c. Enhancement of incentives to promote asset management industry

d. Additional tax deduction for approved logistic expenses

e.Enhancement of Approved International Shipping Enterprise (AISE) Scheme

f. Removal of combined assessment and change to wife relief
   
6. MOF has considered all comments carefully. Of the 36 comments on the drafting of the legislation, 17 have been accepted as they help clarify policy intentions and improve the formulation of the legislation. Changes will be made to the draft Income Tax (Amendment) Bill to take in these suggestions.

7. Comments not accepted were mainly those where the suggested changes to the legislation were inconsistent with drafting convention or existing terms used in the Income Tax Act, or which do not meet policy intentions.

8. The major comments received and MOF's responses to them are summarised below:

1. TAX EXEMPTION ON (A) FOREIGN-SOURCED INCOME RECEIVED IN SINGAPORE BY RESIDENT INDIVIDUALS, AND (B) DOMESTIC-SOURCED INVESTMENT INCOME OF INDIVIDUALS FROM OWNERSHIP OF FINANCIAL INSTRUMENTS

Respondents suggested that since interest from qualifying debt securities (QDS) is exempt from tax in the hands of individuals effective from 1 Jan 2004, the exclusion of section 13(1)(a) (interest from QDS derived by certain non-residents) and section 13(1)(v) (interest from approved Asian Dollar Bonds derived by non-resident individuals and certain non-resident persons not carrying on business in Singapore) from section 13(1)(ze) is not necessary and may confuse readers. It reads as if such interest is not exempt in the hands of non-resident individuals.

MOF's response: Accepted. Interest income from QDS and Asian Dollar Bonds will be exempt from tax in the hands of an individual under the new paragraph (ze) to section 13 even if the exemption under section 13(1)(a) or 13(1)(v) is not applicable.

2. FILING OF INCOME TAX COMPUTATION AND FINANCIAL STATEMENTS IN NON-SINGAPORE DOLLAR FUNCTIONAL CURRENCIES

One respondent suggested that instead of indicating the conversion rate for selected circumstances in the Act itself, it may be more appropriate to consolidate all scenarios and specify them in the Regulations prescribed under Section 62B.

MOF's response: Not accepted. The intention is to have the Regulations provide for transitional provisions when existing companies switch to filing their income tax computation and financial statements in their non-Singapore dollar functional currencies or change their functional currencies, e.g. the treatment of carry-forward capital allowances and losses denominated in Singapore dollars. The use of average exchange rate or spot exchange rate for selected circumstances (e.g. Section 24 election) is a standing rule to be applied by all companies that are filing their income tax computation and financial statements in non-Singapore dollar functional currencies. It would be more transparent to taxpayers if these standing rules are provided in the Income Tax Act.

3. ENHANCEMENT OF INCENTIVES TO PROMOTE ASSET MANAGEMENT INDUSTRY
Respondents felt that existing sections 10(20)(b) and 35(12)(b), which exclude interest (other than interest from which tax has been deducted under section 45) from the statutory income of Designated Unit Trusts (DUTs) and approved CPF unit trusts, and deem the distribution out of such interest to be income of unit holders (other than foreign investors), is wide enough to cover interest derived from qualifying debt securities (QDS). Hence there is no need to make reference to interest derived from QDS in the new section 10(20A), i.e. paragraph (g) of clause 5(c) of the Bill. Otherwise, it would appear as if interest on QDS was not excluded from the statutory income of DUTs and approved CPF unit trusts prior to 27 February 2004, and deem the distribution out of such interest to be income of unit holders, which contradicts the existing sections 10(20)(b) and 35(12)(b).

MOF's response: Accepted. We agree with the feedback that the drafting would be clearer if paragraph (g) of clause 5(c) of the Bill is deleted. The original draft sought to make clear that the incentive covers interest from QDS. However, this is not necessary as the current provisions are wide enough to include interest from QDS.

Respondents highlighted that it is unclear why the expanded list of items of income (e.g. gains or profits derived from foreign exchange transactions, transactions in futures, forwards, swaps and option contracts) not forming the statutory income of DUTs and the distribution out of which shall be deemed as income of unit holders, do not apply to approved CPF unit trusts. Amendments should be made to regulate this anomaly.

MOF's response: Accepted. The policy intent is to extend the above enhancement to approved CPF unit trust. The Income Tax (Amendment) Bill will be amended as appropriate.

4. ADDITIONAL TAX DEDUCTION FOR APPROVED LOGISTIC EXPENSES

There was a suggestion to insert a paragraph on the Minister's power to make regulations instead of inserting a paragraph (d) to new section 14C(2) which merely states that the Minister may "impose such conditions as he thinks fit ".

MOF's response: Not accepted. The conditions imposed for each company to qualify for tax deduction for approved logistic expenses may vary and as such, it is necessary for the Minister to impose conditions as appropriate.

A respondent suggested that the words "or by the logistics service provider" should be added after the word "Singapore" in the definition of the term "logistics expenses" so that the definition includes the outsourcing fees paid to the service provider. This is because the new section 14C defines "logistics expenses" to mean expenses incurred by an approved company which are directly attributable to the carrying out of logistics activities by the company in Singapore and only excludes such expenses on international freight.

MOF's response: Accepted. The Income Tax (Amendment) Bill will be amended as appropriate.

5. ENHANCEMENT OF APPROVED INTERNATIONAL SHIPPING ENTERPRISE (AISE) SCHEME
A respondent pointed out that due to the deletion of section 13F(1)(c)(iii) and (iv) (which covered exemption of income derived by an AISE from operating any dredger, seismic ship or semi-submersible rig outside Singapore and income from chartering of any semi-submersible rig, foreign dredger or foreign seismic ship to non-resident to be used outside Singapore), seismic ships that are not used for offshore oil or gas activity (which were previously included in the exemption) now appear to have been excluded. This should be clarified.

MOF's response: Accepted. Seismic vessels are usually used for offshore oil and gas exploration. Such qualifying vessels are therefore being classified as "foreign vessels used for offshore oil or gas activity" under the revised section 13F(1)(b)(i) and (ii). Nevertheless, there is no intent to restrict the use of seismic vessels to only offshore oil and gas activity. The suggestion to continue to provide separately for seismic vessels under section 13F of Income Tax Act is accepted.