13 October 2011
The Ministry of Finance (MOF) has accepted for implementation 23 out of the 55 suggestions on the draft Income Tax (Amendment) Bill 2011 received during the public consultation exercise held from 11 July 2011 to 1 August 2011.
According to the MOF, the remaining 32 suggestions were not accepted for implementation as they were “inconsistent with the legislative drafting conventions or the policy objectives for the proposed legislative changes”.
Most feedback was received on the following tax changes:
- Productivity and innovation credit (PIC) scheme
- Foreign tax credit pooling
- Tax deduction for Equity-Based Remuneration (EEBR) scheme
- Tax benefit for voluntary Medisave CPF contributions made by eligible companies to self-employed persons
- CPF contribution rate and salary ceiling changes
- Tax exemption for alimony and maintenance payments.
A summary of the key suggestions accepted relate to:
- Productivity and Innovation Credit (PIC) scheme
MOF has agreed to some of the suggestions to expand the list of qualifying PIC equipment. The list of qualifying PIC equipment, including additions, has been published on IRAS’ website. Suggestion for extension of the cash conversion till the end of the scheme however will be reviewed by MOF in 2012, nearer the date of the expiry of the conversion.
- Foreign Tax Credit Pooling
The wording for the above provision will be redrafted. As a taxpayer will elect for pooling of credits only where it has two or more sources of foreign income, it was proposed that the draft sub-subsections (a) to (d) of section 50C(1) be deleted and reworded, as it is not necessary to outline the various situations under which foreign tax credit pooling will apply.
- Tax deduction for EEBR Scheme
There may be situations where the employees of the company pay a portion of the cost of shares to the holding company, and the holding company recharges the company for the net amount (i.e. cost of treasury shares less amount payable by employees).
The provisions have been amended to ensure the tax deduction will be computed on the correct amount of recharges by the holding company and the amount payable by the employees as the proposed drafting seems to require the amount payable by the employee to be excluded from the net amount payable by the company. This may result in a shortfall in the amount of tax deduction available to the company.
- Tax benefit for voluntary Medisave CPF contributions made by eligible companies to self-employed persons
The definition of “A person of a description prescribed by the Minister” will be provided in the Income Tax Regulations to be made after the Bill becomes law. Currently in the proposed new section 13(1)(jc), it is unclear who the “person of a description” is intended to cover.
- CPF contribution rate and salary ceiling changes
The definition of “prescribed payment” will be provided in the Income Tax Regulations to be made after the Bill becomes law as there is currently no definition of “prescribed payment” in section 39(3), (3A) and (4) of the ITA.
Those suggestions rejected by the MOF include the following:
- Foreign Tax Credit Pooling
In attributing expenses and capital allowances to the foreign-sourced income, the foreign tax credit may be restricted and reduced which is inequitable as those expenses may not be incurred in earning the foreign-sourced income.
- Tax exemption for alimony and maintenance payments
The suggestion to amend the draft on the exemption for alimony and maintenance payments in section 13(1)(zo) by replacing the word “woman” with “spouse” so as to be gender neutral.
The suggestions accepted will be incorporated into the revised Income Tax (Amendment) Bill 2011.
To view the MOF’s response, please click here.
To view the proposed changes to the draft Income Tax (Amendment) Bill 2011, please click here.
Source: Ministry of Finance