5 October 2012

The Ministry of Finance (MOF) has accepted for implementation 19 out of the 42 suggestions on the draft Income Tax (Amendment) Bill 2012 received during the public consultation exercise held from 24 July to 13 August 2012.

According to the MOF, the remaining 23 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 received were on the following tax changes:

• Enhancement to the Productivity and Innovation Credit (PIC) Scheme
• Certainty of non-taxation of gains on disposal of equity investment
• Enhancement to the Mergers and Acquisition Scheme
• Refinements to tax deduction regime for donations

A summary of the key suggestions accepted relate to:

• Certainty of non-taxation of gains on disposal of ordinary shares under the new proposed section 13Z

The law will be amended to make it clear that non-taxation of gains on disposal of shares will only be accorded to taxpayers if they opt for it. For taxpayers who do not opt for the treatment, the current practice will continue to apply, i.e. IRAS will determine the tax treatment of the disposal gains based on the facts and circumstances of each disposal. The law will also be amended to make it clear that ordinary shares held in trust by nominees do not qualify for the certainty of non-taxation of gains treatment.

• Enhancement to the Mergers and Acquisition Scheme 

For legislative clarity, the law will be amended to make clear that the acquiring company and any number of acquiring subsidiaries may together make the qualifying acquisition, in order to enjoy the Mergers and Acquisition Allowance.

• Refinements to tax deduction regime for donations

The law will be amended to provide that a 250% tax deduction will be given to donations that are net of the value of the benefit that the donor receives. It was suggested that MOF take a practical approach toward designing these rules as it may be difficult to determine the value of intangible benefits, such as naming a school hall after a donor.  MOF has agreed to conduct a consultation on the rules so as to develop an approach that is practical and consistent with the policy objective.

Suggestions rejected by the MOF include the following:

• Enhancement to the Productivity and Innovation Credit Scheme

Section 37I(1)(viii) provides that any equipment purchased under hire-purchase agreements signed in the basis periods of the years of assessment 2012 to 2015 will not be eligible for the cash payout option, while section 37I(4A) provides that such purchases qualify for the cash payout option.  As the intent is to allow these purchases to qualify for cash payouts in respect of years of assessment 2012 to 2015, to avoid confusion, it was suggested that the exclusion phrase in section 37I(1)(viii) be deleted.  MOF has clarified that the provisions detailing the administration of the cash payout need to be covered in two separate sections (sections 37I(1)(viii) and 37I(4A)).

Further details can be found on the MOF website.

The suggestions accepted will be incorporated into the revised Income Tax (Amendment) Bill 2012.

Source: Ministry of Finance