The Ministry of Finance will be conducting a public consultation on the draft Income Tax (Amendment) Bill 2014 from 4 to 24 July 2014, and invites the Public to give feedback on the Bill.

Proposed Amendments

2. The proposed amendments to the Income Tax Act (“ITA”) relate mainly to 14 changes announced in the 2014 Budget Statement. These include:

a) Extension of the Productivity and Innovation Credit (“PIC”) scheme for three years till Year of Assessment (“YA”) 2018, and the introduction of the PIC+ Scheme. Under PIC+, qualifying SMEs can claim a 400% tax deduction for up to $600,000 of expenditure per qualifying activity per YA;

b) Extension of the Research & Development (“R&D”) tax measures. The additional 50% tax deduction for R&D granted under section 14DA(1) of the ITA is extended for ten years till YA 2025. The further tax deduction for EDB- approved R&D projects, granted under section 14E, is extended till 31 March 2020;

c) Extension of the Section 19B Writing Down Allowance (“WDA”) for acquisition of qualifying Intellectual Property Rights (“IPRs”) for five years till YA 2020, and clarifying the type of “information that has commercial value” that would be eligible for WDA [1] ;

d) Treatment of  Additional Tier 1 instruments [2]  as debt for tax purpose in the basis period for YA 2015 and thereafter; and

e) Enhancement of various dependant-related reliefs for individual taxpayers from YA 2015.

3. The Income Tax (Amendment) Bill 2014 also provides for refinements to existing tax policies and tax administration arising from ongoing reviews of Singapore’s income tax system. These refinements include:

a) Additional measures to curb PIC abuse. IRAS has come across business arrangements aimed at artificially creating or inflating PIC claims. While such cases make up a minority of PIC claims, the following measures are proposed to tighten the qualifying conditions for cash payouts, as well as to target abusive arrangements and intermediaries that promote or facilitate such arrangements:

i) To qualify for cash payouts, the IT and automation equipment must be in use [3] ;
ii) The Comptroller of Income Tax will be given additional legislative powers to deny PIC benefits [4] arising from abusive arrangements that seek to game the PIC scheme; and
iii) Penalties will also be imposed on intermediaries who promote or facilitate claims for PIC benefits for such abusive arrangements.

These measures are not expected to affect businesses making bona fide PIC claims.

b) Allowing Supplementary Retirement Scheme (“SRS”) members to withdraw their SRS investments without liquidating the investments. This will reduce the transaction costs they incur for withdrawals. The SRS investments will be valued and taxed in the same manner as when the SRS investments are liquidated for cash withdrawal; and

c) Amendments to enable Singapore to ratify the Convention on Mutual Administrative Assistance in Tax Matters [5].

Consultation Details

4.  The public can access the detailed consultation documents for the draft Income Tax (Amendment) Bill 2014 on the Ministry of Finance’s website (www.mof.gov.sg) and the REACH consultation portal (www.reach.gov.sg). Respondents may send their comments to the Ministry of Finance directly via the website, email, fax or post.    

MINISTRY OF FINANCE
3 JULY 2014

####

 

[1] A negative list will be drawn out for the types of information that are not eligible for WDA. This includes customer information and information relating to work processes.

[2] Additional Tier I instruments are a new type of capital instruments allowed under the Basel III global capital standards. Treating the instruments as debt (where the interest expense is tax-deductible for banks and taxable in the hands of investors) will provide tax certainty and maintain a level-playing field for Singapore-incorporated banks vis-a-vis banks in other jurisdictions which have legislated the same treatment.

[3] Currently, taxpayers can claim cash payouts once the expenditure has been incurred. This change seeks to address abusive arrangements where vendors issue invoices, or prepare the necessary paperwork such that businesses make cash payout claims for equipment which is not in use (e.g. equipment is not constructed or delivered). For cash-strapped SMEs who need the cash payout up-front to pay for the equipment, IRAS will waive the requirement for the equipment to be “in use” on a case-by-case basis, subject to certain conditions.

[4] These benefits refer to PIC enhanced tax deductions/ allowances, PIC cash payout and PIC Bonus.

[5] The OECD-Council of Europe Convention on Mutual Administrative Assistance in Tax Matters (“the Convention”) is a multilateral convention that promotes international tax cooperation. In early 2010, the Convention was opened up for signature by non-OECD or the Council of Europe members. Singapore signed the Convention on 29 May 2013.