MOF accepts less than half of suggestions on draft Income Tax (Amendment) Bill 2011

Draft Income Tax (Amendment) Bill 2011

The draft Income Tax (Amendment) Bill 2011 contains proposed legislation to put into effect the tax changes announced in Budget 2011, as well as other changes arising from the periodic review of the income tax system. Most feedback was received on the following tax changes:

- Productivity and Innovation Credit scheme
- Foreign Tax Credit Pooling
- Tax deduction for Equity-Based Remuneration (EEBR) scheme
- Tax benefit for voluntary Medisave CPF contributions made by eligible companies to Self-employed Persons
- CPF contribution rate and salary ceiling changes
- Tax exemption for Alimony and Maintenance Payments

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 scheme

Comment: MOF has received several suggestions on the Productivity and Innovation Credit (PIC) scheme, such as to add new equipment to the prescribed list of automation equipment, back-date the prescribed list of automation equipment, and to extend the cash conversion of the PIC deduction till the end of the scheme.

MOF’s response: Accepted. MOF has accepted some of the suggestions to expand the list of qualifying PIC equipment. To provide certainty to taxpayers, the list of qualifying PIC equipment, including additions, has been published on IRAS’ website. MOF has also accepted the suggestion for the list of qualifying PIC equipment including new additions to be applicable for the duration of the scheme i.e. from Year of Assessment (YA) 2011 to YA 2015. On the extension of the cash conversion till the end of the scheme, MOF will review this in 2012, nearer the date of the expiry of the conversion.

II) Foreign Tax Credit Pooling

Comment: In attributing expenses and capital allowances to the foreign-sourced income, the foreign tax credit may be restricted and reduced. This is inequitable as those expenses may not be incurred in earning the foreign-sourced income.

MOF’s response: Not accepted. We would like to clarify that only expenses incurred in the earning of the foreign-sourced income will be taken into account in determining the foreign tax credit available. Where the foreign-sourced income forms part of the trade or business income, common business expenses and capital allowances will be allocated as per the normal tax rules.

Comment: It is proposed that the draft sub-subsections (a) to (d) of section 50C(1) be deleted and reworded, as it is not necessary to outline the various situations under which foreign tax credit pooling will apply. This is because a taxpayer will elect for pooling of credits only where it has 2 or more sources of foreign income.

MOF’s response: Accepted. MOF will improve the drafting of the provision.

III) Tax deduction for EEBR Scheme

Comment: There may be situations where the employees of the company pay a portion of the cost of shares to the holding company, and the holding company recharges the company for the net amount (i.e. cost of treasury shares less amount payable by employees). The proposed drafting seems to require the amount payable by the employee to be excluded from the net amount payable by the company. This may result in a shortfall in the amount of tax deduction available to the company.

MOF’s response: Accepted. The provisions have been amended to ensure the tax deduction will be computed on the correct amount of recharges by the holding company and the amount payable by the employees.

IV) Tax benefit for voluntary Medisave CPF contributions made by eligible companies to Self-employed Persons

Comment: In the proposed new section 13(1)(jc), it is unclear who the “person of a description” is intended to cover. Clarity is needed on the definition of eligible companies.

MOF’s response: Accepted. The definition of “A person of a description prescribed by the Minister” will be provided in the Income Tax Regulations to be made after the Bill becomes law.

V) CPF contribution rate and salary ceiling changes

Comment: There is no definition of “prescribed payment” in section 39(3), (3A) and (4) of the ITA.

MOF’s response: Accepted. The definition of “prescribed payment” will be provided in the Income Tax Regulations to be made after the Bill becomes law.

VI) Tax exemption for Alimony and Maintenance Payments

Comment: The suggestion is to amend the draft on the exemption for alimony and maintenance payments in section 13(1)(zo) by replacing the word “woman” with “spouse” so as to be gender neutral.

MOF’s response: Not accepted. In Singapore, there are no laws requiring women to pay alimonies and maintenance payments to their ex-husbands or husbands. Therefore, the tax exemption is applicable only to alimonies and maintenance payments received by women.