Mr Lim Hng Kiang's 2nd Reading Speech for the Economic Expansion Incentives (Relief from Income Tax) (Amendment) Bill 2011

SECOND READING SPEECH FOR THE ECONOMIC EXPANSION INCENTIVES (RELIEF FROM INCOME TAX) (AMENDMENT) BILL 2011

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

The Economic Expansion Incentives (Relief from Income Tax) (Amendment) Bill 2011 comprises three key legislative changes. These amendments to the Economic Expansion Incentives (Relief from Income Tax) Act (EEIA) put into legal effect an income tax change announced in the 2010 Budget Statement as well as other amendments arising from the regular review of our tax incentive regime.

Let me summarise the three key changes.

Removal of minimum tax relief period for Pioneer Service Incentive

The Pioneer Service Incentive (PC-S) was introduced in 1984 to encourage companies to engage in high value-added activities such as consultancy and research and development, in Singapore. The legislation currently stipulates a minimum tax relief period of 5 years for companies awarded the PC-S. The minimum tax relief period will be removed to grant more flexibility to our economic agencies in the award of an incentive package to better meet the needs of companies.

Clause 3 of the Bill amends Section 18 of the EEIA to give legislative effect to this.

Enhancement of Development and Expansion Incentive

The Development and Expansion Incentive (DEI) was introduced in 1996 to encourage companies to expand by investing in technology and major upgrading of equipment and operations. To ensure that only expansionary activities are incentivised, a base income is imposed on existing activities and the concessionary tax rate is applied only to profits above the base income. The base income is recalculated on every extension of the DEI after year 10. Recalculating the base income transits companies to a much higher effective tax rate and makes the DEI less competitive in encouraging companies to continue to expand and stay rooted in Singapore.

To provide companies with greater tax certainty, we will remove the need for the base income to be recalculated after year 10. Instead, the concessionary tax rate will be increased by at least 0.5 percentage points, at the beginning of the 11th year and 16th year to ensure that tax revenues will not be eroded.

Clause 4 of the Bill amends Section 19J of the EEIA to give legislative effect to this enhancement.

DEI for International Legal Services

The DEI for international legal services was introduced in 2010 Budget Statement to encourage law practices to do more international legal services work from Singapore, and to attract international law practices to set up offices in Singapore. This scheme will be reviewed after 5 years and can only be awarded for up to 5 years of tax relief, at a concessionary tax rate of 10%. Clause 6 of the Bill inserts a new Section 19KA of the EEIA to effect the specific features of the scheme.

The remaining legislative changes arising from our periodic review of the income tax system are either technical in nature or relate to improvements in tax administration.

Mr Speaker, Sir, the proposed changes to the Economic Expansion Incentives Act seeks to stimulate more economic activity in Singapore. These changes also reflect the Government’s commitment to monitor the effectiveness of our tax incentive regime and to keep it relevant as economic conditions change.

Mr Speaker, Sir, I beg to move.