Amendment of Income Tax Act– Singapore
What is the Tax System in Singapore?
The tax revenue collection in Singapore includes corporate tax, personal tax, Goods & Services tax, and property tax. The tax system in Singapore is one which many countries thrive on echoing as it is known for being simple, efficient, and attractive due to its clearly laid down tax provisions. Despite charging low tax rates to businesses and individuals alike, Singapore consistently generates budget surpluses and develops an excellent infrastructure.
Singapore is an important finance, commerce and trading hub of Asia. Singapore attracts foreign investments to its shores. It implements socially progressive policies as Singapore believes in rewarding its residents.
Inland Revenue Authority of Singapore is the main government agency that levies and collects the taxes and also represents Singapore in international tax treaty negotiations and aids the Government in drafting tax legislations.
What makes Singapore more beneficial compared to other countries in field of taxation?
- The single-tier taxation system;
- No tax on overseas income;
- No capital gains tax;
- No dividend income tax;
- No tax on assets acquired in inheritance or as gifts; and
- The extensive network of bilateral treaties on Avoidance of Double Taxation.
The Singapore Ministry of Finance (the "MoF") proposed 38 amendments to the Income Tax Act (the "IT Act"). The main objectives of the amendments are:
- effecting tax measures announced in Budgets 2020;
- enhancing the Income Tax Comptroller's powers for safeguarding public money;
- clarifying the tax treatment of measures announced for COVID-19 support to businesses and households; and
- improving tax administration and the clarity of existing legislation.
On 20 July 2020, the MoF launched a public consultation, which ran until 7 August 2020, on the draft Income Tax (Amendment) Bill 2020 (the “Draft Bill”).
The Draft Bill incorporates 38 proposed legislative amendments to the IT Act which can be categorized under:
I. Unity Budget
This includes twenty proposed amendments to cater for measures announced by the Deputy Prime Minister and Minister of Finance, in the Unity Budget Statement on 18 February 2020.
- Granting Corporate Income Tax Rebate.
The main aim here is to help companies with cash flow, with a Corporate Income Tax Rebate of 25 percent of the tax payable, capped at USD 15,000 per company, to be granted for Year of Assessment 2020.
- Increasing the number of Year of Assessments
The qualifying deductions, including both the current year unabsorbed capital allowance and the trade losses for the Year of Assessment, may be carried back. The qualifying deductions for Year of Assessment 2020 may be carried back up to 3, instead of 1, immediate preceding Year of Assessment, capped at USD 100,000 of qualifying deductions. The businesses are eligible to get a refund of maximum USD17,000 corporate tax paid during Year of Assessment 2017 to Year of Assessment 2019.
- Extending and enhancing the Double Tax Deduction for Internationalization
Singapore aims to continue encouraging internationalization by covering more qualifying expenses and extending the Double Tax Deduction Scheme until 31 December 2025.
- Extending the Mergers & Acquisitions
Singapore aims to continue encouraging companies to consider Mergers & Acquisitions for growth and internationalization, by extending to cover qualifying acquisitions made on or prior to 31 December 2025.
II. Economy-wide and sector-specific measures in response to the COVID-19 in the Resilience, Solidarity, and Fortitude Budgets
The five proposed amendments provide for the following:
- Exempting from income tax the prescribed payouts received by individuals in 2020 for Year Assessment 2021, including the Self-Employed Person Income Relief, Workfare Special Payment, and COVID-19 Support Grant.
- Exempting from income tax the prescribed payouts received by businesses in 2020 for Year Assessment 2021 and/or Year Assessment 2022, depending on the financial year-end of the businesses, including the Jobs Support Scheme payouts, COVID-19 Quarantine Order Allowance, Leave-of-Absence and Stay-Home Notice payouts to affected Self-Employed Persons and employers.
- Exempting from income tax for Year Assessment 2021 on benefits-in-kind and cash allowances received by qualifying employees in the year 2020 including for accommodation, food, transport and other necessities, subject to conditions and caps.
- Lifting the tax deduction caps for doubtful debts and debt securities for banks and qualifying finance companies for Year Assessments 2021 and 2022.
- Amending the secrecy provision to permit access to information vital for the Inland Revenue Authority to administer public schemes, without requiring the express consent of the person to whom the information relates. The Comptroller is allowed to provide the information necessary for administering any public scheme to the Chief Executive Officer or the authorized officers.
III. Other proposed amendments
There are six proposed amendments concerning the existing tax policies and administration.
- Introducing a surcharge for tax avoidance arrangements
The tax adjustments currently made under the anti-avoidance rules only restore the taxpayers to their initial position, as if no arrangement was entered into. As a step to further deter tax avoidance arrangements, the amendment introduces a surcharge equal to 50 percent of the additional income tax imposed by the Comptroller. Singapore has also proposed to introduce a surcharge equal to 50 percent of the amount of additional stamp duties imposed by the Commissioner in the Stamp Duties Act along with an amendment in the draft Goods and Services Tax (Amendment) Bill 2020. The above is a result of the adjustments made to counteract the tax avoidance arrangement.
- Mandating the electronic tax refunds
The refunds of Corporate Income Tax to the companies will be done electronically. This is complementary to the Government’s efforts to harness digital technologies in transforming public service. Mandatory electronic refunds of Goods and Services Tax to taxpayers will be proposed in the Goods and Services Tax (Amendment) Bill 2020 as well.
- The remaining seven proposed amendments are technical amendments.
Any expenses incurred directly or as reimbursement on using private hire cars or private cars are not eligible to be deductible from tax, irrespective of the private cars being used for personal or business purposes. For private cars, capital allowances are also not permitted.
What are the exceptions to this?
The private hire car expenses and hiring charges are tax-deductible to a person provided the person has a business of hiring out cars, and the private hire car is used by the person principally for hiring. The capital allowances can also be claimed on a private hire car provided it is acquired by a person who has a business of hiring out cars and is used by the person principally for hiring.
The Draft Bill permitted the deduction of car-related expenses and capital allowances, on cars used in the business of providing chauffeur services, to any person from any business of providing chauffeur services using motor cars, provided the specified conditions are complied with. However, the chauffeur services may no longer be provided as incidental to the main business of renting out cars, so the proposed change shall be effective from Year Assessment 2021.
Singapore’s tax regime balances the incentives and promotes free trade and commerce activity while ensuring that sufficient revenue flows to meet its social and economic objectives. The country has always been known for the mutually beneficial relationship it shares with its residents.
It is this why Singapore has one of the highest rates in the world for tax compliance from domiciled companies as well as its residents.