Second Reading Speech by Mr Lim Hng Kiang, Minister for Trade and Industry on the Economic Expansion Incentives (Relief From Income Tax) (Amendment) Bill 2012

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1. Madam Speaker, Sir, I beg to move, “That the Bill be now read a second time.”

2. The Economic Expansion Incentives (Relief from Income Tax) (Amendment) Bill 2012 comprises legislative amendments for a key income tax change announced in the 2012 Budget Statement as well as other amendments for improving tax administration arising from the regular review of our tax incentive regime.

3. Let me draw Members’ attention to two key tax changes contained in the Bill.

Replace the Integrated Industrial Capital Allowance scheme with an Integrated Investment Allowance scheme

4. The Integrated Industrial Capital Allowance (IICA) scheme was introduced in 2003 in recognition that many companies site their operations across geographical boundaries. The IICA scheme allows a Singapore-based company, which carries out an approved project, to claim capital allowance for qualifying equipment that it leases to a wholly-owned subsidiary outside Singapore, provided that the equipment is used solely in connection with the Singapore business.

5. The Integrated Investment Allowance (IIA) scheme was introduced in Budget 2012 to replace the IICA scheme. This change was made to ensure that our tax incentive scheme stays competitive and keeps pace with the evolving business environment. Compared to the IICA scheme, the IIA scheme provides an additional allowance on top of capital allowance for qualifying equipment. Furthermore, the equipment placed overseas need not be leased to a wholly-owned subsidiary of the Singapore-based company. This allows companies more flexibility in how they structure their overseas operations to support the activities they carry out in Singapore.

6. Clause 5 of the Bill repeals and re-enacts Part XIIID of the Economic Expansion Incentives Act (EEIA) to give legislative effect to these changes.

Extend the Tax Relief Period of the Development and Expansion Incentive

7. The Development and Expansion Incentive (DEI) was introduced in 1996 via the EEIA, which currently stipulates a maximum DEI period of 20 years. The intent of the DEI is to encourage companies which engage in high value-added activities to operate in Singapore. To further incentivise these companies to continue to grow in Singapore and to use Singapore as the home to expand their activities regionally or globally, we will lengthen the maximum possible incentive period from 20 years to 40 years. This will allow our economic agencies greater flexibility to calibrate the DEI incentive period to be commensurate with the scale and scope of companies’ incremental commitments and activities in Singapore.

8. Clauses 2 to 4 of the Bill amend Sections 19K and 19KA of the EEIA to give legislative effect to this enhancement.

9. The remaining legislative changes arising from our periodic review of the income tax system are related to improvements in tax administration.

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

11. Madam Speaker, Sir, I beg to move.