group whose work and contributions deserve greater recognition and sustenance.
While working mothers enjoy support in the form of the Working Mothers' Child Relief (WMCR), stay-at-home mothers do not receive any tangible relief or support for the income loss they suffer as a result of stopping work to care for their children. I understand the good intentions behind WMCR, that is, to encourage a higher level of women's participation in our workforce, an important factor in resource-constrained Singapore, especially with today's tight labour market. However, mothers who stay at home to care for their children, whether by choice or circumstances, should not be unduly disadvantaged. The private, unpaid, 24-hour care-giving work of stay-at-home mothers should receive greater support from the Government.
Currently, families with stay-at-home mothers are seemingly being disadvantaged by decisions to put the family before career. Why do I say that? Because, in general, everything else being equal, a single-income family that earns the same amount as a dual-income family ends up paying more in taxes. If Members could look at this slide [a slide was shown to hon Members]. In this slide, scenario A, excluding all reliefs, a family with a single breadwinner earning $70,000 would pay $1,950 in income tax, while in scenario B, a dual-income family with husband and wife working, each earning $35,000, would pay $195 in income tax. In this example, coincidentally, the income tax paid by the dual-income family is 10% that of the amount paid by the single-income family.
To level the playing field, can I suggest for the Ministry to review and strongly consider increasing the current Spouse Dependency Tax Relief of $2,000. Currently, I understand that individuals who are supporting spouses and who earned not more than $4,000 in annual income in the preceding year are eligible for this relief. Could the Ministry consider, number one, increasing the Spouse Dependency Tax Relief from $2,000 to $7,000, to be on par with that of parent relief? Secondly, increasing the current income cap criteria of $4,000 to provide greater tax relief to families and husbands of stay-at-home-mothers with children under 18 years old. This could provide additional savings to households relying on a single income, especially those belonging to the sandwiched group of lower-middle and middle-income families that have to support and care for the young as well as the old.
When contemplating marriage and children, many young unmarried women have expressed their apprehension and dilemma between the desire to be a stay-at-home mother at some point in time for a few years, and the opportunity cost that could come with a single-income family. While the state cannot make all things equal, it can certainly create an environment that is hugely pro-family and supportive of the women's role, be it at work or at home. So, in essence, we need tax measures that are not only pro-family and pro-children, but also pro-women. If Singapore's mothers decide to devote themselves to caring for the family, we should not only extend them our respect but we should also try to extend them longer purse strings.
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The other key area I wish to highlight is with regard to the enhancements to the Productivity and Innovation Credit (PIC) Scheme in relation to SMEs. The SMEs collectively contribute to half of Singapore's GDP and 70% of employment. They are certainly critical to Singapore's economic growth. With increased global competition and shorter business cycles, SMEs face enormous pressure to differentiate themselves through innovation. However, we all know investments into R&D take time to bear fruit – from an idea to proof of concept, to getting market traction and, eventually, building a good viable business and revenue model. Even as the process of R&D takes place, SMEs face the constant challenge of maintaining a healthy cash flow. Therefore, our SMEs need significant support in this area.
The move to raise the cash payout rate from 30% to 60% for up to $100,000 of qualifying PIC expenditure for each Year of Assessment is a good one. The PIC covers activities, such as Training, Automation, Design, Acquisition and Registration of IPR, as well as R&D. However, in addition to raising the cash payout rate, could we also look into the possibility of increasing the limit of $100,000 on these PIC payouts, specifically for R&D expenses?
In Australia, for example, SMEs are eligible for a tax credit of 45% of R&D expenditure, which is equivalent to about 15 cents per dollar of R&D expenditure. This puts money back into the SMEs – an important factor for their healthy cash flow and viability. If I could refer Member to this example [a slide was shown to hon Members], a Singapore company making investments of $600,000 into R&D and, similarly, in Australia, an Australian company making $600,000 of investment into R&D. In Australia, that company, would be eligible to receive $90,000 in cash payout while the Singapore company will receive a payout of $60,000. In Australia's case, there is no limit placed on the R&D cash payout.
In fact, if Members could look at the slide over here [a slide was shown to hon Members], as this slide indicates, as the amount of R&D investment increases, the difference between what an Australian company would receive in cash payout, compared with a Singapore company, would be much larger. So, while the new increase in cash payout rate to 60% is significant, the ceiling of $100,000 would still make SMEs think twice about investing heavily – the keyword here is "heavily" – into R&D.
So, as the SMEs go through the pain of a labour crunch and global economic slowdown, they would need all the help they can get to raise productivity. Some of them may even be making losses. For such cases, the 400% tax deduction on qualifying expenditure may not even be an attractive incentive. So, if we are serious about getting SMEs to raise productivity, we need more aggressive measures to put more cash directly back into the SMEs' pocket for immediate effect.
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This brings me to my next point on the PIC. The new measure to include non-certified in-house training expenditure up to a cap of S$10,000 per Year of Assessment is a welcome development. However, this amounts to 2.5% when compared to the overall cap of $400,000 for training expenditure. Due to the $10,000 cap, the total tax benefit for a company's spending on training non-certified in-house training would be $6,800 a year. To spur more training by SMEs, I hope the Ministry would be open to considering increasing the $10,000 ceiling so as to encourage more internal training activities by SMEs which may be non-certified in nature. Why is that so? This is because internal training activities are often more affordable, flexible and easily carried out. Due to their size and operations, SMEs face many constraints in releasing their staff for training – from scheduling constraints to costs issues to manpower needs, especially in today's tight labour market. A higher ceiling for non-certified internal training would provide SMEs with more flexibility and opportunities for courses conducted and customised to their needs, pace and budget.
The slew of measures announced at Budget 2012 has certainly enhanced the platforms for enterprises to tap on to raise their productivity. While the SMEs acknowledge the leg-up, they have also expressed their desire for more help. In fact, the recent SIM Management Monitor survey conducted by the Singapore Institute of Management revealed that one in two SMEs wished that the Government could "help support businesses become more productive". I hope the Ministry can review the present ceilings on PIC to spur more SMEs into raising their productivity. On this note, I support the Bill.
Mr Speaker, Sir, I have only a few points of clarification from the Minister of State which I would like to make in regard to the amendments in the Income Tax (Amendment) Bill.
I refer to clause 50, which provides for tax relief for a married woman, divorcee or widow who maintains a child who dies. This is a long overdue move. In fact, I wish it would go further. How about divorced men or widowers who had supported the maintenance of a child who died? Surely, they should be entitled to the same benefits, if he faces the same situation as a woman would under this clause. I do not have the figures with me, but I would think that the number of men in the situation of maintaining a child alone is increasing.
As a clarification, could the Minister tell us if there is any age criterion for who would qualify as a child under this clause?
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I would also like to ask the Minister the rationale behind the pattern of increment of the tax relief for the parent of a child who dies, for example, 15% for the first child, 20% for the second child and 25% for the third child. I understand this is how most tax relief schemes generally work, but the situation is really something quite different. A death is a death, regardless of being the first, second or third in the family. The amount of stress and pain is always felt.
Going further on the issue of allocating tax relief to the citizens who would rightly benefit from it, has the Minister considered implementing tax relief for NSmen performing reservist training? I believe this would be the right way to acknowledge the service they render to our country, while sacrificing time and effort from their work. I think it is a more befitting way to do so than the "hongbao" of $50 to $100 vouchers.
Mr Speaker, Sir, first, let me thank both Ms Low and Mrs Chiam for supporting the Bill.
I should first highlight that in response to Ms Low's questions on spouse relief, the subject actually is not under review in this round of amendment but, nevertheless, I will respond briefly to her. I fully agree with her that stay-at-home mothers – actually stay-at-home spouses in general – make very important contributions to the family, enabling the working spouse to continue doing so with peace of mind. With regard to the slide which Ms Low has shown, I thought it would be useful just to make a small point on the example that she raised. She has talked about a couple, one of whom stops working and then the person who remains working is able to earn the same income that the two of them used to earn together. And as a result, because the household income is unchanged – the combined income is unchanged – more taxes are being paid. I think they are actually not quite comparable simply because it is more likely that there is going to be a loss of total income in any case which even a reduced tax bill does not make up for. This reduced tax bill, especially even if we were to make the reliefs much higher, would not make up for the loss of income. I think we should recognise that.
Of the group of lower to middle-income families which Ms Low, in fact, said was trying to benefit through any increase of such reliefs, they would benefit less compared to higher-income families. And that is why the Government does not look at tax reliefs alone but takes a holistic approach to supporting families, and there are several substantive forms of assistance to families that are given, whether the mothers are in the workforce or at home. This includes the Baby Bonus, infant care and childcare subsidies. The Baby Bonus, for example, is the same amount, regardless of the work status of the mother. The childcare subsidies are differentiated, but for stay-at-home mothers they amount to $1,800 a year if they send their children to childcare centres. So, on a total package basis, such help extended to families with stay-at-home mothers is much larger than the tax benefit of spouse relief. Nonetheless, we will bear in mind Ms Low's point on spouse relief in future reviews.
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Ms Low has brought up the example of how the Australians support research and development (R&D). For the benefit of the Members of the House who are perhaps less familiar with how the Australian system works, companies with turnover of less than $20 million can enjoy a 150% tax deduction on an unlimited amount of R&D spending. They can also get a 45% refundable tax credit, which is simply a cash conversion, because the corporate tax rate in Australia is 30%. For companies with more than $20 million in turnover, they can enjoy a 133% tax deduction on R&D spending, but there is no cash conversion option for this group. In comparison, the tax deduction for Singapore companies can be up to 400% for the first $400,000 expenditure, regardless of the company's size. And R&D spending above $400,000 also qualifies for a 150% tax deduction. In other words, overall, Singapore's tax deduction for R&D spending is actually more generous, especially for smaller businesses. In terms of cash conversion, the PIC offers a higher conversion rate of 60 cents for every dollar of R&D expenses, whereas Australia offers 45 cents for companies with less than $20 million in turnover. However, while the PIC has a cap of $100,000 expenses for cash conversion, there is no cap in Australia. So, I understand Ms Low's concern about whether this cap constrains our SMEs in their R&D efforts. I would like to assure her that, in fact, based on the latest claims that have been submitted, most SMEs have not exceeded the $100,000 expenditure cap on all types of activities and not just R&D. In other words, the cap is not a constraint in most cases.
Every country decides on its tax policy to meet its own objectives and, therefore, we can see that the Australian R&D cash refund is targeted at smaller businesses, specifically those with R&D spending. Singapore's PIC cash conversion, on the other hand, aims to help all SMEs that invest in productivity and innovation, of which R&D is just one avenue.
Ms Low further suggested that we consider raising the $10,000 ceiling on in-house training so as to spur more training by the SMEs. She cited that due to their size and operations, SMEs face many constraints in releasing their staff for training. We agree that this is something that is very important and we have to encourage as many SMEs as possible to take training seriously and as a means for uplifting the quality of their workforce. But I should clarify that the expense ceiling of $10,000 is for in-house training that is not certified by WDA or ITE. Training expenditure in excess of the $10,000 cap can still qualify for PIC if the in-house training courses are certified by WDA or ITE, and there are quite a large number of such courses available. Based on the Year of Assessment 2011, PIC claims for training, SMEs incurred an average of $9,000 for in-house training. Therefore, for the time being, a $10,000 threshold is adequate. Let me assure Ms Low that we will monitor the expenditure trends very closely and adjust the PIC parameters to meet the needs of SMEs.
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Mr Speaker, I turn briefly to Mrs Lina Chiam's comments. I think she has raised the question of why the working mother child relief is differentiated according to the birth order of the child even after the child passes away. I should clarify with her that this amendment that we are making in the Income Tax (Amendment) Bill this time round is to equalise the treatment for women whose children have unfortunately passed away in the basis year. So, the treatment in terms of the working mother child relief will no longer depend on whether the child passed away or is still around, and that was the purpose of the change.
The Member has also asked whether this relief could be made available to divorced men and fathers. Thank you very much for raising this as a suggestion. It is right now the working mother child relief, so as it stands right now, I think men cannot be mothers. So, we will take a look at the intent of the Member's proposal and when there is an opportunity to review, we will take a look at it.
On the Member's point about National Service, I did not catch it in full but I think the Member meant to say whether tax reliefs can be provided to NSmen. That is precisely what we were trying to do. For the National Service recognition award, which is quite significant, we have made it such that it would be exempted from tax, and that is what this amendment seeks to do.
Mr Speaker, Sir, I thank the Members again for their comments and suggestions.
I am sorry. Can I just clarify with the Minister of State on one point? I was asking about implementing the tax relief for NSmen performing reservist training. Is it included in there?
Does the Member mean the allowance that they received during their reservist training? Well, in fact, all allowances paid to NSmen form part of their income. Whilst they are doing their National Service, very often, these young men will not meet the income threshold for income tax liability. If the Member is talking about men who are doing their reservist training, I think their allowances are not a very large amount but I should qualify that, and I would check and get back to the Member separately.
*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. − [Mrs Josephine Teo].*
*Bill considered in Committee; reported without amendment; read a Third time and passed.*
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