Speech by MOS Alvin Tan at the Second Reading for the Economic Expansion Incentives (Relief from Income Tax) (Amendment) Bill

1. Mr Speaker, I beg to move, “That the Bill be now read a Second time.”

2. The Economic Expansion Incentives (Relief from Income Tax) (Amendment) Bill amends the Act to provide for tax incentive changes which were introduced in Budget 2022 and Budget 2023.

3. There are a total of six sets of legislative changes contained in the Bill. Let me first elaborate on the changes announced at Budget 2022.

Discontinue the Integrated Investment Allowance scheme.

4. MOF had announced at Budget 2022 the discontinuance of the “Integrated Investment Allowance”, or “IIA”, scheme after 31 December 2022. This IIA scheme, which was introduced in 2012, was intended to incentivise manufacturers to adopt ‘twin’ models of their operations between Singapore and Iskandar Malaysia in Johor, or the islands of Batam, Bintan and Karimun in Indonesia. However, administrative complexities of tax computation in different jurisdictions made it challenging to operationalise the scheme. As the IIA scheme was allowed to lapse after 31 December 2022, Clause 16 deletes Part 9 of the Act to remove references to the IIA scheme while Clause 19 provides for consequential amendments to the Income Tax Act 1947.

Extend the Approved Foreign Loan scheme and enhance the powers of the Minister for Trade and Industry and Minister for Finance.

5. The second tax incentive scheme to be amended pertains to the “Approved Foreign Loan”, or “AFL”, scheme. First, Clause 7 will extend the AFL scheme to 31 December 2028. Second, new section 35 subsections (2) and (4) are inserted by Clause 8 to enhance the powers of the Minister for Trade and Industry and the Minister for Finance.

6. Today, an AFL incentive recipient incurs a debt payable to the Government if the recipient contravenes a condition of approval or section 34 by selling, transferring or disposing of equipment that was purchased and financed from an approved foreign loan, without the Minister for Trade and Industry's permission.

7. This debt arises even when the company has already delivered its economic commitments as part of the AFL support; or when the contraventions were unintentional; or when any decision to sell, transfer or dispose of the equipment was reasonable and not of wilful intent. With the new amendments, the Minister for Trade and Industry may decide whether to revoke the approval for the loan where any relevant contravention has taken place. If the approval is revoked, a debt to the Government arises.  But the Minister for Finance may waive the debt in whole or in part if the Minister for Finance is satisfied that the recipient did not knowingly or intentionally contravene the condition or section 34.

8. This legislative change allows debt liabilities to be imposed in a more targeted manner.

Extend the Approved Royalties Incentive scheme and enhance the administration approach.

9. The third tax incentive scheme is the “Approved Royalties Incentive”, or “ARI”, scheme. The legislative amendments in Clauses 2, 10, and 12 will extend the scheme by five years to 31 December 2028, and enhance the administration of the ARI scheme by shifting from an agreement-based approach to an activity-based approach from 1 April 2023.

10. Under the agreement-based approach that was in place before 1 Apr 2023, companies were required to obtain EDB’s approval for every addition of an agreement or variation of an agreement in the ARI certificate. However, as the use of intangible assets and intellectual property has become more pervasive, we need a more flexible approach to respond to companies’ investment interests.

11. Under the activity-based approach, the scope of the approved activity is specified in the certificate. Companies will enjoy tax exemptions or concessionary withholding tax rates for royalties, fees or contributions payable under all agreements entered into for the purpose of the approved activity. Companies will not need to undergo the onerous administrative process of seeking new approvals each time a new agreement is reached or an existing agreement is varied. To be clear, this is not a relaxation of the scheme. We will still clearly define the activities which are supportable under the ARI incentive, and companies that make claims under agreements which are not covered by a supportable activity will still have their claims rejected and must pay the full prevailing withholding tax.

12. Sir, please allow me to elaborate next on the tax incentive changes announced at Budget 2023.

Extend the Pioneer Certificate and Development and Expansion Incentive schemes.

13. The Pioneer Certificate, or “PC”, scheme, and the Development and Expansion Incentive, or “DEI”, scheme, will be extended by five years to 31 December 2028. Clauses 3 and 5 will effect the extension of the PC scheme, while Clause 6 will effect that of the DEI scheme. Both schemes remain relevant and effective in anchoring desired investments in Singapore.

Extend the Investment Allowance scheme for several qualifying activities and remove aircraft maintenance, repair and overhaul services from the list of qualifying activities.

14. The fifth set of legislative amendments applies to the “Investment Allowance”, or “IA”, scheme. The amendments to the IA scheme include (i) the extension of IA scheme by five years for certain qualifying activities by Clause 14(d) and 14(e); and (ii) the removal of the qualifying activity of aircraft maintenance, repair and overhaul services, given it has been assessed to be no longer relevant, and the power to approve such projects lapsed in 2015. Clauses 13, 14(a), 14(b) and 14(c) remove references to this qualifying activity.

Introduce a new provision to provide Minister retrospective revocation powers.

15. The last legislative amendment in Clause 18 inserts a new section 61A to provide the Minister for Trade and Industry with retrospective revocation powers across all incentives under the Act in two scenarios. The first scenario is the removal of any activity, agreement, arrangement, product or other matter from a certificate or letter. The second scenario is the revocation of any approval, certificate or letter.

16. This amendment is aligned with the Income Tax Act 1947, and will allow the Government to respond proportionately when dealing with incentive breaches. There is no impact on tax incentive recipients who meet their conditions and commitments.

17. Mr Speaker, I beg to move.