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Singapore Responds To Income Tax Bill Consultation

by Mary Swire, Tax-News.com, Hong Kong

05 October 2012


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

The draft Income Tax (Amendment) Bill 2012 contains proposed legislation to put into effect the tax changes announced at Budget 2012, as well as other changes arising from the periodic review of the income tax system.

Most of the feedback was received on the enhancement to the Productivity and Innovation Credit (PIC) Scheme, the certainty of non-taxation of gains on disposal of equity investment, the enhancement to the Mergers and Acquisition Scheme, and refinements to the tax deduction regime for donations.

These suggestions will be incorporated into the revised Income Tax (Amendment) Bill 2012. The remaining 23 suggestions were not accepted for implementation as they are inconsistent with the legislative drafting conventions or the policy objectives for the proposed legislative changes.

With regard to the PIC, the MOF clarified that, during the period from 2012 to 2015, the cash payout option is available irrespective of whether the qualifying equipment is paid in full or paid via hire purchase instalments. However, the timing of the disbursement of the cash payout varies.

Where the full cost is paid upfront for the purchase, the amount of cash payout is computed based on the full cost paid, and will be disbursed outright. Where the equipment is purchased under a hire purchase agreement, the amount of cash payout is computed based on the principal amounts paid within the year, and will be disbursed each year until all the instalments are fully paid.

In addition, the provisions of the Bill on the certainty of the non-taxation of gains on disposal of equity investments, which were introduced in the 2012 Budget to facilitate corporate restructuring, minimize compliance costs and enhance Singapore’s attractiveness as a business location, have been augmented by the granting of an option to the taxpayer whether to make use of the tax exemption on qualifying gains derived from the disposal of ordinary shares.

If the taxpayer does not wish to opt for the tax exemption benefit, the tax treatment of the share disposal will be evaluated according to current practice, i.e. the tax authority will determine the tax treatment of the disposal gains based on the facts and circumstances of each disposal.

It will also be added that to qualify for the tax certainty treatment, the ordinary shares must be “directly and beneficially” held by the divesting company, and the law will be amended to make clear that ordinary shares held in trust by nominees would not qualify.

Finally, with regard to the enhancement of the Mergers and Acquisition Scheme, the MOF will make clear that the acquiring company and any number of acquiring subsidiaries may together make a qualifying acquisition, in order to enjoy the Mergers and Acquisition Allowance; and the law will be amended to provide that a 250% charitable tax deduction will be given to donations that are net of the value of the benefit that the donor receives, as it may be difficult to determine the value of intangible benefits, such as naming a school hall after a donor.

TAGS: capital gains tax (CGT) | tax | investment | business | tax incentives | law | mergers and acquisitions (M&A) | equity investment | Singapore | tax credits | ministry of finance | tax authority | legislation | tax breaks | charities | legislation amendments | research and development

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