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Deloitte unveils budget wish list for 2013 to increase Singapore's business competitiveness

  • Push for negative listing of "designated investments" for taxpayers' benefit
  • Pursuit of competitive new and re-negotiated old double tax treaties
  • Changes to loss carry-back relief and full tax deduction for businesses
  • Tax exemption on foreign-sourced income
  • Reduce current corporate tax rate
  • Removal of tax on provision of furnishing items in rental apartments
  • Extension of Not Ordinarily Resident concession

Singapore, 21 January 2013 — Singapore has undertaken a number of initiatives in recent years to improve tax competitiveness to encourage investments and to help grow the Singapore economy. Indeed, Singapore is often ranked as a country with one of the most business-friendly tax regimes in the world. However, there are still areas in which Singapore could improve its tax regime to encourage further investments and stimulate growth. In view of the upcoming 2013 Budget Statement to be delivered on 25 February, Deloitte Singapore's tax specialists have created a ‘wish list’ that they hope the Government will consider.

Business Income Tax

1) To continue to pursue competitive new double tax treaties and also to re-negotiate old double tax treaties with more competitive terms. Some of our tax treaties were contracted many years ago e.g. Thailand treaty was concluded in year 1975, Taiwan treaty in 1981 and Indonesia treaty in 1991 and we believe they are due for a refresh. In addition, Hong Kong has in the last few years begun to contract tax treaties some of which are much more advantageous than Singapore's (e.g. with Indonesia) notwithstanding that Hong Kong does not tax foreign income and therefore from a treaty negotiation perspective, Hong Kong has little leverage with counterparties who have little motivation to concede benefits to Hong Kong.
- Mr Ajit Prabhu, Partner & Head, Tax Services, Deloitte Singapore & Southeast Asia

2) The existing loss carry-back relief is capped at S$100,000 and can only be carried back to immediate preceding year of assessment. To help the cash flow of businesses which were making losses during the last financial crisis, the Government had temporarily enhanced the loss carry-back relief for Years of Assessment 2009 and 2010 by increasing the threshold to S$200,000 and also allowing the carry-back to immediate three preceding years of assessment. The Euro crisis, the grim global economic outlook and the economic restructuring proposed by the Government may to a certain extent negatively affect Singapore businesses and the impact may not be short term. As such, we propose the Government consider either removing the cap for loss carry-back relief permanently or at least enhance the loss carry-back relief for Years of Assessment 2013 and 2014 (similar to that for Years of Assessment 2009 and 2010). Many developed countries have much more liberal loss carry-back rules e.g.the default rules in countries like UK allow carry-back without any cap for one year and the default US rules allow loss carry-backs without a cap for three years. Such rules recognise that economic cycles can produce profits in one year followed by losses in another and that it would be inherently unfair to currently tax the profits and provide relief for the losses only if and when future profits are realised (which of course may take a while and may sometimes not happen at all).
- Mr Chan Huang Chay, Tax Partner, Deloitte Singapore

3) Tax exemption is given to existing Singapore tax resident companies on remittance of specified foreign income (i.e. dividend, branch profit and service income) only. Given the bleak economic conditions during the global financial crisis and to help ease the credit tightness at that time, the Government temporarily allowed tax exemption to all foreign-sourced income remitted during the period from 22 January 2009 to 21 January 2010. In view of today's grim global economic outlook, we hope the Government will consider granting similar enhanced tax exemption to all foreign-sourced income remitted during the period from 1 January 2013 to 31 December 2013 or better still, permanently exempt foreign-sourced income. In the past, the Government has resisted this on the grounds that a) it will deter tax treaty partners from negotiating tax treaties with us and b) it may encourage round tripping i.e. enabling taxable Singapore sourced income to be re-characterised as foreign-sourced income and bringing it back to Singapore as exempt income. However, some other countries e.g. Hong Kong and Malaysia, generally do not tax foreign sourced income whether or not remitted to their respective countries, and this does not appear to have impeded their ability to contract advantageous tax treaties or materially eroded their tax base. Also, in the latter instance, the Inland Revenue Authority of Singapore (IRAS) already has wide ranging powers to invoke general anti-avoidance rules in Section 33 of the Income Tax Act which can be used to counteract blatant tax avoidance.
- Mr Ajit Prabhu, Partner & Head, Tax Services, Deloitte Singapore & Southeast Asia

4) To consider reducing the current corporate tax rate from 17% to 16.5% (which is the prevailing Hong Kong corporate tax rate) or lower than 16.5% to improve competitiveness.
- Mr Ajit Prabhu, Partner & Head, Tax Services, Deloitte Singapore & Southeast Asia

5) To consider increasing the partial tax exemption from first S$300,000 chargeable income to first S$400,000 chargeable income. This will be a targeted measure to reduce the tax burden on our Small & Medium Enterprises many of whom are facing challenges in implementing the national economic restructuring agenda.
- Mr Lee Tiong Heng, Tax Partner, Deloitte Singapore

6) In addition, we suggest the Government to consider the following proposed technical changes to the tax legislations:

a) There is a sunset clause for Section 19B writing down allowance scheme whereby any capital expenditure incurred on Intellectual Property Rights (IPRs) after the last day of the basis period for Year of Assessment 2015 will not qualify for the scheme. We recommend this sunset clause be lifted.

The existing Section 19B does not allow deferral of writing down allowance claim (i.e. Section 19B allowance is given within 5 years of expenditure incurred). We suggest that Section 19B allowance should also be given on due claim basis similar to Section 19 allowances for plant and machinery.

In addition, we would also propose the current claw-back rules for Section 19B be amended to be same as normal claw-back rules for plant and machinery. Currently no balancing allowance will be given for disposal of IPR.
- Mr Low Hwee Chua, Tax Partner, Deloitte Singapore

b) Sections 13CA, 13R and 13X of the Income Tax Act and related regulations – tax exemption schemes for funds managed by a fund manager in Singapore – instead of having a positive list for "designated investments", it would be more useful to have a negative list. That is, all investments are qualifying investments unless they are specifically excluded. This will help to provide tax certainty on whether new financial/investment products are covered by the definitions and assist taxpayers in making their business decisions. Based on current approach, there is sometimes a time gap between the reviewing of the list of "designated investments" and the development of new financial/investment products and also some definitions may not be totally clear. If the taxpayers find that the new financial/investment products do not specifically fall under the lists and due to urgency of the proposed investment and/or setting up the fund/fund manager, taxpayers may consider other jurisdictions instead.
- Mr Rohit Shah, Director of Taxes, Deloitte Singapore

c) Section 43G of the Income Tax Act – Finance and Treasury Centre (FTC) – the Regulations which define the qualifying activities and qualifying sources of income appear to be out of date and need to be reviewed and updated in line with the continuous developments on treasury and finance centre activities globally. This is particularly so with regard to the rules for qualifying sources of funding. In addition, the withholding tax exemption for interest payments under the FTC regime should be extended to interest payments on loan notes, bonds, debentures and other debt securities (currently the withholding tax exemption only applies to interest payments on loans). Again, it would be more useful to have a "negative" list rather than a lengthy list of prescribed qualifying activities and sources of funding.
- Mr Rohit Shah, Director of Taxes, Deloitte Singapore

d) For businesses that presently have both income producing and non-income producing assets, the IRAS will disallow the interest expenses attributable to non-income producing assets based on a so called total assets method. The total assets method works on the principle that cash is fungible and total liabilities plus shareholder funds are mobilised to finance total assets and therefore interest expenses should be attributable to income producing and non-income producing assets respectively. In our view, the current tax deduction rule for interest expenses is too narrow and we would suggest the Government considers liberalising it such that so long as the loan/borrowing is used for business purposes (regardless of whether the loan/borrowing is used to fund a taxable income producing asset), full tax deduction should be given to businesses. The suggested tax treatment should also be equally applicable to upfront loan related costs such as facility fee, arrangement fee, etc which are presently disallowed on the grounds that they are capital in nature. Based on our understanding, there are other countries which do not restrict interest expense deductions notwithstanding that the interest expenses may be incurred on borrowings used to fund non-assessable income producing assets. For example, Australia and the UK do not disallow interest expenses on borrowings used to finance investments in foreign subsidiaries notwithstanding that the dividends from such subsidiaries could be exempt from tax.
- Mr Chan Huang Chay, Tax Partner, Deloitte Singapore

e) To extend the Section 13(4) tax exemption for payments for information and digitised goods beyond the current expiring date of 27 February 2013.
- Mr Lee Tiong Heng, Tax Partner, Deloitte Singapore

Personal Income Tax

7) To consider to either remove the need to tax the provision of furniture and fitting (since the tax revenue that can be derived from this benefit is relatively insignificant) or if a tax must be imposed, to establish prescribed rates for either a fully or partially furnished apartment as adopted by the Malaysian Tax Authority. This reduces the administrative burden of having to keep track of often many items of furniture and furnishing that are provided in the rental apartment, and also reduce the time spent to calculate the taxable value.
- Ms Jill Lim, Tax Partner, Deloitte Singapore

8) To consider to extend the period of the Not Ordinarily Resident (NOR) concession from five to 10 years, so that we can encourage foreign talents to take a more macro and long-term view in making Singapore their base. This may also encourage more companies to set up their regional and global headquarters in Singapore since the individual tax regime will be attractive enough to encourage their top talent to relocate to Singapore. In addition, we should consider extending the NOR scheme to Singapore citizens, who currently are not able to benefit from the scheme, especially in respect of the time-apportionment of income concession, although many Singapore citizens are already taking on global and regional roles which require extensive travel outside Singapore. This will not only incentivise Singapore citizens but also encourage more to step up and take on the regional and global roles and also facilitate the transfer of knowledge and the build-up of the local talent pool for the management of regional and global companies.
- Ms Sabrina Sia, Director of Taxes, Deloitte Singapore

Others

9) To consider introducing cooling measures for Certificate of Entitlement (COE) prices for cars similar to measures introduced recently to cool residential property prices.
- Mr Chan Huang Chay, Tax Partner, Deloitte Singapore

10) To consider providing incentives to childcare operators to encourage them to set up business in the financial business district. This would help to encourage mothers with young children to return to the workforce. Rental subsidies could be given to these operators to help defray their business costs.
- Mr Steven Yap, Tax Partner, Deloitte Singapore

For contact details of Deloitte Singapore's Tax Partners and Directors, please refer to Annex A.

Annex A

Contact details of Deloitte Singapore's Tax Partners and Directors

Ajit Prabhu (for business tax matters)
Partner & Head, Tax Services
Telephone: 6530 5522
Lee Tiong Heng (for business tax matters)
Tax Partner
Telephone: 6216 3262
Low Hwee Chua (for business tax matters including productivity and innovation credit scheme)
Tax Partner
Telephone: 6216 3290
Jill Lim (for personal tax matters)
Tax Partner
Telephone: 6530 5519
Robert Tsang (for GST-related matters)
Director of Taxes
Telephone: 6530 5523
Sabrina Sia (for personal tax matters)
Director of Taxes
Telephone: 62163186
Rohit Shah (for business tax matters inclulding financial services)
Director of Taxes
Telephone: 6216 3205
Steve Towers (for international tax matters)
Tax Partner
Telephone: 6216 3227
See Jee Chang (for transfer pricing matters)
Tax Partner
Telephone: 6216 3181
Steven Yap (for mergers & acquisitions, oil & gas matters)
Tax Partner
Telephone: 6530 8018
Bob Fletcher (for customs duty matters)
Director of Taxes
Telephone: 6216 3338
Chan Huang Chay (for Chinese interviews)
Tax Partner
Telephone: 6530 5536
Linda Foo (for Chinese interviews)
Tax Partner
Telephone: 6530 5562

 

Contacts

Name:
Marie Li
Company:
Deloitte Singapore
Job Title:
Marketing & Communications
Phone:
+65 6531 5024
Email
meijli@deloitte.com
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