Second Reading Speech by Senior Minister of State for Finance, Mr Chee Hong Tat, on the Income Tax (Amendment) Bill 2023, at The Parliament, 3 October 2023
03 Oct 2023 Mr. Deputy Speaker, on behalf of the Deputy Prime Minister and Minister for Finance, I beg to move, "That the Bill be now read a second time."
2. The Income Tax (Amendment) Bill brings into legal effect changes to our tax regime earlier announced at Budget this year, as well as those arising from other policy reviews. We sought views from the public on the draft Bill in June. We thank the respondents for their inputs and have taken their feedback onboard where feasible.
A – Tax change announced in Budget 2023
3. Let me start by recapping a tax measure from Budget 2023.
4. We introduced the Enterprise Innovation Scheme to encourage businesses to engage in research and development, innovation, and capability development activities. The scheme will be available from Year of Assessment 2024 to Year of Assessment 2028, and grants enhanced tax deductions and allowances for five key activities in the innovation value chain. These are:
i. R&D conducted in Singapore;
ii. Registration of intellectual property, including patents, trademarks, and designs;
iii. Acquisition and licensing of intellectual property rights;
iv. Innovation projects carried out with Polytechnics, the ITE or other qualified partners; and
v. Training via courses that are eligible for SkillsFuture Singapore funding and aligned with the Skills Framework.
5. Under the scheme, eligible businesses can also opt to convert 20% of their total qualifying expenditure on the above activities in each Year of Assessment into a cash payout of up to $20,000. This benefits businesses that have yet to turn profitable, or do not have sufficient profits to maximise the benefits from the tax deductions or allowances.
6. In all, businesses that make full use of the scheme could enjoy tax savings amounting to nearly 70% of their investment.
7. Clauses 10, 12, 13, 14, 19, 22, 26, 34 and 54 of the Bill provide for these amendments.
B – Non-Budget 2023 amendments arising from policy reviews
8. Mr. Deputy Speaker, l will now move on to the non-Budget changes. Let me elaborate on three key proposed amendments.
9. First, we will amend our tax treatment for foreign-sourced income, to subject foreign-sourced disposal gains to tax under specific circumstances. This is to address international tax avoidance risks relating to non-taxation of disposal gains in the absence of real economic activities.
10. Foreign-sourced disposal gains will be taxable when received in Singapore by entities of multinational enterprise groups that do not have economic substance in Singapore. Tighter rules will also apply to disposal gains arising from intellectual property rights, due to the higher mobility of such assets.
11. The policy objective of this move is not to tax capital gains in Singapore. Rather, we are making this move as part of our longstanding policy to align key areas of our tax regime with international norms. The new tax treatment is consistent with international standards, such as the rules against harmful tax practices agreed by the Inclusive Framework on Base Erosion and Profit Shifting or BEPS, of which Singapore is a member, as well as the EU Guidance on Foreign-Sourced Income Exemption Regimes.
12. We do not expect the new treatment to have adverse impact on our economy, as our focus has always been on attracting and anchoring real economic activities in Singapore. Some businesses, however, may face increased record keeping requirements. IRAS will work closely with the industry to minimise the compliance burden arising from this new treatment.
13. The new tax treatment will apply to foreign-sourced disposal gains earned and received in Singapore on or after 1 January 2024.
14. Clauses 6, 7 and 44 of the Bill will provide for this amendment.
C – Amendments to lower taxpayer compliance burden
15. Second, we propose to mandate the submission of income information to IRAS by intermediaries for Self-Employed Persons, or SEPs.
16. Since Year of Assessment 2015, to simplify the tax filing process for SEPs, IRAS has been extending the pre-filling of income information scheme to SEPs and has been obtaining the income information of SEPs from intermediaries such as commission agencies.
17. The amendment will provide better clarity and certainty for intermediaries on the scope of information that may be obtained, and their obligations to collect, retain and transmit the information to IRAS.
18. Beyond easing tax compliance for SEPs and facilitating tax administration, the information will also enable public agencies to better administer schemes such as the Workfare Income Supplement, by identifying the SEPs who could benefit from these schemes more easily and quickly. This will enable the government to roll out future schemes in a quicker and more efficient manner.
19. IRAS will be adopting a phased implementation approach based on the readiness of industries with SEPs, starting with commission agents from Year of Assessment 2024. IRAS will continue to engage the intermediaries in other industries, such as ride hail service operators, to understand their needs and work closely with them in the onboarding process.
20. Clause 47 of the Bill provides for these amendments.
21. Finally, we propose to ease the compliance burden for individual taxpayers who are self-employed delivery workers.
22. Since Year of Assessment 2019, IRAS has provided an option for some groups of SEPs to apply a prescribed deemed expense ratio, also known as Fixed Expense Deduction Ratio, or FEDR, to calculate their net income.
23. This was a citizen-centric service improvement initiative to simplify their tax filing process. For example, taxi and private-hire car drivers can opt to use a 60% FEDR, while commission agents with gross annual commission income of not more than $50,000 can opt for a 25% FEDR.
24. The FEDRs are reviewed regularly, based on data collected, to ensure that they remain relevant and reflective of the actual expenses incurred by the different groups of SEPs.
25. To provide greater convenience to another group of SEPs, we propose to extend the FEDR option to self-employed delivery workers who are earning gross annual delivery income of up to $50,000. The ratios will differ depending on the delivery modes, you know as the workers would use different modes would incur different levels of expenses, based on IRAS’ consultation with the industry and survey of with the workers.
26. Those who do not take up this option can continue to claim tax deductions based on the actual amount of tax-deductible expenses incurred in the production of their delivery income.
27. This change, found in Clause 23 of the Bill, will take effect from Year of Assessment 2024 for income earned in 2023.
2. The Income Tax (Amendment) Bill brings into legal effect changes to our tax regime earlier announced at Budget this year, as well as those arising from other policy reviews. We sought views from the public on the draft Bill in June. We thank the respondents for their inputs and have taken their feedback onboard where feasible.
A – Tax change announced in Budget 2023
3. Let me start by recapping a tax measure from Budget 2023.
4. We introduced the Enterprise Innovation Scheme to encourage businesses to engage in research and development, innovation, and capability development activities. The scheme will be available from Year of Assessment 2024 to Year of Assessment 2028, and grants enhanced tax deductions and allowances for five key activities in the innovation value chain. These are:
i. R&D conducted in Singapore;
ii. Registration of intellectual property, including patents, trademarks, and designs;
iii. Acquisition and licensing of intellectual property rights;
iv. Innovation projects carried out with Polytechnics, the ITE or other qualified partners; and
v. Training via courses that are eligible for SkillsFuture Singapore funding and aligned with the Skills Framework.
5. Under the scheme, eligible businesses can also opt to convert 20% of their total qualifying expenditure on the above activities in each Year of Assessment into a cash payout of up to $20,000. This benefits businesses that have yet to turn profitable, or do not have sufficient profits to maximise the benefits from the tax deductions or allowances.
6. In all, businesses that make full use of the scheme could enjoy tax savings amounting to nearly 70% of their investment.
7. Clauses 10, 12, 13, 14, 19, 22, 26, 34 and 54 of the Bill provide for these amendments.
B – Non-Budget 2023 amendments arising from policy reviews
8. Mr. Deputy Speaker, l will now move on to the non-Budget changes. Let me elaborate on three key proposed amendments.
9. First, we will amend our tax treatment for foreign-sourced income, to subject foreign-sourced disposal gains to tax under specific circumstances. This is to address international tax avoidance risks relating to non-taxation of disposal gains in the absence of real economic activities.
10. Foreign-sourced disposal gains will be taxable when received in Singapore by entities of multinational enterprise groups that do not have economic substance in Singapore. Tighter rules will also apply to disposal gains arising from intellectual property rights, due to the higher mobility of such assets.
11. The policy objective of this move is not to tax capital gains in Singapore. Rather, we are making this move as part of our longstanding policy to align key areas of our tax regime with international norms. The new tax treatment is consistent with international standards, such as the rules against harmful tax practices agreed by the Inclusive Framework on Base Erosion and Profit Shifting or BEPS, of which Singapore is a member, as well as the EU Guidance on Foreign-Sourced Income Exemption Regimes.
12. We do not expect the new treatment to have adverse impact on our economy, as our focus has always been on attracting and anchoring real economic activities in Singapore. Some businesses, however, may face increased record keeping requirements. IRAS will work closely with the industry to minimise the compliance burden arising from this new treatment.
13. The new tax treatment will apply to foreign-sourced disposal gains earned and received in Singapore on or after 1 January 2024.
14. Clauses 6, 7 and 44 of the Bill will provide for this amendment.
C – Amendments to lower taxpayer compliance burden
15. Second, we propose to mandate the submission of income information to IRAS by intermediaries for Self-Employed Persons, or SEPs.
16. Since Year of Assessment 2015, to simplify the tax filing process for SEPs, IRAS has been extending the pre-filling of income information scheme to SEPs and has been obtaining the income information of SEPs from intermediaries such as commission agencies.
17. The amendment will provide better clarity and certainty for intermediaries on the scope of information that may be obtained, and their obligations to collect, retain and transmit the information to IRAS.
18. Beyond easing tax compliance for SEPs and facilitating tax administration, the information will also enable public agencies to better administer schemes such as the Workfare Income Supplement, by identifying the SEPs who could benefit from these schemes more easily and quickly. This will enable the government to roll out future schemes in a quicker and more efficient manner.
19. IRAS will be adopting a phased implementation approach based on the readiness of industries with SEPs, starting with commission agents from Year of Assessment 2024. IRAS will continue to engage the intermediaries in other industries, such as ride hail service operators, to understand their needs and work closely with them in the onboarding process.
20. Clause 47 of the Bill provides for these amendments.
21. Finally, we propose to ease the compliance burden for individual taxpayers who are self-employed delivery workers.
22. Since Year of Assessment 2019, IRAS has provided an option for some groups of SEPs to apply a prescribed deemed expense ratio, also known as Fixed Expense Deduction Ratio, or FEDR, to calculate their net income.
23. This was a citizen-centric service improvement initiative to simplify their tax filing process. For example, taxi and private-hire car drivers can opt to use a 60% FEDR, while commission agents with gross annual commission income of not more than $50,000 can opt for a 25% FEDR.
24. The FEDRs are reviewed regularly, based on data collected, to ensure that they remain relevant and reflective of the actual expenses incurred by the different groups of SEPs.
25. To provide greater convenience to another group of SEPs, we propose to extend the FEDR option to self-employed delivery workers who are earning gross annual delivery income of up to $50,000. The ratios will differ depending on the delivery modes, you know as the workers would use different modes would incur different levels of expenses, based on IRAS’ consultation with the industry and survey of with the workers.
26. Those who do not take up this option can continue to claim tax deductions based on the actual amount of tax-deductible expenses incurred in the production of their delivery income.
27. This change, found in Clause 23 of the Bill, will take effect from Year of Assessment 2024 for income earned in 2023.
28. Mr. Deputy Speaker, I beg to move.