Income Tax (Amendment) Bill

Thank you, Mr Speaker, Sir. I would like to declare my interest as counsel and senior project leader of a social impact intermediary that works with various stakeholders, including the philanthropic sector.

Sir, the way our Government manages to collection and expenditure of its revenues sits at the centre of how taxation interfaces with Society. There are few ways we can think about taxes. As the mechanism, it is the liver by which a government collects and redistributes resources to different segments of society, including the vulnerable and those who need it most. On a strategic level, tax policy is also an instrument that pools our collective resources to help us shape the society that we wish to see as a people. It is also the means by which we provide incentives for industries to move towards and sectors to grow.

At its core, good tax policy can help foster the balance between social harmony and economic progress. There are three broad areas I would like to discuss regarding the bill.

First, on taxing gains from the sale or disposal of foreign assets that are received in Singapore by businesses without economic substance. This will bring us in line with international standards. I would like to ask the Minister for greater clarity on three things. First, MOF has shared that it would not be practical to prescribe in legislation, minimum thresholds to establish economic substance, given the variety of business model and skill of operations. Is the approach going to be on a case by case basis? What are some of the key principles that would distinguish businesses with economic substance and those without?

I also understand that further guidance will be provided in an IRAS e-tax guide. I would like to ask, what is the timeline for the IRAS e-tax guide to be made available for greater regulatory clarity? Finally, what type of firms, in terms of industry and size, does the government expect these changes to affect the most?

The second area of discussion is regarding the Enterprise Innovation Scheme, or EIS. The EIS is an investment to further secure Singapore's position as an Innovation Hub as it helps companies defray risks when undertaking research and development. Due to the long incubation period for innovation and uncertainty, firms may think long and hard before committing upfront resources to innovation. Could the minister share more about the current restraints and constraints faced by companies undertaking capability development activities and how the EIS amendments aim to mitigate them and lower the barriers for smaller companies, in particular, which may be cash-strapped?

From a tax utility perspective, what are the factors are considered important by the Government for the research and development ecosystem to grow sustainably beyond subsidies? Are there any existing schemes or new ones which the Government is intending to create or to enhance domestic human capital capable of executing the R&D that the EIS hopes to support?

Finally, what has the take-up rate been for similar existing schemes and beyond just utilisation, what other success indicators have we tracked for such schemes that encourage research and development and the development of intellectual property (IP)?

Third, Sir, our social spending needs are growing and I am heartened by the Government's efforts to enhance our social compact through growing our tax space. I also note the launch of the philanthropy tax incentive scheme and the relevant clauses 30 and 31 in the amendment Bill. Alongside the broadening of the scope of eligible investments to include blended finance structures to recognise concessional capital, which aims to strengthen Singapore's position as a regional philanthropy hub. This will also catalyse more investments into worthwhile social and climate projects.

In order to achieve this status, our philanthropic framework must tackle key issues of our time, which are typically global in nature and go beyond our shores. For example, climate change and also at greater scale, for example, wider populations in Southeast Asia and not just Singapore. Our strategic trusted and neutral position in this region is prime for such operations. Sir, we are home to more than half of Asia's family offices. The growth in the number of family foundations, has generally followed the growth in family offices (FOs) and I agree with the push towards encouraging FOs to anchor their giving operations in Singapore.

While allowing tax deduction for overseas donations via qualifying local intermediaries shifts the longstanding principle of tax deductions for donations exclusively benefiting the Singapore community is an understandable step, I hope that we can put in further measures to proactively strengthen the nexus between family offices and our local charitable organisations. This is to ensure that firstly, overseas donations do not overshadow the proportion of domestic donations from these FOs. Secondly, the domestic donations are given in a way that are meaningful – demonstrating and understanding of local organisations' needs and that of the clients that they serve.

Domestic donations should also be done in a sustainable way such that charitable organisations have the funding visibility for a longer-term horizon to grow their missions and reach in serving our community and are encouraged to try new, innovative ways to tackle complex emerging social challenges.

I would also like to ask how many qualifying local intermediaries there are. How long will it take for local intermediaries to qualify and what support is available to fund capacity building of social sector organisations? It would also be important to ensure that legislation such as fund regulations and charity laws remain clear and keep up with the times to enable the structuring of such new models.

In Singapore, most will agree that our collective contributions should enable us to create a society which uplifts each and every citizen to thrive, regardless of where we start in life. In Budget 2023, Deputy Prime Minister Lawrence Wong reaffirmed his commitment to this ideal.

However, in an inflationary environment with rising cost of living, many feel the pinch. The execution of increasing taxes when it comes to real life and how we can and should go about raising funds to pay for increased support is often less straightforward. In conversations, many often point to free healthcare and education systems in some other parts of the world. But less spoken off, is the higher tax rates that come with it. The government debt or the culture which has been developed in these jurisdictions over time, leads to each individual seeing it as their responsibility to invest in their own society. This includes not just businesses, as corporate citizens, but everyday people too.

While we talk about the amendments in this Bill, I would like to take a moment to encourage discourse on attitudes towards taxation while staying away from bogeyman tactics. As we renew our social compact, as part of the Forward Singapore efforts, we need to have more conversations to build consensus on questions that are fundamental to how we tax different segments and distribute resources equitably.

To do so, we should do two things. First, aim for greater and more accessible discourse around tax that makes it relevant to the everyday person. Second, we should aim to clearly communicate the benefits and trade-offs of changes to tax policy, to ensure that Singaporeans better understand how these changes affect our shared future. Sir, I support the Bill.

Mr Speaker, Sir, the legislative amendments to this Bill are put forth with the primary objectives of implementing tax measures as outlined in the 2023 Budget Statement. The changes are also to align our tax system with international tax developments and MOF's periodic reviews. Notwithstanding, I wish to seek a few clarifications on the Bill.

Firstly, Mr Speaker, Sir, I have some queries on the EIS. While the prescribed cap of $400,000 additional tax deduction may serve its intended purpose for smaller businesses, it may be less relevant to larger enterprises. On the other hand, smaller businesses, although potentially eligible for the EIS, might not have significant taxable income against which they can offset their investment. In such cases, it is highly likely that most of these businesses would opt for the cash option. Yet the cash conversion ratio of 20% may not be sufficient to motivate them. As such, are there plans to review these figures, to ensure that they adequately cater to the needs of a broader spectrum of businesses?

Also, I could not resist drawing parallels between the EIS and the previous research and development incentives under the Productivity and Innovation Credit (PIC) scheme. In this connection, it begs the question of how effective the previous scheme had been, and whether these incremental changes will truly foster the desired outcomes. The cost of research has also increased over the years. As such, the "$50,000 of qualifying innovation expenditure" may only make up for the small amount of research cost. Will this quantum be revised upwards to attract higher-end and more advanced research that may cost more but likewise attract more talent?

Will the Government consider broadening the scope of the EIS to encompass joint ventures that closely collaborate with our local ecosystem and industries? By doing so, we can ensure that the benefits of this scheme extend beyond the immediate beneficiaries and contribute to the overall growth and development of the entire ecosystem.

Secondly, Mr Speaker, Sir, I would like to speak about the amendments to the Working Mother's Child Relief Scheme (WMCR). Several Members have raised this as well. During the Budget deliberations, concerns were raised that the changes in the WMCR disincentivises higher-earning mothers to consider having more children. In certain cases, the policy changes would result in some individuals receiving fewer incentives than before.

For example, to cite local finance website Dollars and Sense, working mothers of three children, earning between $7,000 and $12,000, would pay an additional $1,000 or more in income tax than before. Likewise, working mothers earning $12,000 or more will have to pay $5,000 or more in additional income tax.

Considering the feedback stemming from the policy change, I would like to inquire about the measures the Government has taken to address these concerns. What steps have been taken to ensure that the changes in the WCMR scheme are effectively communicated to the public, along with the policy considerations that underlie this decision?

Furthermore, are there plans in place to address any perceived disincentives amongst this group of working mothers, to ensure that they do not feel discouraged from expanding their families? While it may be argued that the higher cash payouts may not be a factor for these group of mothers, a right signal needs to be sent. What specific policies and initiatives are being considered, and how will they be implemented to provide tangible support for this group?

Third, Mr Speaker, Sir, I have some queries on the proposed changes pertaining to mandating submission of income information by intermediaries for self-employed persons (SEPs). What processes will be implemented to ensure that the intermediaries comply with this requirement? Additionally, what penalties will be imposed in the event of non-compliance?

How does the Government plan to guarantee the accuracy of the information obtained through this mandate? Given the diversity of occupations and income streams of SEPs, it is critical that we employ robust methods to validate this data, so as to prevent misuse or fraudulent claims. Does the Government intend to leverage advanced technologies, such as fraud detection algorithms or Artificial Intelligence (AI), to enhance accuracy and efficiency of this process. Furthermore, will there be whistle-blowing policies in place?

In conclusion, Mr Speaker, Sir, these amendments hold far reaching implications for our businesses, families and us. Recognising that there is no one-size-fits-all policy, it is imperative that we maintain a commitment to regularly review and adapt taxation policies to ensure their ongoing adequacy. Moreover, effective communication channels must be established to address public concerns and to make residents more aware of available alternatives and supporting policies. I support the Bill.

Sir, this Bill gives effect to the measures announced during this year's Budget Statement. The amendments will encourage businesses to engage in research and development, and develop their capabilities through the Enterprise Innovation Scheme. Through tax incentives, they will also encourage family offices in Singapore to base their philanthropic operations in Singapore.

The amendments also change the WMCR from a percentage of earned income to a fixed dollar tax relief.

I have two points of clarification to raise. My first point is about the WMCR. I have spoken up many times pushing to extend the WMCR to single unwed parents who are parents too and should not be discriminated against.

I understand that the WMCR is to "encourage married women to remain in the workforce after having children". This is what is stated on the IRAS website but it is not accurate as the relief is provided for divorcees too, rightly so. But again why are single unwed parents left out?

There is actually a loophole here. A giant loophole. To be clear, single unwed parents can get the relief if they just marry the father of the child and then file for a divorce. They then qualify for the WMCR. But why make them jump through so many hoops to get something they should get in the first place?

We want to encourage mothers to return to the workforce but why not encourage single unwed mothers to return to the workforce too?

For single unwed mothers who do return to the workforce despite the absolutely difficult circumstances they are in, should we not support them and provide them with the WMCR?

This policy is not cast in stone and we are amending it now to provide more Government support for eligible lower- to middle-income working mothers. We should provide support to single unwed mothers too.

I know the reply will be that we do provide support to single unwed parents and the Senior Minister of State might list the range of support provided. I agree that some support is there but this push for providing the WMCR is also about being fair and being inclusive. It is about making sure single unwed parents do not feel discriminated against.

Single unwed parents have written to me, come to my Meet-the-People Session and speak to me during my home visits. I hear them, I feel the stigma they face and the discrimination they endure daily.

One single unwed parent wrote to me with regard to the WMCR and said, "Why the unfair treatment and discrimination for single mothers?" and "Many grievances ever since my baby was born and I am ashamed to be a Singapore citizen who is left out in the system."

Let me stress that the appeal here, like the appeal to provide the single unwed parents with the cash component of the baby bonus and the parenthood tax rebate, is not about providing single unwed parents with more support.

The appeal is that they be treated equally and be provided with the WMCR like how it is provided to married, divorced and widowed working mothers.

My second point is on growing Singapore as a philanthropic hub. The pilot tax incentive introduced by the Bill offers Family Offices a 100% tax deduction for overseas donations.

I applaud the move to take an international perspective in growing Singapore's philanthropic work. However, this should not be limited to the top tiers of society.

Philanthropic giving should be encouraged across the whole of society. However, the 80:20 fund-raising rule still requires 80% of funds raised for foreign charitable purposes to be applied towards charitable purposes in Singapore.

As we look to grow Singapore's presence as a regional or even global philanthropic hub, will the Government consider what other tax measures can be used to encourage different forms of giving to local, regional and international causes?

For instance, can we look into how tax incentives can support individuals who wish to contribute to regional humanitarian causes? Helping to alleviate humanitarian crises contributes to regional stability, which in turn benefits Singapore as a country dependent on stable relations and predictable relations with her neighbours. So, notwithstanding these clarifications, I stand in support of the Bill.

Mr Speaker, I thank Members for their support for the Bill, and their comments and suggestions. Let me respond to the points they raised.

Mr Don Wee, Ms Nadia Samdin, Mr Neil Parekh Nimil Rajnikant and Ms Usha Chandradas spoke on the proposed new tax treatment on foreign-sourced disposal gains.

Let me reiterate that the proposed new tax treatment does not represent a shift in our broader tax policy on capital gains. It is not the intent of the proposed amendments in this Bill to tax capital gains in Singapore.

Instead, the objective of this amendment is to address international tax avoidance risk by entities without real economic activities in Singapore, as well as that relating to foreign-sourced gains from the disposal of intellectual property rights. For the latter, we will adopt the internationally-agreed modified nexus approach, which is also currently used for our Intellectual Property Development Incentive.

As we have designed this proposed change to be as targeted as possible, there should not be significant impact on genuine businesses with real activities here.

This move should be seen in the context of our broader policy to align key areas of our tax regime with international standards such as the rules against harmful tax practices agreed by the Inclusive Framework on BEPS, as well as the EU Code of Conduct Group Guidance. As a small open economy, it is in our interest for our tax rules to stand up to international scrutiny, to facilitate the continued flow of trade and investments.

Ms Chandradas asked about the interaction between the proposed amendment and BEPS Pillar 2 rules. Sir, they are not related and have different objectives. Pillar 2 Global Anti-Base Erosion Rules seeks to impose a minimum effective tax rate of 15% on large multinational enterprises or MNEs wherever they operate. On the other hand, this proposed amendment aims to address tax avoidance risks associated with foreign-sourced disposal gains, and is not confined to large MNEs.

Ms Chandradas and Ms Nadia also asked how IRAS would assess economic substance and operationalise the proposed change, while Mr Wee raised some scenarios relating to restructuring transactions, funds and family offices. The answer is that the tax treatment will depend on the facts of each case. As business practices vary across industries, it would not be possible to prescribe quantitative tests. Nevertheless, IRAS will certainly take sector-specific circumstances into account in administering the new rule. MOF and IRAS have held several engagements with the industry over the last few months to hear businesses' feedback and understand their concerns, as IRAS works out the implementation details.

IRAS will provide industry with guidance on how economic substance will be assessed to be adequate. Where possible, sector-specific circumstances and common scenarios, including those raised by Members of the House, will be considered and addressed in the guidance. I would like to assure Members that we will implement the new tax treatment carefully, to minimise the impact on genuine businesses while deterring tax avoidance by entities without real economic activities in Singapore. IRAS aims to publish the guidance by the end of this year and will refine it over time based on feedback and consultation with industry partners. IRAS will consider the suggestion from Ms Chandradas for an expedited advance ruling framework.

Let me also address two technical queries raised by Members. First, foreign tax credit will be available based on current tax rules. Second, the proposed amendment will not cover foreign entities that have no operations in Singapore other than the use of banking facilities here. IRAS will include these clarifications in their guidance.

Overall, we do not expect the new tax treatment to have a negative impact on our economy, as our focus has always been on attracting and anchoring real economic activities in Singapore. Our global competitiveness will not be affected, as these international standards are also applied in other jurisdictions, so there is a level-playing field.

Sir, let me now touch on the obligations on intermediaries for self-employed persons (SEPs). Mr Saktiandi Supaat sought clarification on whether SEPs can opt out of having their income information submitted to IRAS by their intermediaries. Ms Jean See asked how such income information would be used and safeguarded.

Intermediaries included in this initiative will need to submit income information of the SEPs whom they have made contracts with, and these SEPs cannot opt out of having their income information submitted to IRAS. The use of such income information is governed and subject to existing safeguards under the Income Tax Act.

The information obtained would be used for tax administration purposes, including pre-filling of income tax returns. This will make it more convenient for SEPs to submit their tax filings. They will be able to verify and amend the pre-filled income amount before filing their tax returns.

Beyond tax, the income information collected will also help in the administration of social schemes, such as the Workfare Income Supplement scheme, which I mentioned in my opening speech and Ms Mariam Jaafar spoke about this.

Picture a 45-year-old SEP earning $1,500 a month. He could have qualified for Workfare, but is not receiving it because he did not file his income tax returns and he did not make MediSave contributions. If the intermediary had submitted his income information to IRAS, he would have automatically qualified for $2,400 of Workfare in 2023.

Tapping on intermediaries to submit income information on SEPs could also facilitate the administration of new schemes going forward, including financial assistance during a crisis. For instance, during the COVID-19 pandemic, the SEP Income Relief Scheme (SIRS) was rolled out to support SEPs.

However, as SEP income information was incomplete, the Government was only able to automatically disburse the payouts to some SEPs, and NTUC had to process applications from SEPs who did not automatically qualify. Having the relevant data to quickly administer such support schemes will enable SEPs to receive the support more quickly, and also simplify administration of these schemes.

Mr Wee, Mr Saktiandi and Mr Parekh asked about the extension of this initiative to other intermediaries and whether the intermediaries would be provided with financial support to establish new infrastructure for regulatory reporting.

IRAS will adopt a phased implementation approach, starting with commission-paying agencies in YA 2024, as many of these agencies are already submitting income information to IRAS. For intermediaries in other industries such as ride hail service and taxi operators, food and goods delivery platform companies, IRAS will continue to engage them and work with them closely to understand and address potential operational and system issues, so as to keep the compliance burden low.

Mr Yip Hon Weng enquired on how the Government will ensure that the intermediaries comply with the requirement and the accuracy of the information obtained as well as whether penalties will be imposed in the event of non-compliance and if there will be whistle-blowing policies in place.

Sir, IRAS will issue a one-time notice to inform intermediaries of the requirement to maintain the requisite information as well as a yearly notice to inform them to submit information to IRAS. To ensure compliance, IRAS will adopt an approach similar to that for the Auto-Inclusion Scheme for employers. During the initial phase, IRAS will continue to render support to the intermediaries while adopting a light-touch approach such as issuing reminders or warning letters for non-compliance. Subsequently, actions such as composition or prosecution, which include penalties of up to $5,000, could be imposed for non-compliance.

IRAS also has compliance programmes in place to detect and identify intermediaries who have made errors in the submission. This includes assurance audits to ensure that intermediaries have adequate controls to maintain accurate information. While intermediaries will not be unduly penalised for unintended errors or mistakes detected, they may be liable for offences if errors are due to negligence or without reasonable excuse. IRAS also has an existing whistle-blowing channel which the public can use to inform IRAS of any wrongdoing.

Mr Speaker, Ms See asked whether the data used to determine the FEDRs accurately reflect the expenses incurred by delivery workers.

The FEDRs were developed using income and expense data for the different delivery modes, which IRAS obtained from its consultation with the industry and survey with the workers. The current FEDRs strike a balance between simplifying tax compliance while ensuring that the ratios are reflective of the actual expense ratios of delivery workers.

Let me reiterate, Sir, that the FEDRs are optional. For those whose actual expenses exceed the FEDRs, they can claim deductions based on the actual deductible expenses incurred.

Ms See and Ms Mariam asked whether IRAS intends to review the different FEDRs in the future to keep pace with changes in the costs of the delivery services and if the initiative on mandatory income submission by intermediaries could assist in this review. IRAS will regularly review and assess the relevance of the FEDR rates based on available data, including income information obtained from intermediaries. For example, IRAS reviewed the existing 60% FEDR for private hire car and taxi drivers, which was implemented in the YA2019; they did the review this year. The latest data showed that while drivers' expenses have increased, their revenue has also grown due to increases in meter and mileage rates. Therefore, the 60% FEDR remains relevant and sufficient for the majority of drivers. For those that this does not apply to because their expenses are higher, as I mentioned earlier, FEDR is optional; they can submit the actual expenses.

Mr Speaker, Members were concerned that the change in the Working Mother's Child Relief or WMCR will disincentivise higher-income mothers from having more children. Mr Yip and Mr Saktiandi asked if the Government has taken measures to address these concerns and if we had considered alternatives in designing or redesigning the WMCR.

Sir, this issue has been thoroughly discussed and debated at Budget this year. As Deputy Prime Minister Wong had explained then, the WMCR change should not be seen in isolation. It is part of a package of moves to support marriage and parenthood, which has been strengthened over the years. For example, we announced at Budget this year that we will be enhancing the Baby Bonus Scheme and parental leave provisions, which benefit all couples regardless of income.

The change in WMCR will be effected prospectively and apply only to working mothers with qualifying Singapore Citizen children born or adopted on or after 1 January 2024. Eligible working mothers of qualifying children born or adopted before 1 January 2024 will not be affected as they can continue to claim the WMCR based on the existing design.

As pointed out by Mr Sharael, the change in the WMCR reflects our social compact of a fairer society, one which we provide more support for the less well-off and, in this case, lower- and middle-income working mothers. We will continue to engage couples and parents to raise awareness of the package of support measures available for marriage and parenthood, including the enhancements announced during Budget 2023.

Mr Saktiandi also sought clarification on the rationale for removing Foreign Domestic Worker Levy Relief (FDWLR). The FDWLR was introduced in 1989 to support working married women who needed the help of a domestic worker, so that they could return to the workforce. Since then, the Government has introduced new schemes to directly support those caring for dependants, including working mothers.

In particular, those living with children below 16 years old, elderly or persons with disabilities may enjoy a concessionary Foreign Domestic Worker (FDW) levy of $60 per month instead of the usual levy of $300 or $450 per month for the first and subsequent FDW respectively. This concessionary levy directly benefits all families who need help with caring for their dependants, including those who do not pay income tax. Therefore, the FDWLR will be lapsed with effect from YA2025.

Mr Speaker, Mr Louis Chua asked about the GST and whether it is possible to defer the 1% increase in 2024. Sir, the proposed change and timing of our GST rate increase has been robustly debated in this House but allow me to reiterate a few key points. We consider not just the year-to-year changes, or more importantly, the medium-term trend in our expenditures and revenues where we manage our fiscal resources. As we know, Singapore has an ageing population and we must expect that with an ageing population, there will be rising healthcare costs. Government expenditure is expected to increase from the current 18% of GDP to potentially over 20% of GDP by FY2030. This has yet to account for additional spending that may arise from new policy initiatives, including the need to further invest in resilience and to strengthen our social compact and economic competitiveness.

On the revenue side, our tax revenue collections have grown broadly in line with GDP. The higher tax revenue collection in FY2022 compared to the previous year is due to our economic recovery after the COVID-19 pandemic. It is unclear whether the trend can continue, given the uncertain global macroeconomic outlook. In the medium term, revenue generally does not grow faster than GDP without tax rate changes. This is why the revenue measures announced at the recent Budgets, including the GST increase this year and next year, remain necessary to meet our medium-term spending needs. Deferring the GST increase will only store up more problems for the future, leaving us with less resources to take care of our growing fiscal needs and we cannot count on short-term upsides to fund structural needs.

When the Government has unexpected fiscal upsides, we share these surpluses with Singaporeans, including providing relief for households through Cost-of-Living Support Packages. Mr Sharael mentioned this in his speech earlier. I will just name two components, for information. Deputy Prime Minister Lawrence Wong recently announced a $1.1 billion support package, and one of these items would be an increase in the CDC vouchers that all Singaporean households will receive in January next year. So, from $300 it has increased to $500 – $250 for supermarkets and $250 for heartland shops. And we will also increase the special payments that eligible Singaporeans will receive, and there will be 2.5 million eligible Singaporeans by the end of the year. So, there will be an amount, depending on your income, but up to $800 per eligible Singaporean. And this will include many of our Singaporeans, including our retirees who are staying in private properties because this does not look at your property type. It looks at your income, as long as you do not own two or more properties.

So, we understand that Singaporeans are concerned about the GST increase and cost of living. On delaying the GST increase for one or two years, what we have done is actually better than that. With the Assurance Package, we have delayed the impact of GST increase for the majority of Singaporean households by five years and by about 10 years for lower-income households. The Government remains committed to doing so even with elevated inflation.

This is why we have substantially enhanced the Assurance Package over the past two years, and the Government has also announced additional support measures to help families with rising costs of living beyond the GST increase. The Assurance Package was most recently enhanced to now a total amount over $10 billion with the Cost-of-Living package announced by the Deputy Prime Minister last week. There is some additional relief for all Singaporeans, with more for lower- and middle-income groups.

Sir, Budget 2023 is an expansionary budget. It is less expansionary than the previous years' Budget and this is to avoid adding to elevated inflationary pressures while supporting our economy and helping families in a more uncertain global environment. We achieve this balanced outcome by focusing more of our support measures on the lower- and middle-income groups while providing some help for all Singaporeans.

Mr Speaker, several Members – Mr Don Wee, Ms Usha Chandradas, Mr Shawn Huang, Mr Keith Chua, Mr Louis Ng, Ms Nadia Samdin and Ms Mariam Jaafar – expressed support for and sought clarifications on the Philanthropy Tax Incentive Scheme, or PTIS for short. Allow me to share more about the scheme, and in doing so, address their questions.

First, under the PTIS, approved qualifying donors can claim 100% tax deductions for overseas donations made through qualifying local intermediaries. Overseas donations refer to cash donations made towards any charitable, benevolent or philanthropic purpose whose main objective is to benefit persons, events or objects outside of Singapore. These could include overseas philanthropic causes in sustainability that Mr Wee mentioned, as long as all the other criteria are met. MAS is committed to processing applications to be approved qualifying donors and local intermediaries in a timely manner.

Second, to ensure oversight as highlighted by Ms Mariam, MAS requires all participating single family offices, or SFOs, to submit annual review returns. In addition, as SFOs are required to channel their donations through local qualifying intermediaries, these intermediaries also conduct due diligence checks.

Third, to benefit from the PTIS, SFOs would have to meet two conditions: first, appoint and maintain a Philanthropy Professional at the point of application and throughout the incentive approval period; and second, incur an additional $200,000 in Local Business Spending and employ an additional local professional headcount in the financial year when the overseas donations are made.

These conditions that Ms Chandradas asked about are made known upfront to the SFO applicants and they are required to declare that they have met the conditions in their annual returns to MAS. If the conditions are not met, the legislation provides for the Government to claw back the previously granted tax deductions.

Fourth, Members spoke about ensuring that the local charity sector is not excluded from the benefits of PTIS. Indeed, it is not.

By requiring that overseas donations take place through qualifying local intermediaries and requiring that SFOs have to appoint and maintain a philanthropy professional, the PTIS serves to uplift philanthropic capabilities within the charity sector in Singapore. Qualifying local intermediaries would include Institutions of Public Character with a valid permit for "Fundraising for Foreign Charitable Purposes".

Overall, some Members advocated for more overseas philanthropic giving across a wider spectrum of society, while others spoke about the need to ensure that the philanthropic giving also supports local causes.

I am glad that Members agree that philanthropy makes our society better and, given their different views between overseas and local giving, that they appreciate that the Government needs to strike a balance between the two.

Beyond the PTIS, the Government has other tax incentive schemes to encourage local philanthropy. For instance, qualifying local donations made to Institutions of a Public Character and other eligible institutions enjoy a 250% tax deduction until 31 December 2026, which is higher than the tax deduction for overseas donations. The Government will continue to review our schemes to foster and sustain the spirit of giving.

Finally, many Members have expressed support and interest in the Enterprise Innovation Scheme (EIS) announced in Budget 2023. I thank them for their support. Mr Saktiandi asked about the rationale behind raising R&D tax deductions to 400%. The parameters of the EIS are set to provide modest but meaningful support for businesses in their drive to invest in R&D. Looking across comparable economies which offer similar tax deductions on R&D activities, a 400% tax deduction is competitive when compared to jurisdictions such as Hong Kong and Malaysia.

Mr Saktiandi, Mr Sharael and Ms Nadia asked about the effectiveness of tax deductions on innovation and its outcomes.

R&D tax measures do lead to an increase in innovation activities as they help to mitigate risks and give an additional boost to returns on investments. That said, tax deductions cannot operate in isolation and must also be complemented by a developed R&D ecosystem to promote innovation, which the Government continues to invest in through our Research, Innovation and Enterprise plans.

In Singapore, we have seen a promising increase in business expenditure on R&D over the years, from $3.8 billion to $6.6 billion between 2010 and 2020, which points to businesses' underlying desire to innovate. During the same period, we also saw almost a three-fold increase in sales revenue from commercialised products attributed to R&D performed in Singapore.

These are promising trends, but we know there is room for our economy and enterprises to invest even more in R&D so that we can be more globally competitive. The EIS, together with our broader ecosystem of grants, incentives, financing tools and R&D talent, will give businesses an additional boost.

Mr Yip, Mr Wee and Mr Huang highlighted the importance of encouraging our local SMEs to take advantage of the EIS to innovate. While SMEs have shown promising growth in R&D expenditure, we recognise that many SMEs are less likely to have the scale to undertake R&D on their own. This is why we are introducing a new tax deduction for expenditure incurred on innovation projects, which SMEs more commonly undertake, rather than R&D. The tax deduction will apply for qualifying innovation projects carried out with partner institutions such as the polytechnics, ITE and the Centres of Innovation, and could relate to business process redesign or deployment of productivity equipment.

These would not be considered "R&D" in the strictest sense, but are nonetheless useful to help SMEs to kickstart their innovation journey. Undertaking innovation projects with these partner institutions will also enable SMEs to tap on the existing expertise there instead of having to acquire or develop their own.

Mr Yip asked if the expenditure cap of $50,000 can be revised upwards to cover higher-end research with higher costs. Sir, allow me to clarify that these innovation projects will not typically exceed the $50,000 cap. Businesses that undertake research that meets the R&D definition can tap on the enhanced deductions for their higher R&D costs, which has a higher expenditure cap of $400,000.

Many of the projects undertaken in partnership with the universities would be able to qualify for the enhanced R&D or IP-related deductions. Nonetheless, we will observe the uptake of this new deduction for innovation and consider whether we could expand the list of partner institutions where appropriate.

I also thank Ms See for highlighting the cashflow concerns of businesses when they undertake innovation activities. We will monitor and study how we can further support our businesses in their innovation journey, including encouraging them to work with NTUC to form company training committees.

Ms See suggested providing some upfront subsidy for innovation, similar to what we are doing for training courses. But the context between innovation and training is quite different. Unlike training courses, which can be pre-approved and subsidised upfront, investments in innovation are varied, differing by sector, scope and the businesses' level of maturity. It is therefore difficult to pre-approve innovation expenditures or provide upfront subsidy.

Beyond Government support schemes like EIS, it is important for businesses to take the initiative and embark on the innovation journey to improve their competitiveness. They have to set aside adequate cashflow for investing in new equipment and developing the necessary capabilities.

Mr Wee and Ms Nadia asked about the development of human capital to support businesses' innovation activities. Mr Sharael also asked if the list of eligible courses should be narrowed down.

We recognise the importance of training workers to support a business' capability to innovate. Hence, the EIS introduces enhanced tax deductions for around 10,000 SkillsFuture Singapore-subsidised courses. These courses support industry transformation and workforce development needs and will support a range of enterprises from different industries at various stages of their innovation journey. They also include courses that cater to freelancers from the creative industries.

SkillsFuture Singapore will continue to monitor the relevance and effectiveness of courses eligible for EIS deductions and refine the list of courses accordingly.

Mr Sharael asked if the Government could request proof of value before the tax deduction on training is granted and if the deduction can be limited to employees who have served a minimum number of years to minimise abuse of the scheme.

Even with the 400% tax deduction, a firm will need to co-pay for training. This will help to ensure that the firm sends its employees for training only if it will create value for the firm and support its innovation efforts. The firm, the employer has skin in the game. The $400,000 training expenditure cap for tax deductions will further mitigate the risk of abuse.

The Government will monitor the take up of the EIS, businesses' investments in R&D and innovation as well as feedback on the scheme, and these will allow us to continually review the scheme's effectiveness and we will refine it along the way. Ultimately, what we want is to have a scheme that can support companies to embark on innovation because we know innovation is key to future economic growth, it is key to creating good jobs for our workers.

So, I encourage businesses to learn more about the EIS through the information available on the IRAS website and we will also work with industry partners such as our trade associations and chambers to raise awareness among businesses. Mr Speaker, I beg to move.