A public consultation exercise on the draft Income
Tax (Amendment) Bill 2008 was held from June-July 2008
to obtain feedback on the draft Bill.
2. The draft Income Tax (Amendment) Bill 2008 put up
for consultation related to the following:
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a. |
Budget 2008 tax changes. These
are tax changes announced by Minister for Finance
Tharman Shanmugaratnam in his Budget
2008 Statement. |
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b. |
Other tax changes. These
are refinements to existing tax policies and administration
resulting from on-going reviews of the income
tax system. |
3. The summary
table lists all the tax changes and explains the
amendments to the Income Tax Act.
4. A total of 97 comments on the scope of tax changes
within the draft Income Tax (Amendment) Bill were received
from the public. The responses were helpful for improving
the income tax legislation.
5. The tax changes that received most of the public
feedback are as follows:
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Tax incentives to encourage companies especially
SMEs to do more R&D in Singapore; |
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Incentive to grant tax deduction for expenditure
on fixtures & fitting incurred by businesses,
especially SMEs in the service sector, on upgrading
their business premises; |
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c. |
Extension of unilateral tax credit to all
foreign sourced income; and |
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d. |
Tax exemption for family-owned investment
holding companies |
6. MOF has considered all the comments carefully. Of
the 97 comments on the draft Bill, 50 comments are accepted
for implementation and have been incorporated accordingly
in the revised Income Tax (Amendment) Bill. It was not
possible to incorporate the remaining 47 responses.
These included 31 comments on drafting aspects of the
legislation which were not consistent with other parts
of the Income Tax Act, and 16 which were not consistent
with the intended objectives of the tax policy changes.
7. The major public feedback received and MOF’s responses
are summarised below:
Tax Changes to Promote R&D in Singapore
Respondents
suggested that the language construction for the
definition of “consumable stores” is restrictive.
MOF’s response: Accepted
with modification. The definition of consumable
stores has been reviewed for better clarity and
will include materials used in the R&D activity.
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New Tax Incentive for
Family-Owned Investment Holding Companies |
Unilateral Tax Credit |
A respondent
suggested that the taxpayers should be allowed the
choice of either claiming unilateral tax credit
or double taxation relief (DTR) under Avoidance
of Double Taxation Agreements (DTAs) for income
sourced in DTA partners, whichever is more beneficial.
The justification given is that the UTC regime has
the advantage of not being tied to the Permanent
Establishment (PE) concept for taxing business profits,
whilst DTR is only given to taxpayers whose activities
constitute a PE in the source state.
MOF’s response: Not accepted
for implementation. We would like to clarify that
UTC is not more favourable than DTR just because
it is not tied to the concept of a PE.
UTC is extended to activities not amounting to a
PE in the foreign country, because in the absence
of a treaty, there is uncertainty over the scope
and degree of source taxation levied on activities
carried out in the non-DTA country. As a mitigating
measure, our government is prepared to grant unilateral
tax credit relief for foreign tax suffered in the
non-DTA country.
In contrast, for activities carried out in a DTA
country, the DTA between Singapore and the DTA country
will provide certainty to our taxpayers on what
constitues a PE in the source state. Accordingly,
the tax authority of the DTA partner can only tax
our resident if the resident has a PE (based on
the PE definition in the DTA) in the DTA country.
If the activities of our resident in the DTA country
do not amount to a PE as defined under the treaty,
the tax authority cannot levy tax at source on our
resident's income. It is then moot for the Singapore
government to grant tax credits for income that
has not suffered tax in the DTA country partner.
In addition to enjoying certainty of when source
taxation by DTA partner applies under DTAs, DTAs
can allow our tax residents to enjoy lower rates
of source taxation for certain specified incomes.
This is a benefit that is not available for incomes
earned in non-DTA countries.
Policy-related Comments
Tax Deduction on Fixtures and Fittings
| 5. INCENTIVE
TO GRANT TAX DEDUCTION FOR EXPENDITURE ON FIXTURES
& FITTING TO PROVIDE RELIEF FOR BUSINESSES ON THE
COSTS THEY INCUR ON UPGRADING OF BUSINESS PREMISES; |
With the
proposed amendment, LIFO method is allowed to determine
the cost of treasury shares to a holding company
incorporated outside Singapore subject to conditions.
Amongst these conditions are:
- the basis is in accordance with the accounting
policy of the group of companies of which the
holding company is a member; and
- the basis is in accordance with the generally
accepted accounting principles of the country
in which the holding company is incorporated.
The determination of the cost of treasury shares
to a foreign holding company is purely for Singapore
tax deduction purposes. The accounting policy of
a group of companies may not specify a method to
be used for such purpose. Similarly, the generally
accepted accounting principles may not do so. There
was thus a feedback that these conditions may be
difficult to meet.
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MOF’s response:
Accepted with clarification. We recognize that the
accounting standards in the country where the holding
company is incorporated may not explicitly specify
the methods (including FIFO) that companies can
use to determine the cost of treasury shares. In
the absence of specific accounting standards for
determining the cost of treasury shares, we will
allow companies to use methods consistent with accounting
principles which are generally accepted in the country
in which the holding company is incorporated.
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