Second Reading Speech For The Economic Expansion Incentives(Relief From Income Tax) (Amendment) Bill 2010

SECOND READING SPEECH FOR THE ECONOMIC EXPANISION INCENTIVES (RELIEF FROM INCOME TAX) (AMENDMENT) BILL 2010

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

The Bill will amend the Economic Expansion Incentives (Relief from Income Tax) Act, or the EEI Act in short. It will put into effect three tax changes announced in previous Budget Statements. It will also make other technical changes to the Act.

I will now describe each of the proposed amendments in turn.

Enhancement of Investment Allowance

The Bill extends the maximum period within which companies can qualify their fixed capital expenditure in hire-purchase transactions for Investment Allowance, or IA in short, from five years to eight years. IA incentivizes capital investments by companies by providing companies with additional capital allowances, for approved projects, that can be offset against their taxable incomes. Other than with specified exceptions, the legislation currently states that fixed capital expenditure must be incurred within a qualifying period of five years to be considered for IA.

It has been assessed that it is not uncommon that companies, especially Small and Medium Enterprises or SMEs, carrying out fixed capital expenditure through hire-purchase transactions can do so over a hire-purchase period of up to eight years. Thus to better meet the needs of companies, the maximum qualifying period for IA will be revised from five years to eight years for hire-purchase transactions.

Clause 4 of the Bill amends Section 68 of the EEI Act to give legislative effect to this enhancement.

Inclusion of Energy Efficiency Projects into IA Scheme

The Bill also expands on the list of the qualifying activities for IA to include energy efficiency projects. As a small, open economy, Singapore is a price taker in the global energy market and will be subject to the upward trend in energy prices. Adopting more energy efficient means of production will help businesses deal with rising energy costs. Energy efficiency is also an important component in our efforts to reduce national greenhouse gas emissions. However, high capital costs and long pay-back periods can discourage energy efficiency investments. This amendment therefore aims to encourage more investments in energy efficiency projects by companies in Singapore.

Clause 3 of the Bill amends Section 67 of the EEI Act to give legislative effect to this enhancement.

Renewal of IA for Aircraft Rotatable

The IA incentive for aircraft rotatables was introduced in 2004 to develop the Maintenance, Repair and Overhaul sector, or MRO in short, for the aerospace industry. Aircraft rotatables are replacement parts used in the maintenance, repair and overhaul of aircrafts. The incentive expired on 9th September 2009 and it has earlier been announced in Budget 2010 that the incentive will be renewed for another 5 years effective from 1st April 2010.

1.Clause 3 of the Bill gives effect to this renewal.

Repealing Obsolete Incentives

Three incentives – the Export of Services Incentive, the Overseas Investment Incentive as well as the Research & Development and Intellectual Property Management Hub Incentive – have expired and will be repealed. These changes are reflected in Clauses 2, 6 and 7 of the Bill.

Consequential Amendments

Section 97H of the EEI Act now makes reference to “qualifying services” as defined in Section 44A of the EEI Act which relates to the Export of Services Incentive. With the repeal of the Export of Services Incentive, Section 97H therefore has to be amended to include in full the “qualifying services” presently defined in S44A.

Clause 5 of the Bill relates to this change.

Mr Speaker, Sir, the proposed changes to the Economic Expansion Incentives Act seek 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.

Sir, I beg to move.