Singapore's Ministry of Finance (MOF) has accepted for implementation 33 out of the 83 suggestions on the draft Income Tax (Amendment) Bill 2010 received during the public consultation exercise held from 28 June to 19 July 2010. These will be incorporated into the revised Income Tax (Amendment) Bill 2010. The remaining 50 suggestions were not accepted for implementation as they are not consistent with the legislative drafting conventions or the policy objectives for the proposed legislative changes.
The draft Income Tax (Amendment) Bill 2010 contains proposed legislation to put into effect the following tax changes announced in Budget 2010, as well as other changes arising from the periodic review of the income tax system. The issues that received the most feedback were:
• Productivity and Innovation Credit (“PIC”) scheme to promote enterprise investment in six activities along the innovation value chain;
• Extension of Development and Expansion Incentive to include international legal services;
• Tax deduction scheme for angel investors to claim deductions for their investments in start-ups; and
• Land Intensification Allowance to support enhanced land productivity among industrial users.
Public Participation in the Consultation Exercise
A summary of the key comments received and MOF’s responses are as follows:
I) Productivity and Innovation Credit
a) Extending qualifying training expenditure to rental of training equipment
Comment: The qualifying training expenditure for PIC should be extended to include rental of training equipment (eg. projectors) or facilities, and such expenses should be made more definitive as qualifying expenditure.
MOF’s response: Accepted for implementation with modification. Rental of training equipment or facilities from external parties are already covered under the definition of “qualifying expenditure” for in-house training under the PIC scheme. Nonetheless, the legislation will make clearer this inclusion. Imputed rental for the use of the taxpayer's own premises and equipment for in-house training, however, will remain non-eligible for further deduction under PIC.
b) Refinement to definition of industrial or product design
Comment: Currently the definition of "industrial or product design" would apply only to work that in fact optimised the functions, value and appearance of a product. The problem with such a definition is that no one can ever tell when a design achieves an "optimal" outcome. Suggest refining the definition of "Industrial or product design".
"Industrial or product design" means the creation and/or development of concepts or specifications that seek to promote, improve or enhance the functions, value or appearance of physical products, taking into account users' needs or desires, marketability and production considerations.
MOF’s response: Accepted for implementation. The terms “improve or enhance” are clearer and more definitive than the term “optimise”.
c) Expansion of automation equipment list
Comment: It is proposed that the examples provided on office system software and information technology software be expanded to give greater clarity on the types of qualifying software. Suggestions include:
1. Software used in the management and operation of hotels, serviced residences and commercial properties including software used for making reservations, customers /tenants billings and collections, customers/tenants profile database and special requests, etc;
2. Human resource and payroll information system and management software;
3. Accounting, assets management and other financial information and business management software; and
4. Personnel business travel request, information and management software.
MOF’s response: Accepted for implementation. The suggested examples on the types of software are in line with the policy intent of encouraging pervasive adoption of IT and investment in equipment that will result in greater productivity.
d) Clarification on the non-taxability of the cash payout under PIC
Comment: Based on the IRAS e-Tax Guide dated 29 June 2010, cash payout under the PIC scheme shall not be taxable. This tax exemption treatment is not mentioned in the draft Income Tax (Amendment) Bill 2010. It is proposed that a provision on the non-taxability of the cash payout under PIC be included.
MOF’s response: Not accepted for implementation. MOF would like to clarify that the cash payout under the PIC scheme is not an income, and hence the issue of its taxability does not arise to begin with.
II) Land Intensification Allowance (LIA)
a) Extending LIA to acquired buildings
Comment: It is proposed that LIA be extended to the acquisition of building. This would then be similar to the policy position of the former industrial building scheme where the expenditure incurred on acquisition of qualifying building would also qualify for industrial building allowance (IBA) claim.
MOF’s response: Not accepted for implementation. The LIA is not to replace the IBA scheme which has been phased out. The LIA aims to encourage owners of buildings to increase the Gross Plot Ratio (GPR) of the buildings. Mere purchase of a completed building does not intensify the usage of the land and is thus not eligible for LIA. However, if the taxpayer intensifies the qualifying completed building that it has bought, LIA will be available on the incremental cost incurred to increase the GPR of the building, subject to meeting of LIA’s qualifying criteria.
b) Annual Allowance and 15 years restriction
Comment: On a similar reasoning, the annual land intensification allowance should continue to be given so long as there are tax written down value and should not be restricted to 15 years only.
MOF’s response: Accepted for implementation with modifications. With an initial allowance (IA) of 25% and Annual Allowance (AA) of 5%, LIA is to be fully utilized within 15 years. For a building which is temporarily not in qualifying use during the period, the taxpayer will not enjoy AA for the year of assessment concerned. However, we note that a building may be disused temporarily due to unforeseen circumstances, e.g. unfavourable economic conditions. Thus, we will amend the ITA to allow the taxpayer to continue enjoying AA when taxpayer resumes using the building for qualifying purpose, and the claim of AA will not be restricted by a 15 year-cap.
III) Development and Expansion Incentive (DEI) for international legal services
Comment: The DEI Incentive should not be limited to law practices that are set up as companies. That may render the new incentive scheme unnecessarily narrow and restrictive. Suggest considering granting the incentive to law firms established as partnerships or LLPs, as the incentive scheme only targets companies would exclude the majority of law practices in Singapore.
MOF’s response: Not accepted for implementation. The scheme is a concession for corporate income tax. The extension of the scheme to law firms established as sole-proprietorships (SPs), partnerships (GPs) or Limited Liability Partnerships (LLPs) will result in concessions for individuals, which is not the intention of the scheme.
IV) Tax deduction for angel investors scheme
Comment: The angel investor will only be allowed to claim a deduction for the year of assessment relating to the basis period in which the last day of the 2-year holding period falls. It is proposed that the angel investor be allowed to claim an upfront deduction in the year of assessment in which the qualifying investment is made, subject to the 2-year holding period. There could be a claw-back provision for the deduction if the 2-year holding period is subsequently not met.
MOF’s response: Not accepted for implementation. To ensure simplicity of the Angel Investors’ scheme, there will not be a claw-back provison. The 2-year holding period is a reasonable holding period for the investors to claim the deduction as the scheme aims to encourage angels who will provide valued funding, experience and networks for the startups.
V) Enhancements to Financial Sector Incentive and removal of Qualifying Base
Comment: The draft Income Tax (Amendment) Bill 2010 proposes that the 10% concessionary tax rate for Qualifying Debt Securities (QDS) shall not apply to the Financial Sector Incentive Standard Tier companies, which enjoy a 12% tax rate instead. We recommend that FSI Standard Tier companies should not be disadvantaged in this manner in relation to their investments in QDS and that the proposed amendment be deleted.
MOF’s response: Not accepted for implementation. Income from QDS was one of the qualifying activities included into the computation of QB. Given that the removal of QB was meant as a revenue neutral change, the new concessionary tax rate of 12% for FSI_Standard Tier should be applied consistently on income derived from all qualifying activities, including income derived from QDS.
MORE ARTICLES ON TAX